The High Court was asked to determine whether a “call option”—a legal mechanism allowing one shareholder to force another to sell—was exercised correctly under the terms of a 1999 shareholders’ agreement (SA).
Facts:
The case centres on a legal battle between two siblings, Ms. Langmead and Mr. Andrew, regarding the compulsory buyout of shares in a family-owned property investment company. The dispute is governed by an SA dating from 1999, one which grants Mr. Andrew a call option to purchase his sister’s 47% stake. The company in question had grown significantly since the agreement was signed and currently manages a portfolio of 157 residential and 3 commercial properties.
In May 2024, Mr. Andrew served a purchaser’s notice on his sister to sell to him 108,000 shares in the company, with a disposal date of 31 August 2024. Under the contract, the share price was to be determined by the company’s net asset value, specifically substituting the original book cost of properties with their current market values while deducting estimated sale costs and tax liabilities.
A primary factual contention arose regarding the timing and methodology of the valuation. Although the agreement used the term “projected” interim accounts, the actual financial statements and the resulting share price of £29.15 were not delivered to Ms. Langmead until late September 2024, almost a month after the specified disposal date. Ms. Langmead argued that this delay, combined with the use of modern “fair value” accounting standards (FRS 102) instead of the standards in place in 1999, invalidated the exercise of the option. Further, the siblings disagreed on the level of transparency required by the agreement. Ms. Langmead insisted that she was entitled to receive detailed, itemised valuation reports for every property in the portfolio so she could “interrogate” the final figure. Mr. Andrew countered that the agreement only required a final calculation and that any disagreement should be settled by the company’s auditors acting as experts.
Decision:
The High Court gave a procedural “split” that favoured the brother’s legal interpretation but halted his immediate attempt to finalise the share purchase. While Master Pester dismissed most of Ms. Langmead’s arguments, he ultimately ruled that the valuation process was not yet legally binding.
The Court had to decide whether delivering accounts 24 days after the August 31 disposal date invalidated the notice. The Judge applied the “blue paper” principle from Mannai Investment, which focuses on whether a reasonable person would understand the intent of a given notice. He concluded that the word “projected” did not create a “time is of the essence” requirement. Thus, invalidating the entire process over such a minor delay would be “wholly uncommercial” and “draconian,” especially given that the delay was partly due to the difficulty of finding an auditor both siblings trusted.
The Judge ruled that a contract referring to “audited accounts” must be interpreted as referring to the legal standards in force at the time of the audit. Since FRS 102 now mandates “fair value” reporting for property investments, forcing the company to use 1999 standards would be legally and practically impossible.
Implications:
One of the most significant implications of this case is how the Court handles the tension between old contractual language and new statutory accounting requirements. For directors of private companies, this confirms that their statutory duty to prepare accounts in accordance with current law (such as FRS 102) takes precedence over an over-literal interpretation of an old SA. Thus, a company cannot be forced to use accounting standards that are no longer recognised by the profession.
The case reinforces the Court’s reluctance to interfere in valuation disputes where the parties have agreed to an “expert determination” clause. By defining the word “calculations” broadly, the Court ensured that the auditors—not the judges—remain the final arbiters of the share price. This underscores the effectiveness of alternative dispute resolution (ADR) clauses in SAs. Unless there is evidence of bad faith or a total departure from instructions, the Court will treat the auditor’s “broad remit” as near-absolute. This mechanism prevents shareholders from using the Court to “second-guess” a professional valuation.
While the Court supported the majority’s right to exercise the call option, it nonetheless set a strict boundary on how that power may be triggered, thereby protecting minority shareholders. Even if a contract does not explicitly state that the minority can make representations to the auditor, the Court may find that such a right is necessary for the process to be binding. This ensures that the minority’s concerns, for instance, market valuation vs. fair valuation, must be heard before they are forced out.
