JP Morgan International Finance Ltd v WeRealize.com Ltd

Factual and Procedural Background

The case concerns a dispute arising from a shareholders' agreement ("SHA") between two shareholders, Company A and Company B, in a Greek fintech company ("The Group"). The SHA grants call options to each shareholder to purchase the other's shares. The dispute centers on the interpretation and operation of these call options, particularly the option granted to Company B, and the valuation of shares in the context of US regulatory restrictions under Regulation K applicable to Company B as an Edge Act Corporation.

The procedural history includes preliminary issues determined by a prior judgment of Judge Moulder DBE after an expedited trial. The current appeals challenge the interpretation of the call options, the valuation methodology considering Regulation K restrictions, and the appropriateness of a declaration on US law made by the lower court.

Company A is the majority shareholder (51.49%) and Company B owns the remaining shares (48.51%) following a share purchase agreement completed in December 2022. The SHA governs their relationship and contains provisions for call options exercisable in specified periods, with valuation determined by expert valuers and potentially a third valuer appointed by the International Chamber of Commerce (ICC) in case of disagreement.

The parties disagree on whether the call option granted to Company B is exercisable once only or multiple times, how Regulation K affects the valuation of shares, and procedural issues relating to the appointment of the third valuation expert and the issuance of declarations on US law.

Legal Issues Presented

1. Whether the call option granted to Company B is exercisable once only ("One-Shot") or once in each option period ("Multi-Shot").
2. Whether the valuation of shares should disregard restrictions imposed by US Regulation K on Company B's business activities.
3. Whether the lower court was entitled and it was appropriate to make a declaration regarding Company B's status under US Regulation K law.
4. When the third valuation expert is to be appointed under the SHA.
5. Whether there is a condition precedent to the appointment of the third valuation expert related to manifest error in party valuations.
6. Whether Company A breached any obligation to appoint a third valuer.
7. Whether the option exercise periods should be extended due to delays in appointing a third valuer.

Arguments of the Parties

Appellant's Arguments (Company A)

• Company A argues that the call option is exercisable only once ("One-Shot"), meaning that once notice is served, the option is exercised and cannot be exercised again in subsequent periods.
• They contend that the valuation of shares should be conducted on the assumption that Regulation K restrictions do not apply to the business, as the hypothetical sale would not necessarily involve a buyer subject to such restrictions.
• Company A disputes any implied term requiring consent to financial projections that include activities restricted by Regulation K.
• They maintain that the third valuation expert should only be appointed after party valuations differ by more than 15%, not at the outset.
• Company A contends there is no condition precedent related to manifest error for the appointment of the third expert.
• They deny breach of obligation by Company B in relation to appointment of a third valuer, noting the SHA provides a mechanism via the ICC for appointment if parties cannot agree.
• Company A argues no extension of option exercise periods is warranted due to ICC delays.

Appellee's Arguments (Company B)

• Company B contends the call option is exercisable multiple times ("Multi-Shot"), meaning notices that do not result in binding contracts do not exhaust the option.
• They argue the valuation should disregard Regulation K restrictions, requiring valuers to ignore financial impacts arising from those restrictions.
• Company B supports the judge's implied term that Company A cannot reasonably withhold consent to financial projections that include activities restricted by Regulation K.
• They support the appointment of the third valuation expert only after party valuations differ by more than 15%.
• Company B argues that manifest error allegations do not prevent appointment of the third expert.
• They argue that Company A is in breach by refusing to agree to the third valuer and objecting to ICC appointment.
• They suggest that delays in appointment should extend option exercise periods.
• Company B challenges the appropriateness of the declaration on US law.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by considering the interpretation of the call option exercise provisions. It analyzed whether "exercise" meant mere service of notice or the creation of a binding contract for sale. The court found that the term "exercise" was used inconsistently in the SHA but, on a holistic reading and commercial common sense, the option was exercisable multiple times unless a binding contract arose. However, the court allowed the appeal on this point, concluding that the "One-Shot" interpretation, where exercise occurs upon service of notice, was compelled by the contract's language.

Regarding valuation and Regulation K, the court applied the established "reality principle" from valuation law, which requires valuers to assess value as things stand, considering actual legal and regulatory constraints. The court disagreed with the lower court's conclusion that valuers should disregard Regulation K restrictions and held that the valuation must take into account the constraints imposed by Regulation K, as they affect the asset's operational capabilities and thus its value.

The court examined the valuation provisions in detail, noting that financial projections and historical data must reflect the Group's actual performance under Regulation K constraints. It rejected arguments that valuers could ignore these restrictions or that implied terms required Company B to consent to projections ignoring Regulation K.

On the appointment of the third valuation expert, the court agreed with the lower court that the third expert is appointed only if party valuations differ by more than 15%. It rejected the argument that the third expert must be appointed at the outset. The court also held that no condition precedent exists requiring absence of manifest error before appointment; manifest error allegations do not preclude appointment.

Regarding breach allegations, the court found no enforceable obligation on Company B to agree to a third valuer appointment, as the SHA provides a mechanism via the ICC if parties cannot agree. Therefore, no breach arose from Company B's refusal to agree.

On the declaration concerning Company A's status as a subsidiary under Regulation K, the court recognized the discretionary nature of declarations and found the declaration served a useful purpose in clarifying the legal position between the parties. The court rejected arguments that the declaration was inappropriate due to absence of Company A or the foreign regulator, noting it binds only the parties before the court and does not bind the regulator or Company A itself. The court also rejected the argument that the matter was non-justiciable, affirming the court's jurisdiction to interpret foreign statutory definitions.

Holding and Implications

The court made the following core rulings:

• Allowed the appeal on the call option exercise issue, adopting the "One-Shot" interpretation that the option is exercised upon service of notice.
• Allowed the appeal on the Regulation K valuation issue, holding that valuers must take into account Regulation K restrictions when valuing the shares and overturning the lower court's contrary declaration.
• Dismissed the appeal against the declaration concerning Company A's subsidiary status under Regulation K, affirming the declaration's appropriateness and utility.
• Dismissed the appeal concerning the timing of appointment of the third valuation expert, agreeing the appointment occurs only after party valuations differ by more than 15%.
• Allowed the appeal concerning the condition precedent for appointment of the third valuation expert, holding no such condition exists regarding manifest error.
• Dismissed the appeal alleging breach by Company B in relation to third valuer appointment.
• Dismissed the appeal seeking extension of option exercise periods due to delay in third valuer appointment.

Implications of the decision include clarification that the call option is exercised once upon notice, impacting the timing and strategy of exercising rights under the SHA. The valuation must realistically reflect regulatory constraints, affecting share price calculations. The declaration on foreign law is confirmed as a permissible and useful judicial tool in disputes involving foreign statutory interpretations. No new precedent was set beyond the application of established principles of contract interpretation and valuation law.