When put options go wrong: lessons in contractual clarity

The High Court has granted summary judgment in favour of the beneficiary of a put option agreement, despite the defendant’s argument that its performance was conditional on obtaining regulatory approval. The case offers a reminder of the principles the court will apply when interpreting commercial contracts and considering whether to imply terms particularly in the context of put options.

Background

The case of Columbia Pictures Corporation Ltd v Wanda Kids Cultural Development Co. Ltd [2025] EWHC 1895 (Comm) involved Columbia Pictures Corporation Limited, a UK company, and Wanda Kids Cultural Development Co., Limited, a Hong Kong company.

Under a 2017 option agreement, Columbia (as assignee of the original seller) had the right to require Wanda to purchase a 49% shareholding in an entertainment company for a minimum price of $49 million. In October 2021, Columbia exercised the put option and elected to receive cash payment rather than shares.  

Wanda refused to pay, arguing that its obligation to perform the put option (and thereby pay the purchase price) was conditional upon first obtaining regulatory approval from the relevant Chinese authorities, which it said was not (and could not be) obtained. Columbia brought a claim against Wanda given its failure to perform its obligation under the option agreement.

The central issue in dispute was whether Wanda’s obligation to perform and complete the put option was conditional upon the grant of the regulatory approvals. The relevant clauses provided that:

“2.2 The consideration for the exercise of the Put Option shall be payable, at the sole discretion of SGHL, either as (a) cash in US Dollars to an account nominated by SGHL or (b) where law and regulation permits, the issue and allotment of Quotation Shares in the Quotation Entity representing 49% of the Quotation Percentage... (the “SGHL Put Election”)”

“2.7 Wanda will and/or will procure that the Company or Quotation Entity will (as applicable) apply to the relevant exchange or body for the admission of and grant of permission to deal in any shares allotted pursuant to any exercise of the SGHL Put Election in the relevant exchange and Wanda will and/or will procure that the Company or Quotation Entity will (as applicable) use its best endeavours to obtain such grant of permission and admission not later than 14 days after receipt of any notice of the SGHL Put Election...”

In defending the claim, Wanda relied on what it said was the true construction of the agreement and, in the alternative, on an implied term. Columbia applied for summary judgment, asserting that Wanda’s defence had no realistic prospect of success.

Judgment

In determining whether to grant summary judgment, Sir Nigel Teare (sitting as a Judge of the High Court) considered:

1. Whether the contract, properly interpreted, made Wanda’s obligation to pay conditional on obtaining regulatory approval.
2. Whether such a condition should be implied into the contract, even if not expressly stated.

Construction

Wanda asserted that, on its true construction, clause 2.7 of the option agreement rendered its obligation to pay the sale price conditional upon regulatory approvals, and in circumstances where those were not obtained, and could never be obtained, it followed that Wanda’s obligation to pay the sale price had not accrued. 

Columbia contended that the ordinary and natural meaning of the words in clause 2.7 did not support that construction, and that clause 2.7 only applied if Columbia were to elect to receive shares (rather than cash) as consideration.

Applying the usual principles of contractual construction under English law, the court decided that there was no realistic prospect of Wanda succeeding on its defence, and that the option agreement did not make payment conditional upon regulatory approval. The relevant clause only referred to regulatory permission in the context of issuing shares as consideration, not cash payments. The contract had been carefully drafted by commercial lawyers instructed by sophisticated business people and, where the parties intended a condition to apply, this was made explicit. Accordingly, the judge concluded that a reasonable person with the background knowledge alleged by Wanda would understand clauses 2.7 and 2.2 of the option agreement to have the meaning for which Columbia contended. 

Implied Term

In the alternative, Wanda argued that there should be a term implied in the option agreement that its obligation to perform and complete the put option was subject to and conditional upon the grant of regulatory approval. Counsel for Wanda submitted that, given the background facts that would be known to a reasonable person in the position of the parties at the time they were contracting, such a person would have concluded (1) that without the implied term, the option agreement would lack commercial or practical coherence and (2) that the implied term was so obvious as to go without saying.

The court disagreed, holding that the option agreement was a detailed and carefully drafted contract, and to imply the suggested term would contradict the parties’ allocation of risk in that contract. The court also held that a reasonable person in the position of the parties at the time they were contracting would not have said that the suggested implied term was so obvious that it goes without saying.

Accordingly, there was no realistic prospect of Wanda succeeding on its defence based upon the suggested implied term.

Comment

This decision is a clear warning to parties negotiating put and call option agreements: if you want performance to be conditional upon certain factors (including obtaining regulatory or governmental approval), this must be set out expressly in the contract.   

It also underscores the English court’s strict approach to contractual interpretation, particularly where the contract has been carefully drafted by commercial lawyers instructed by sophisticated parties. Courts will not readily imply terms or conditions unless these are expressly set out or are truly necessary to give business efficacy to the agreement. Where the parties have allocated risk in the contract, the courts will be slow to disturb that allocation by implication.

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