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The recent case of United Co Rusal Plc v Crispian Investments Ltd (which indirectly involved Roman Abramovich, amongst others) was a useful confirmation that an appropriately drafted right of first refusal (contained in a shareholders’ agreement) will be difficult to circumvent.
The case concerned an attempt by connected shareholders to force a right of first refusal to be triggered by one shareholder selling to the other shareholder at an inflated price, in order to force a third shareholder to exercise its right of first refusal at the inflated price. There was also a separate agreement where further shares would be sold at a discount so that the overall price for the connected shareholder would be averaged out at closer to the market value.
The right of first refusal in question, which was contained in a shareholders’ agreement, stated that "if Crispian sells any number of […] shares… Crispian shall grant… the right of first refusal to buy the shares being so disposed of" and that "the share price, at the discretion of Crispian, shall be equal to the price proposed by a bona fide third-party purchaser [or the Market Price]". The key points in the judgement relates to the interpretation of these provisions.
The court found, first, that the wording "if Crispian sells" must mean that Crispian should have actually entered into a binding contract to sell. In order for this to work this would need to be a conditional contract for sale in order to allow the right of first refusal to operate. It was not the same as forming an intention to sell. The second key point is that a "bona fide purchaser" will not include one of the other shareholders in the company, particularly in circumstances where there is a separate agreement relating to the other shares which means that the shares being offered under the right of first refusal are at an inflated price. It is also interesting that the case was not decided on the basis of any impropriety but purely on the basis of contractual interpretation, which was sufficient to provide protection to the third shareholder who had been offered the shares at the inflated price.
This judgement shows the importance of having a well drafted shareholders’ agreement. Any right of first refusal will need careful consideration at the time of drafting and negotiating the shareholders’ agreement to ensure that the intention of the parties is captured appropriately. If you require any advice in relation to shareholders’ agreements, please do not hesitate to contact our expert team on 0161 941 4000 or by email firstname.lastname@example.org.