In UTB v Sheffield United, the court resolved a dispute between the two shareholders of a company operating a football club. It ordered specific performance so that one shareholder, SUL, had to sell its 50% shareholding to the other, UTB, pursuant to the exercise of a call notice.
The shareholders had entered into an investment and shareholders’ agreement. Under this UTB would inject GBP 10m over two years in return for a 50% shareholding in Blades Leisure, which operates Sheffield United FC. Disagreement followed about the funding of Blades, and both SUL and UTB began considering how to end joint ownership.
SUL acted first by serving a call option notice on UTB, offering to buy UTB’s shares for GBP 5m. The call option permitted UTB, alternatively, to buy SUL’s shares at the same price – an offer UTB took up through a counter notice.
Since the dispute, Sheffield United had been promoted to the Premier League, significantly increasing the value of the shares. SUL sought to terminate the investment and shareholders’ agreement and the contract of sale and purchase which resulted from the counter notice. It argued, among other things, that UTB had breached an implied term of good faith. UTB claimed for specific performance of the sale contract.
The court held that there was no implied term that each of the shareholders were to deal with each other in good faith. It approached this question as a matter of fact (in line with M&S v BNP Paribas) and not as a question of law of determining whether the contract was “relational” as the court in Bates v Post Office recently appeared to do.
On the question of remedies, the court held that damages would not be adequate compensation for UTB not getting SUL’s shares since it would leave UTB deadlocked. The change in value of the Blades’ shares was due to the individual skill of the club’s management (achieving promotion to the Premier League), rather than any additional investment of SUL, so specific performance would not be oppressive to SUL. There was nothing inequitable about enforcing the contract simply because SUL misjudged the risk of UTB serving a counter-notice and the shares later increasing in value.
Although UTB themselves were in repudiatory breach of a separate property call option under the investment and shareholders’ agreement, that did not affect the formation of the contract of sale and purchase of shares via the counter notice.