Al Sanea v Saad Investments Co Ltd (2012)
On the correct interpretation of a put option agreement there was no basis upon which the respondent could be entitled to exercise a put option in respect of shares it did not own.
The appellant (D) appealed against a decision ( EWHC 2584 (Comm)) refusing to set aside an order giving the respondent (C) permission to serve out of the jurisdiction proceedings under a put option agreement.
D was a national and resident of Saudi Arabia. C was a company incorporated in the Cayman Islands, created to hold some of the off-shore assets of D and his family. C was in insolvent liquidation. The parties had entered into a put option agreement, subject to English law and jurisdiction, in respect of 32 million shares held by C in a listed company. D granted to C an option to sell the shares to him at a particular price. It appeared that the purpose of the agreement was as a hedge to support the value of the shares as an asset of C. The option was to be exercised by delivery to D of a put option exercise notice. The sale of the shares would then take place at the put option closing when D could pay the put option price and receive a transfer of the shares, or C could opt to receive the difference between the put option price and the market price in cash. C's case was that it had served such a notice and had elected to receive the cash differential with the result that D was indebted to it in an amount in excess of £57 million. By the time of service of the notice and closing, the vast majority of the shares had been disposed of by C. The judge nevertheless held that C could show a reasonable prospect of success on its claim to be entitled to the cash differential despite the fact that it no longer owned the shares.
D submitted that on the proper interpretation of the put option agreement there was no basis upon which C could be entitled to exercise a put option in respect of shares it did not own; the cash differential was not free-standing, but was an alternative to sale and transfer of the shares.
The wording of the agreement plainly contemplated a sale of the shares, with the entitlement to the cash differential as an alternative. The latter was not an independent obligation. The contractual language indicated that C was not entitled to exercise the put option in respect of shares it did not own. That conclusion was supported by the commercial context, since the purpose of the agreement was to support the value of the shares as an asset of C. C did not have a sufficiently arguable case to justify service of the proceedings out of the jurisdiction. The case had been differently argued before the judge. He did not approach the matter on the basis that he should determine the case on his own view, on the available information, of the correct construction of the agreement. It was right and necessary to decide the appeal on the basis of the true construction of the agreement. The appeal court was in a position to do so, and the right answer was that for which D contended (see paras 33-46, 52, 59).