The English courts have considered a number of recent cases concerning the interpretation of share purchase agreements, shareholders' agreements and articles of association in the context of private M&A transactions.

In Ipsos SA v Dentsu Aegis Network Limited ([2015] EWHC 1171 (Comm)) the High Court held that the contents of certain letters delivered by the buyer to the seller did not satisfy the notice requirements set out in the share purchase agreement for the bringing of a warranty claim. Subsequently, in Ipsos SA v Dentsu Aegis Network Limited ([2015] EWHC 1726 (Comm)), the High Court rejected the buyer's attempt to rely on a 'material adverse effect' clause to terminate the agreement on the basis of a downward revision to profit forecasts relating to the target. However, the buyer succeeded in persuading the court that there was an arguable case that weak financial performance by the target could trigger such provisions.

In In the matter of Charterhouse Capital Limited ([2015] EWCA Civ 536) the Court of Appeal dismissed a shareholder's claim that the exercise of drag provisions in a company's articles of association to purchase his shares in the context of a sale of the company was unfairly prejudicial to him in his capacity as shareholder.

Ipsos v Aegis

The buyer purchased a worldwide market research business from the seller. After completion of the transaction, the buyer sent two letters to the seller notifying it of a number of third-party claims brought against the buyer relating to the target and providing details of such claims. The relevant share purchase agreement provided for a two-year limitation period for warranty claims; the letters from the buyer were sent to the seller before this period expired.

The High Court noted that the letters did not state that they were warranty claim notices. In fact, the first letter stated that it was not a warranty claim notice. Neither letter specified in reasonable detail the matter which gave rise to the warranty claim or the nature of the warranty claim. As this was required by the share purchase agreement, the court held that these letters did not constitute warranty claim notices for the purposes of the agreement. Further, the court held that as the two-year limitation period had passed and no warranty claim notice had been served, the buyer was time barred from making the relevant warranty claim.

In a subsequent case, the buyer claimed that under the share purchase agreement, the seller should have notified the buyer of certain material adverse events which occurred between signing and closing of the transaction. The buyer asserted that if it had known about such events, it would have terminated the share purchase agreement in accordance with its terms. The buyer argued that two material adverse events had occurred during this period:

  • The performance of the target for this period was worse than expected; and
  • The target's profit forecasts during that period were revised downwardly.

The seller applied to the High Court to strike out the buyer's claim, contending that there was no arguable case that the relevant provisions in the share purchase agreement had been triggered.

The court adopted a narrow interpretation of the definition of 'material adverse event' in the share purchase agreement. The court held that such an event is "an act or omission or the occurrence of a fact, matter, event or circumstance affecting [the target] giving rise to... a material adverse effect on the business" of the target. Specifically, the court held that a revised forecast did not fall naturally within the words "act or omission or the occurrence of a fact, matter, event, or circumstance". The court also considered that it was tenuous to say that a revised forecast would have a material adverse effect on the target's business, in that it would normally be what underlies the revised forecast which would have such effect. In addition, the court took into account the buyer's acknowledgement in the share purchase agreement that the seller would not be giving a warranty on the accuracy of any forecasts and noted that allowing the buyer to argue that such revision would constitute a material adverse effect would conflict with the commercial agreement of the parties. The court, however, held that there was an arguable case that the material adverse effect clause would be triggered by the company's financial performance, as that would fall within the scope of the relevant definition.

Charterhouse Capital

The petitioner was a director and founding shareholder of a company which carried on a private equity business. The company was formed after a management buy-out in 2001. The petitioner retired as director in 2008, but retained his shares in the company.

Over time, a number of the founding shareholders left their management positions with the company. Certain senior executives of the company became concerned that such a mismatch between shareholders and active executives of the company would cause difficulty with investors when raising funds. To address this, a vehicle controlled by certain shareholders made an offer to purchase all of the shares in the company. The offer price was set by the active executives, having regard to previous transactions and their views on what would be an acceptable price for both the buyer and shareholders. All of the shareholders – other than the petitioner – accepted the offer and signed a written resolution to amend the company's articles of association. All of the shares in the company (other than the petitioner's shares) were transferred to the buyer shortly thereafter. Subsequently, the buyer proposed to exercise the drag provisions in the company's amended articles of association to acquire the petitioner's shares.

The petitioner claimed that the buyer's offer and the amendment of the company's articles of association were carried out improperly in order to expropriate his shares at a gross undervalue, and that this constituted unfairly prejudicial conduct under Section 994 of the Companies Act 2006. The High Court dismissed his petition and the petitioner appealed to the Court of Appeal.

The petitioner argued that the company's articles (before their amendment) and the related shareholders' agreement did not provide the majority shareholders with the ability to expropriate any minority shareholder's shares; rather, they operated only to compel minority shareholders to sell their shares to a genuine third-party purchaser. The court rejected this argument, holding that its reading of the company's articles and related shareholders' agreement was that they clearly permitted the action that had been taken. The court held that the amendments to the company's articles were to make them clearer and more consistent with the related shareholders' agreement; on that basis, the action that had been taken did not amount to unfair prejudice. The Court of Appeal also noted that the High Court had accepted the evidence of the company's other shareholders that the purpose of the sale to the buyer and the amendments to the company's articles was to resolve the alignment issue as between shareholders and active executives, and considered accordingly that the other shareholders were acting in the best interests of the company. For these reasons, the court held that there was no unfair prejudice.


These cases serve as a useful reminder that in the event of a dispute in the context of a private M&A transaction, the outcome of the dispute will normally turn on the wording of the relevant contractual provision, and that the English courts will adopt a strict interpretation of such provisions on the basis that they have been commercially negotiated between sophisticated parties.

Ipsos v Aegis is an important reminder that notice requirements for the bringing of claims and the limitation periods in a share purchase agreement should be followed closely. When negotiating and agreeing such provisions, it is important to ensure that the drafting is as clear and precise as possible to reduce the likelihood of a dispute between the relevant parties as to whether the applicable requirements have been met. In addition, Ipsos v Aegis provides helpful insight into how the English courts interpret a material adverse effect provision in the context of private M&A transactions.

Charterhouse Capital reinforces the need for shareholders to consider whether amendments to a company's articles – as proposed by directors on the company's board – are in the best interests of the company, and to have in place good evidence to establish this to resist any attempt by minority shareholders to argue that such amendments are unfairly prejudicial. In this case, the Court of Appeal's judgment ultimately turned on the fact that the trial judge had concluded on the evidence that the sale was in the best interests of the company. This case also illustrates the difficulty in bringing a successful unfair prejudice claim and the need for minority shareholders to negotiate protections for themselves in a company's articles of association and any shareholder agreement (if practicable), rather than relying on the ability to bring a statutory claim to protect their interests.

For further information on this topic please contact Will Pearce or William Tong at Davis Polk & Wardwell London LLP by telephone (+44 20 7418 1300) or email ( or The Davis Polk & Wardwell website can be accessed at

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.