J.P. Morgan International Finance Ltd v Werealize.com Ltd

Hearing dates: 13–16 and 21 May 2024

Approved Judgment

This judgment was handed down remotely at 14:00 on 13 June 2024 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

Introduction

This judgment relates to a dispute between J.P. Morgan International Finance Limited (“JPM”) and WEREALIZE.COM Limited (“WRL”) arising out of call options granted pursuant to a shareholders' agreement dated 24 January 2022 as amended and restated on 17 August 2022 (the “SHA”) in relation to shares of a Greek fintech company, Viva Wallet Holdings Software Development SA (“Viva”). The Call Options are referred to as the “JPM Call Option” and the “WRL Call Option” respectively.

Both parties have brought proceedings against the other party: JPM had brought a Part 7 claim and WRL has brought a Part 8 claim.

Following a hearing on 22 March 2024, the Court ordered this expedited trial of the issues in the approved list of issues (the “Trial List of Issues”). Expedition was ordered in circumstances where the second Option Exercise Period (as referred to below) starts on 1 July 2024, with valuations to be carried out by party-appointed valuation experts (the “Valuation Experts”) as at 16 June 2024. The expedited trial is, in effect, an amalgamation of the entirety of WRL's Claim and certain issues in JPM's Claim. That Trial List of Issues however has to be read subject to the pleadings and in particular the amendment to paragraph 64.3(b) of the JPM Particulars of Claim. This amendment was sought by an Application Notice dated 7 May 2024 (the “Application”) for permission to amend the Particulars of Claim and the Application was heard on the first day of the expedited trial, 13 May 2024. Permission was granted for this amendment (only) in an ex tempore judgment handed down on the second day of the trial. An amended Defence responding to the amended Particulars of Claim has now been approved by the Court (with certain matters which the Court took the view were not responsive to the amended Particulars of Claim being held over to a future hearing).

An additional issue was raised by WRL on the first day of the trial seeking an amendment to advance a case that the JPM Call Option can only be exercised by JPM on one occasion and not in each of the call option periods (the “One Shot Issue”).

JPM did not oppose WRL advancing this case at this trial (provided that WRL also amended its Part 7 Defence, sets out its argument in opening and that JPM was able to reserve its rights concerning rectification and estoppel).

I accepted that it was in furtherance of the overriding objective that this issue should be dealt with at this trial. In accordance with directions from the Court written supplemental skeletons were filed and oral submissions made on the afternoon of the 5 ^th day of the trial.

Submissions and expert evidence (on the US law issues) on the issues (other than the One Shot Issue) were heard over four days (13 to 16 May 2024).

Both parties were represented by two leading counsel and juniors. Written submissions were filed in advance of the trial and the Court has had the benefit of the oral transcripts of the hearing. I note that JPM's submissions extended to certain issues which are not in their pleaded case and for which permission to amend was refused. Those issues have not been dealt with in this judgment.

After conclusion of the evidence and the submissions on the issues (other than the One Shot Issue) JPM filed additional written submissions on the issue of valuation (Issues 2 and 3 below). WRL opposed such additional submissions being allowed.

The Court declined to accept these further submissions from JPM on the basis that no permission had been sought to file further submissions, the hearing on these issues had completed and in circumstances where the trial was expedited (and thus a judgment was also sought on an expedited basis) it would not be in furtherance of the overriding objective to reopen submissions on this issue. Accordingly the Court has not read the further submissions and they are not dealt with in this judgment.

Background

It is not necessary to set out the history of this dispute in any detail. It is sufficient to note the following by way of background.

WRL is the majority shareholder (currently, as to 51.49%) in Viva and JPM owns the remaining 48.51% of the shares in Viva, having purchased them pursuant to a share purchase agreement between (i) JPM (ii) WRL and (iii) other entities dated 24 January 2022 for a consideration of approximately EUR 809 million (the “SPA”). The sale of shares pursuant to the SPA completed on 16 December 2022.

Viva carries on business directly and through its subsidiaries (together the “Group”) providing a range of financial and payment system solutions to business.

The terms governing the relationship between WRL and JPM as shareholders in Viva are set out in the SHA. Viva became a party to the SHA on 16 December 2022.

The SHA is expressly governed by English law and contains an exclusive jurisdiction clause in favour of the English Court.

The Call option process in Schedule 1 of the SHA gives JPM the right to buy WRL's 51.49% shareholding in Viva at a price to be determined following an expert valuation process.

The JPM Call Option is potentially exercisable in four periods at six-monthly intervals, beginning a year from the closing of the sale under the SPA. For the first three of these periods WRL is not required to accept the call option if the option price is less than a floor valuation of €5 billion for Viva as a whole (as determined by the expert fair market valuation process) (the “Reference Valuation”). If the JPM Call Option is exercised at a price equal to or above the Reference Valuation, WRL is automatically deemed to accept it. However, in the fourth period, which ends on 30 July 2025, the floor price and WRL's ability to reject the option are removed and WRL is automatically deemed to accept the call option if exercised by JPM and must sell its shares to JPM for the relevant percentage of the option price (irrespective of whether the valuation of Viva as a whole is below €5 billion).

If JPM does not exercise its own option in each of the four exercise periods, WRL has the right to exercise its own call option at the same price.

The principal dispute between the parties to date has been the basis for the valuation of the fair market price pursuant to Schedule 1 of the SHA (the “Call Option Fair Market Value”). The dispute first arose in December 2023 in respect of the First Option Exercise Period: on 23 December 2023, WRL's English solicitors, Quinn Emanuel Urquhart & Sullivan UK LLP (“QE”), wrote to Freshfields Bruckhaus Deringer LLP (“Freshfields”) requesting their confirmation that the valuation procedure in Schedule 1 required that Viva be “valued on the basis that upon sale of the JPM Company Shares or WRL Company Shares (as the case may be), Viva's market activities could be lawfully conducted in the US and would not be subject to any restriction under Regulation K”. On 27 December 2023, Freshfields rejected QE's interpretation of Schedule 1.

The relevance of Regulation K to the valuation is an issue which is in dispute and is discussed below. However as a preliminary matter I note that as an “Edge Corporation”, JPM is subject to the rules of the Board of Governors of the Federal Reserve System (the “Federal Reserve”) on international banking operations in Part 211 of Title 12 of the Code of Federal Regulations (“Regulation K”). Under Section 211.6 of Regulation K, Edge Corporations may only engage, directly or indirectly, in activities in the United States that are permitted by Section 25A (6) of the Federal Reserve Act and are incidental to its international or foreign business (the “US Activity Restrictions”). Section 211.8 of Regulation K contains restrictions on the investments and activities of Edge Corporations outside the United States (the “Non-US Activity Restrictions”).

Dispute notices were issued by both parties pursuant to the SHA in relation to a range of issues.

On 31 December 2023, JPM wrote to WRL requesting the appointment of a Third Valuation Expert in view of the fact that the Call Option Fair Market Values as determined by the Valuation Experts were more than 15% apart as per paragraph 3.10(b) of Schedule 1.

WRL's position was that no appointment should proceed in light of the valuation dispute and the Call Option Fair Market Values having been determined on an incorrect premise.

On 5 January 2024, JPM submitted a request to the ICC to appoint a Third Valuation Expert pursuant to paragraph 3.2 of Schedule 1.

Declaratory relief

The primary relief sought in WRL's Claim and JPM's Claim is declaratory relief (although JPM also seeks injunctions in relation to the appointment of the Third Valuation Expert). It is set out at paragraph 64 of the Particulars of Claim in...