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Commercial Court considers meaning of an obligation to “act reasonably”

Following a 5 week trial in late 2023, the Commercial Court has today dismissed claims that the African banking group Atlas Mara Limited acted unreasonably following its purchase of Finance Bank Zambia (“FBZ”), one of the biggest banks in Zambia: Mahtani & Others v Atlas Mara Limited & Another [2024] EWHC 218 (Comm).

Atlas Mara acquired FBZ from Dr Rajan Mahtani on terms which required him, after completion, to appoint a “Fund Raising Agent” for FBZ’s subsidiaries and entitled him to valuable earn out payments if funds were raised and deployed.  The SPA provided that the Fund Raising Agent must be an agent “mutually acceptable to Dr Mahtani and Atlas Mara (acting reasonably)”. 

In construing the clause, Mr Justice Butcher applied, in this commercial context, principles established in landlord and tenant cases about obligations on a party ‘not unreasonably to withhold consent’.  He concluded that Atlas Mara:

  • Only had to act reasonably in relation to agreeing or not agreeing to an agent nominated by Dr Mahtani;
  • Would not have acted reasonably if it had no reasons or irrelevant reasons; but
  • Did not have to show that its refusal was right or justified, only that it fell within the range of reasonable responses which a reasonable person in its position might have adopted; and 
  • Was entitled to have regard to its own interests. 

As a result, Dr Mahtani’s case that the clause imposed extensive obligations was rejected.  On the facts, it was held that Atlas Mara had acted entirely reasonably in declining to agree to Dr Mahtani’s nominated agent whilst that agent was engaged in another role which created a conflict of interest.  In any event, the Court comprehensively rejected Dr Mahtani’s case on causation and quantum. 

Mr Justice Butcher also dismissed Dr Mahtani’s other claims, including a claim that he had a right to buy a subsidiary, Finance Building Society, owned by Atlas Mara.

The SPA provided that Dr Mahtani “shall purchase or procure the purchase by a third party of the Building Society” by a particular date.  The Court rejected Dr Mahtani’s contention that his apparently unfettered purchase right also allowed him to determine the price (thereby allowing him to acquire that asset for just 1 Zambian Kwacha).  Rather, in context, the provision meant that, after marketing and negotiation, the asset should be sold for the best achievable sale price, whether to Dr Mahtani or a third party. 

Moreover, even if Dr Mahtani had had the contractual right alleged, it was not engaged.  He purported to exercise the right but without sending to Atlas Mara a draft SPA containing the proposed terms (a matter about which his own evidence - that he had asked his cook to courier the document - “falsely represented” the true position), and he had not obtained regulatory approval for the acquisition by the deadline (as to which his case was “implausible”).

Anna Boase KC and Richard Mott were instructed by James Cater and Tom Laidler of DLA Piper UK LLP for the successful defendants.