Summary

A notice purportedly exercising a put option was not a valid notice in terms of the put option agreement.

Facts

The applicant (D) applied to set aside orders for service out of the jurisdiction and alternative service, the service that took place pursuant thereto and judgment entered in default. The respondent (C) was a bank incorporated in Bahrain which had gone into administration. D was the chairman and controlling mind, and owner of 47 per cent of the shares, of C prior to its administration. D as seller and C as buyer had entered into a put option agreement in relation to 44 million shares in a publicly quoted bank. Under the agreement D granted to C an option to sell the shares to D at a strike price of £9.2775 per share. The put option could be exercised by service of a notice specifying the number of shares being sold, the amount payable at the put option closing, as defined, and the put option closing date, which unless otherwise agreed was 14 days after service of the notice. At the put option closing C had the option to receive as payment from D the difference between the put option price and the price listed on the put option closing on the exchange on which the shares were customarily listed. C purported to give notice exercising the option in respect of 44 million shares "at yesterday's closing price of GBP 5.149713" per share and requesting payment of the option settlement amount, being the difference between that price and the option strike price in respect of 44 million shares. D did not pay and C issued proceedings and obtained permission to serve them out of the jurisdiction and for alternative service. D submitted that there was no serious issue to be tried in respect of C's claim because the option exercise notice was invalid.

Held

(1) A valid notice would have to specify that, in respect of 44 million shares, D was obliged to pay a sum representing the difference between £9.2775 per share and the price listed on the London Stock Exchange on the 14th day after the date of the notice. However, the notice did not do that. It stated that C was exercising or had exercised the option that day or the previous day ("yesterday") and specified the closing price on that day and the difference between that price and the strike price. That bore no relationship whatever to a notice in accordance with the agreement: the put option closing had already impermissibly occurred, as opposed to occurring at the put option closing date, 14 days after the date of the notice, and the settlement amount sought was not calculated in accordance with the agreement. It did not matter that notices in those terms had been accepted by D under previous agreements. The notice was not one containing errors which could be ignored or overridden when construed against the background of the terms of the agreement and which would nevertheless have remained comprehensible to a reasonable recipient: it was not a notice pursuant to the agreement at all, Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd (1997) AC 749 HLconsidered. Therefore there was no serious issue to be tried, and the permission to serve out, together with the resultant service and entry of judgment in default, were set aside.