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England and Wales High Court (Chancery Division) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Eclairs Group Ltd & Anor v JKX Oil & Gas Plc & Ors [2013] EWHC 2631 (Ch) (30 August 2013) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2013/2631.html Cite as: [2013] EWHC 2631 (Ch), [2014] Bus LR 18, [2014] 1 BCLC 202, [2013] WLR(D) 373, [2014] BUS LR 18 |
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CHANCERY DIVISION
Fetter Lane, London, EC4A 1NL |
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B e f o r e :
____________________
ECLAIRS GROUP LIMITED and GLENGARY OVERSEAS LIMITED |
Claimants |
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| - and - |
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| JKX OIL & GAS PLC and others |
Defendants |
____________________
Mr Andreas Gledhill and Mr Paul Sinclair (instructed by Locke Lord (UK) LLP ) for
Glengary
Overseas Ltd
Mr Michael Swainston QC and Mr Tony Singla (instructed by Allen & Overy LLP) for JKX Oil and Gas plc
Hearing dates: 23rd-26th July, 29th July, 1st August 2013
____________________
Crown Copyright ©
The Honourable Mr Justice Mann
Introduction
Glengary
Overseas Limited ("
Glengary
", together "the claimants"). Mr Mabb QC led for Eclairs, Mr Andreas Gledhill led for
Glengary
and Mr Swainston QC led for the company.
Glengary
who, it was feared, sought to destabilise the company by replacing senior management and obstructing necessary fund raising processes with the ultimate aim of acquiring the company at less than its proper value. The board, or the principal executive directors, served a notice under section 793 of the Companies Act 2006 ("the Act") and article 42 of the company's Articles of Association seeking disclosure of interests in shares. When the responses came in the board considered the responses to be materially inaccurate and served restriction notices imposing restrictions which prevented the voting and transfer of the Eclairs and
Glengary
shares. This occurred some 6 days before the AGM of JKX. The company's annual general meeting was scheduled to take place on 5th June. It was known that Eclairs and
Glengary
would be likely to oppose certain ordinary and special resolutions, and while it was not clear whether their votes would be crucial to the fate of the ordinary resolutions, it was clear that the special resolutions would not be passed if Eclairs and
Glengary
voted against them. The effect of the restrictions would have been to prevent them from voting and thus giving effect to their opposition. Immediately on receiving the notices Eclairs, and then
Glengary
, sought interim relief in advance of that meeting, challenging the validity of the restrictions. The result of that application was an order of David Richards J, incorporating undertakings by the company, which created a regime under which the AGM could go ahead and Eclairs and
Glengary
could vote their shares, but there would be no declaration as to the effect of the votes on the resolutions pending this trial, and the effectiveness of that vote would depend on the success or otherwise of the attack on the restrictions. When the meeting took place and the votes were ultimately cast, the ordinary resolutions were carried and the Eclairs/
Glengary
votes would have made no difference; but the special resolutions would have been affected – they would be carried if the Eclairs/
Glengary
votes are disallowed, but lost if they are allowed. David Richards J ordered a speedy trial of the matter, and thus it arrived before me.
(a) The preceding notices are said to be invalid because, in various respects, they do not comply with the Articles and/or the statute.(b) The directors were not entitled to impose the restrictions because they did not have reasonable cause to believe that the responses to the notices were inadequate.
(c) The directors acted for an improper purpose in imposing the restrictions.
(a) Whether, even if the article 42 notices were invalid, the recipients were estopped from so asserting by reason of their responses to the notices.(b) Whether the restriction notices were invalid for failing to contain a particular reference to the power of the directors to remove the restrictions.
(c) Whether certain non-disclosure on the part of the Claimants has the effect that undertakings given by the company at the interim application should be treated as discharged with the effect that the result of the vote can be treated as being what the company contends it to be.
(d) Whether Eclairs and
Glengary
, who are each beneficiaries behind nominees (the latter being the registered holders of the shares) are entitled to bring this claim (as opposed to the nominee shareholders).
Companies, individuals behind them, structures and shareholdings
Glengary
's interest to 11.45%. Those interests are held behind a wall of nominees and the ultimate individuals behind those groupings are as follows:
Glengary
(or of 95% of it).
The structure of the holdings giving the claimants their interests
Glengary
is the vehicle of Mr Zhukov. It is said to be a beneficiary under nominee arrangements covering its shares, passing through Lynchwood Nominees Ltd (which is registered as shareholder) and further nominees. The "ultimate beneficial owner" (the expression used by Mr Ratskevych, who gave evidence for
Glengary
on the point) of 95% of the shares in
Glengary
is Mr Zhukov. Mr Ratskevych himself is the beneficial owner of the other 5%.
Glengary
) in time. So these proceedings were started by the beneficial owners, joining some or all of the intervening nominees as defendants. This gives rise to the locus standi point to which I have referred above.
Witnesses
Mr Michael Bakunenko
Mr Oleksandr Ratskevych
Glengary
. He gave evidence about the circumstances in which he was proposed as a director of JKX, a conversation he had with Dr Davies and one or two other events in mid-2013. He came across as a careful witness who wanted to give clear evidence.
Mr Graham Spitz
Glengary
. He provided 2 witness statements (one of them correcting the other) about the circumstances in which it was suggested that
Glengary
might like to purchase a further parcel of shares in JKX (owned by a company called Naftogaz) in April 2013. He was not cross-examined on his witness statements.
Dr Paul Davies
Mrs Cynthia Dubin
Mr Nigel Moore
Lord Oxford
Glengary
in this case. He was a careful, measured and reliable witness.
Mr Alastair Ferguson
Mr Dipesh Shah
Mr Martin Miller
Mr Richard Murray
Mr Peter Dixon
The facts leading to the restriction notices
Glengary
in 2004, and by June 2006 he had acquired over 32,300,000. In around December 2006, in an off-market transaction, Mr Kolomoisky acquired about half of that stake through Ralkon, one of his vehicles. That gave him about 12.5% of the share capital in JKX.
Glengary
owned just under 11.5%.
Glengary
also opposed the proposals in 2010, and Mr Ratskevych said it was probable that that was after a discussion between
Glengary
and Ralkon. However, its proxy form was faulty, so its vote was not counted. In 2011 and 2012
Glengary
did not seem to vote on the proposals.
Glengary
held over 19m. On 4th March Ralkon (through one of its nominees) made an unforeshadowed query as to how it could requisition an extraordinary general meeting. Mrs Dubin queried this, and 3 days later the company was told to disregard the question. On the same day (7th March) the company received notification that Ralkon had transferred its entire holding to another person, but that person was not identified. Dr Davies's inquiries of Mr Novikov as to who that other party was were met with the statement that that information would be given in due course when it was required. He also described the process of transfer as a "formal" one. On this occasion Mr Novikov was unusually reticent. The company issued a section 793 notice requiring the identity of the purchaser but before it was answered the company was informed that the purchaser was Eclairs, whose shares were held in trust for Mr Kolomoisky. The company was therefore told to ignore the notice.
"whatever is possible to defeat this proposition as I am certain JKX needs your leadership and knowledge more than ever at this critical time …"
to which Mr Dixon responded:
"Let battle commence!".
Glengary
's objective was apparently to get the share price above £3. Mr Ratskevych was unable to confirm quite all of this detail, but I find that Dr Davies's account was accurate.
Glengary
, along with the other two individuals put forward for director positions in the section 303 notice. A notice was not sent to Mr Kolomoisky because the company did not have an address for him and a notice sent to Trival Ltd did not get there because the courier was refused access to the building to which it was sent.
Glengary
shareholdings was one owned by a concern known as Naftogaz. Those shares were in fact subject to a form of charge in favour of a judgment creditor, and on 22nd March, as reported on 23rd March, Dr Davies heard that that creditor's solicitors were apparently seeking to place the shares on their client's behalf. Dr Davies reflected on the desirability of placing those shares with a friendly investor, because such a significant block of shares could make all the difference when it came to voting at a general meeting.
Glengary
. In his evidence Dr Davies expressed surprise that this had not been disclosed earlier, in 2007. On that occasion, because JKX was purchasing an asset from Mr Zhukov (who had more than 25% of the shares at the time) the company had issued a request for information in relation to the filing of a Class 1 Circular, seeking information as to the nature and extent of the interests of Mr Zhukov and
Glengary
. In response they both responded that "Mr Zhukov is the ultimate beneficial owner of
Glengary
… The beneficial ownership of Mr Zhukov can be confirmed by [a fiduciary] …". Mr Ratskevych had in fact acquired his interest in the shares a few months before the date of that circular. Dr Davies considered that the existence of that interest made the circular inaccurate. That inaccuracy was contested at the trial, but I find that JKX is correct in treating the earlier response as being inaccurate. The clear impression given by the circular was that Mr Zhukov was the, and the only, person interested in all the
Glengary
shares, and that impression was false. The falsity was material. This was one of the factors borne in mind by the directors in taking their crucial decisions later on. The failure to disclose it earlier was also a breach of the Disclosure and Transparency Rules, though that does not add much to the significance of the failure for present purposes.
"He thought unsurprisingly that we should use every weapon in our armoury to fight Kolomoisky. He doesn't understand the rules of the London market, and he was described as 'seriously short of cash.'"
(i) To approve the directors' remuneration report.(ii) To re-elect Mr Murray as director, who was up for re-election as having been appointed since the last AGM
(iii) To re-elect Lord Oxford, who retired by rotation.
(iv) To re-elect Dr Davies, who retired by rotation.
(v) (As special business) To authorise the directors to allot up to £5.7m odd of share capital (this required an ordinary resolution).
(vi) Authorising the company to make market purchases of its shares (this required a special resolution).
(vii) Disapplying statutory pre-emption rights on the allotment of shares (this required a special resolution).
In the explanatory notes to the notice of the AGM under the heading 'Authority to allot shares (resolution 9)' the Company clarified that it had no present intention to exercise this authority.
"a current shareholder who might be interested in purchasing the Naftogaz's shareholding. I [Dr Davies] asked who that shareholder was, and although their solicitors do not know for sure, they did speculate that the person is connected to Oleksander Ratskevych, who I gather is one of the proposed directors nominated by Eclairs."
Dr Davies thought it likely that the approach was made by or on behalf of
Glengary
, and therefore thought that
Glengary
was considering increasing its stake in JKX. He also assumed it had something to do with the arrangement which he considered to exist between Mr Zhukov and Mr Kolomoisky. The potential acquisition had not been mentioned by Mr Ratskevych when they had spoken on 19th March and Dr Davies considered that he had not been given the full picture. In fact it turned out at the trial that part of what Dr Davies thought was not quite the full picture. The first approach between the judgment creditor and
Glengary
came from the judgment creditor's solicitors, not from Mr Ratskevych, and it occurred on 5th April (i.e. after the conversation between Dr Davies and Mr Ratskevych). However, it seems likely that it occurred as a result of a prior incident in March, when a contact of Mr Ratskevych (a Mr Olshanki) said he could put Mr Ratskevych in touch with the right people if he were interested in acquiring the shares held by Naftogaz. It looks as though that contact conveyed
Glengary
's possible interest to Merchant or its solicitors, so the contact did originate from what can fairly be regarded as the
Glengary
side, albeit more indirectly than a direct approach from Mr Ratskevych.
Glengary
. They started to contemplate how to counter that possibility and what to do if it happened. Mr Baines prepared a script to be read after the EGM if the directors were not re-elected. It indicated that the board considered at least some of them (particularly Dr Davies) to be so important that the board would immediately re-appoint him or them. This script was circulated by Mr Moore to the other directors on 9th May under cover of an email which read:
"Please find attached a draft statement I am planning to read out in the hopefully unlikely event of Paul, Raymond and Richard not being re-elected at the AGM.
Paul and the team are presently making huge efforts to try and ensure we carry the day, including the possibility of issuing new shares, contacting as many shareholders as possible to impress upon them the importance of voting at this AGM and looking at any possibility of the Éclair/
Glengary
votes not being valid."
Glengary
. The second tactic (contacting shareholders) was carried out with some vigour and, it transpired, some success. The third tactic was taken by at least some directors (Lord Oxford, for example) as being a reference to possible restrictions on voting under article 42, which was beginning to swim into the consciousness of at least some directors at about this time.
Glengary
, Mr Zhukov and Mr Ratskevych. These notices asked essentially the same questions of all the recipients, though some were more specificially tailored to their recipients than others. I do not need to set out all their terms. Those sent to Eclairs,
Glengary
, Mr Kolomoisky, Mr Bogolyubov, Mr Ratskevych and Mr Zhukov appear in Appendix 1 to this judgment, along with the responses which came in due course.
"We are seeking to discuss with fellow shareholders our concerns and dissatisfaction over JKX's performance and our desire to seek change to the management of the Company in order to maximise value for all shareholders.
Glengary
Overseas Ltd, a holder of 11.45% of JKX, has also expressed its concerns about the management of the company and its intention to vote against the Resolutions outlined above …
"Following the AGM and if the resolution to reappoint Dr Paul Davies is not approved, we call upon Nigel Moore, Chairman, and the Board to conduct a full and wide-ranging external search for a new CEO, and also to replace Mr Peter Dixon as Commercial Director.
"Whilst we have identified potential candidates in Mr. Borys Epshtein, Mr. Stanislav Yudin and Mr. Oleksandr Ratskevych, we are completely open to the recruitment of the best qualified candidates internationally….
"JKX's wholly-owned subsidiary in Ukraine, Poltova Petroleum Company (PPC), has been forced to defend itself in court against action initiated by the Ukrainian tax authorities in 2010 seeking to charge PPC circa $70m of unpaid tax." …
[After expressing dissatisfaction with the company's results] "We believe that these issues are a direct result of poor management, and in particular are the responsibility of Dr Paul Davis, CEO, and Mr Peter Dixon, Commercial Director.
"We urge our fellow shareholders to vote AGAINST Resolution 5, to re-elect Dr Paul Davies as a director of the company, at the forthcoming AGM on 5 June 2013...
"Eclairs would be fully supportive of the Board of JKX in running a process to identify the best qualified external candidates both to join the Board and to take the role of CEO.
"At the same time, we would request that the Board consider our proposed candidates on merit: namely Mr Borys Epshtein, Mr Stanislav Yudin and Mr Oleksandr Ratskevych."
Glengary
was seen as relevant to the question of whether there were voting arrangements between Eclairs and
Glengary
; the criticism of the board for the poor performance of the company was seen as unfair and as a contrivance, as the concerns of Eclairs (if genuine) had never before been raised with the board (or the chairman), as the directors would have expected if they were genuine; the re-appearance of Mr Ratskevych in the list of proposed directors was again thought to be indicative of arrangements between the Eclairs and
Glengary
camps; and the reference to tax was misplaced and inaccurate, since there was no such claim in Ukraine.
Glengary
) were intending to destabilise JKX at a key point, and they were indulging in an opportunistic attempt to secure control of assets without paying a premium to the shareholders.
Glengary
might be interested in acquiring them.
"A critical voting element could be the 5.8% owned by JSC Naftogaz of Ukraine but being held by a London law firm as it was the only accessible asset held by JSC Naftogaz during a dispute. We believe that the shares are now available for sale to settle the debt. At the current share price the full holding is worth around £6m."
The email finishes with the line "All we need is a very brave investor!!"
Glengary
, Mr Zhukov, Mr Ratskevych and Mr Bogolyubov each replied to the disclosure notices with Eclairs and Mr Kolomoisky responding the day after. All parties replied that they were not party to any agreement or arrangement (see Appendix 1). However, while the Eclairs side confined themselves to a bare denial the
Glengary
side acknowledged that there had been discussions with Eclairs regarding the performance of JKX.
"not a party to any type of agreement or arrangement referred to in paragraphs 1(e)(i)-(iii) of the notice. I have however participated in discussions with Eclairs Group Limited regarding JKX's recent operational and financial performance and the need to change the management team as per the open letter to JKX shareholders dated 23 May 2013".
"not a party to any type of agreement or arrangement referred to in paragraph 1(e)(i)-(iii) of the notice. I have however participated in discussions with Eclairs Group Limited regarding JKX's recent operational and financial performance and the need to change the management team. I have been proposed by Eclairs Group as a candidate for the JKX board as per the open letter to JKX shareholders dated 23 May 2013".
Glengary
stated that:
"Glengary
has participated in discussions with Eclairs Group Limited regarding JKX's recent operational performance and the need to change the management team.
Glengary
however is not party to any agreement or arrangement as mentioned in paragraph 1(d)(i), (ii) and (iii) of your notice.
Glengary
is simply a holding vehicle for the Shares in favour of its ultimate beneficial owners – Alexander Zhukov and Oleksandr Ratskevych and acts upon their instructions".
Glengary
had a history of voting together. She received a response later that same day and forwarded the information to Mr Baines in the following form: "Unfortunately, I am not sure we can say at the end of paragraph 3 that Kolomoisky and Zhukov have a record of voting in collaboration…"
"Following my email of 23 May 2013 I am enclosing material as further evidence of the existence of a concert party between Mr Kolomoisky and Mr Zhukov."
He then goes on to refer to the original acquisition by Mr Kolomoisky from Mr Zhukov, the fact that Mr Kolomoisky had contacted Mr Zhukov asking for his support in changing the management of JKX with Mr Zhukov's condition that Mr Ratskevych be made a director, Eclairs' open letter with the company's response and:
"Fifthly, the board has reasonable cause to believe that certain information provided in various responses to section 793 notices from Eclairs,
Glengary
and their beneficial interest holders regarding agreements and arrangements between them is either false or materially incorrect and, as such, in accordance with JKX's articles, the Board is minded to issue restriction notices to Eclairs and
Glengary
(and their nominees) restricting such shareholders from being able to vote or count in the quorum at JKX's AGM next week.
In the light of the above we are proposing to advise
Glengary
and Eclairs that we consider that they are acting in concert and that, if the Panel so determine, any purchase of shares in JKX by either of them will trigger a mandatory bid requirement under Rule 9 of the Takeover Code."
"I have [privileged words redacted] concluded that, in the interest of all the shareholders and stakeholders, the Board has no option other than to take the strongest possible action to deter these predators.
As I will be in flight from Krasnodar to London during this afternoon's meeting, may I ask you to take my proxy and, in the event of a vote, cast my vote for the issue of a Restriction Notice to the Eclairs Group and Glengarry [sic] with the objective of preventing them from voting at the Annual General Meeting."
"7. The Chairman reported that the business of the meeting was to consider and, if thought fit, issue restriction notices to the following persons: [the main recipients of the notices were then identified].
8. There were produced to the meeting the following documents:
[the section 793 notices]
[the responses]
9. After due and careful consideration, the board unanimously determined that it has reasonable cause to believe that information provided in the Section 793 Responses was materially incorrect and, as such, that, under article 42 of the Company's articles of association, it was entitled to issue restriction notices to each of:
Eclairs, Mr Kolomoisky, Mr Bogolyubov and Hanover [the registered shareholder] in respect of the [47m] shares in JKX held by Hanover on behalf of Eclairs; and

Glengary
, Mr Zhukov, Mr Ratskevych and Lynchwood [the registered shareholder of the
Glengary
shares] in respect of the [19m] shares in JKX held by Lynchwood on behalf of
Glengary
(the Restriction Notices).
10. The directors considered that the issue of the Restriction Notices would promote the success of the Company for the benefit of the members as a whole, having regard to the relevant factors set out in section 172 of the Companies Act 2006.
11. Accordingly, it was unanimously resolved that the Restriction Notices be issued as soon as reasonably practicable and that any one director be authorised to sign the Restriction Notices."
Glengary
camp which were not particularised, and that there were arrangements or agreements between Mr Kolomoisky and Mr Bogolyubov in relation to the Eclairs shares. They found it incredible that the raid could have been, and would have been, mounted without such an agreement, and pointed to various factors in support of such a conclusion. Those factors appear below in the sections dealing with reasonable cause to believe and with the directors' beliefs, intentions and purposes at the board meeting. In those circumstances the directors considered it was right to impose the restrictions that they did.
Glengary
side was in similar terms, and addressed to corresponding persons and companies. The only paragraph with differing terms is also set out in Appendix 2 below.
Glengary
shares could not be voted, then all the resolutions would pass.
The section 793 notices - validity - form - submissions
"42. (1) For the purposes of this Article, unless the context otherwise requires
(a) "disclosure notice" means a notice issued by or on behalf of the Company requiring disclosure of interests in shares pursuant to section [793] of the Act,
(b) "specified shares" means all or, as the case may be, some of the shares specified in a disclosure notice,
(c) "restrictions" means one or more, as the case may be, of the restrictions referred to in paragraph (3) of this Article,
(d) "restriction notice" means a notice issued by or on behalf of the Company stating, or substantially to the effect, that (until such time as the Board determines otherwise pursuant to paragraph (4) of this Article) the specified shares referred to therein shall be subject to one or more of the restrictions stated therein...
(h) "interested" shall be construed as it is for the purpose of [section 793] of the Act.
(j) for the purposes of paragraphs (2)(b) and (4) of this Article the Company shall not be treated as having received the information required by the disclosure notice in accordance with the terms of such disclosure notice in circumstances where the Board knows or has reasonable cause to believe that the information provided is false or materially incorrect.
(2) Notwithstanding anything in these articles to the contrary, if
(a) a disclosure notice has been served on a member or any other person appearing to be interested in the specified shares, and
(b) the Company has not received (in accordance with the terms of such disclosure notice) the information required therein in respect of any of the specified shares within fourteen days after service of such disclosure notice,
then the Board may (subject to paragraph (7) below) determine that the member holding the specified shares shall, upon the issue of a restriction notice referring to those specified shares in respect of which information has not been received, be subject to the restrictions referred to in such restriction notice, and upon the issue of such restriction notice such member shall be so subject. As soon as practicable after the issue of a restriction notice the Company shall serve a copy of the notice on the member holding the specified shares.
(3) The restrictions which the Board may determine shall apply to restricted shares pursuant to this Article shall be one or more, as determined by the Board, of the following:
(a) that the member holding the restricted shares shall not be entitled, in respect of the restricted shares, to attend or be counted in the quorum or vote either personally or by proxy at any general meeting or at any separate meeting of the holders of any class of shares ...
(b) that no transfer of the restricted shares shall be effective or shall be registered by the Company,
(c) that no dividend (or other moneys payable) shall be paid in respect of the restricted shares and that, in circumstances where an offer of the right to elect to receive shares instead of cash in respect of any dividend is or has been made, any election made thereunder in respect of such specified shares shall not be effective.
(4) The Board may determine that one or more of the restrictions imposed on restricted shares shall cease to apply at any time. If the company receives in accordance with the terms of the relevant disclosure notice the information required therein in respect of the restricted shares all restrictions imposed on the restricted shares shall cease to apply seven days after receipt of the information. In addition, in the event that the Company receives an executed instrument of transfer in respect of all or any restricted shares, which would otherwise be given effective, pursuant to a sale
(a) on a recognised investment exchange, or
(b) on any stock exchange outside the United Kingdom on which the Company's shares are normally dealt, or
(c) on the acceptance of a takeover offer ...
to a party not connected with the member holding such restricted shares ... then all the restrictions imposed on such restricted shares shall cease to apply with effect from the date on which any such transfer as aforesaid is received by the Company for registration..."
"(1) A public company may give notice under this section to any person whom the company … has reasonable cause to believe –
(a) to be interested in the company's shares, ….
….
(2) The notice may require the person –
(a) to confirm that fact or (as the case may be) to state whether or not it is the case, and
(b) if he holds …. any such interest, to give such further information as may be required in accordance with the following provisions of the section.
(3) The notice may require the person to whom it is addressed to give particulars of his own present …. interest in the company's shares ….
(4) The notice may require the person to whom it is addressed, where –
(a) his interest is a present interest and another interest in the shares subsists, ….
(b) ….
to give, so far as lies within his knowledge, such particulars with respect to that other interest as may be required by the notice.
(5) The particulars referred to in subsections (3) and (4) include –
(a) ….
(b) whether persons interested in the same shares are or were parties to –
(i) an agreement to which section 824 applies (certain share acquisition agreements), or
(ii) an agreement or arrangement relating to the exercise of any rights conferred by the holding of the shares."
" 820(1) This section applies to determine for the purposes of this Part whether a person has an interest in shares.(2) In this Part –
(a) a reference to an interest in shares includes an interest of any kind whatsoever in the shares, and(b) any restraints or restrictions to which the exercise of any rights attached to the interest is or may be subject shall be disregarded.(3) Where an interest in shares is comprised in property held on trust, every beneficiary of the trust is treated as having an interest in the shares.
(4) A person is treated as having an interest in shares if ...
(b) not being the registered holder, he is entitled -
(i) to exercise any right conferred by the holding of the shares, or(i) to control the exercise of any such right.(5) For the purposes of subsection (4)(b) a person is entitled to exercise or control the exercise of a right conferred by the holding of shares if he –
(a) has a right (whether subject to conditions or not) the exercise of which would make him so entitled, or(b) is under an obligation (whether subject to conditions or not) the fulfilment of which would make him so entitled....
"824 (1) For the purposes of this Part an interest in shares may arise from an agreement between two or more persons that includes provision for the acquisition by any one or more of them of interests in shares of a particular public company (the "target company" for that agreement).(2) This section applies to such an agreement if –
(a) the agreement includes provision imposing obligations or restrictions on any one or more of the parties to it with respect to their use, retention or disposal of their interests in the shares of the target company acquired in pursuance of the agreement (whether or not together with any other interests of theirs in the company's shares to which the agreement relates), and
(b) an interest in the target company's shares is in fact acquired by any of the parties in pursuance of the agreement.
(3) The reference in subsection (2) to the use of interests in shares in the target company is to the exercise of any rights or of any control or influence arising from those interests (including the right to enter into an agreement for the exercise, or for control of the exercise, of any of those rights by another person)."
"(d) whether you are party to any agreement or arrangement (whether written or unwritten, formal or informal, direct or indirect):
(i) which includes provision for the acquisition by you and/or any other person of shares in JKX and which imposes obligations or restrictions on the use (including exercise of rights, control or influence arising from such shares) or on the retention or disposal of such shares;" (my emphasis - the words become important to the argument)
(i) It seems to be inspired by section 824, but that section only applies where shares are acquired pursuant to the agreement. The question is not so confined.(ii) Section 824(1) refers to "an agreement between two or more persons that includes provision for the acquisition by any one of more of them [ie parties to the agreement] of interests in shares". The question is not so limited - it is capable of applying to agreements between parties which provide for purchase by an additional party who is not a party to the agreement - eg an agreement between A and B for the purchase by C. That goes beyond what is permissible.
(iii) The question goes beyond the range of shares that the questioner is entitled to ask about. This argument has the following steps:
(a) The addressee (A) is someone who has, or someone whom the company believes to have (I paraphrase slightly in the interests of clarity), an interest in shares - s 793(1). The "belief" qualification applies to the person of the addressee.(a) Such a person may be given a notice.(c) When the notice is served it may ask questions about "the shares" - see subsection (4).(d) Those questions may include questions about the identity of "persons interested in the shares in question" (ie the shares in which A is interested), and whether persons "interested in the same shares" were parties to a s 824 agreement or an agreement about voting rights "conferred by the holding of the shares" (subsection (5)).(e) The questions which can be asked about shares can only be asked "where another interest in the shares subsists". There is no extension to interests which are reasonably believed to exist - that extension only applies to the identity of A as an addressee.(f) This affects the form of question that can be asked and that has to be answered. The company can ask for particulars of such other interests as exist; it can ask about arrangements between A and persons who actually have such other interests. That is because those questions relate only to actual interests. The question may not ask whether those interests exist. If the company asks whether or not Z is interested, the question does not have to be answered unless Z is actually interested (in some relevant way). Unless Z is actually interested, he does not fall within the persons about whom questions can be asked within subsection (4) and (5).(g) Even if the company has reasonable cause to believe that Z is interested in the same shares as A, it cannot ask A if Z is interested because the "cause to believe" qualifies only the interest of A, and not of Z - see above.(iv) Applying all that to question (d)(i) one reaches the following conclusions.
(v) The question is asked "in relation to any of the shares in [JKX] which you have …" - that is to say Eclairs' own shares. The questions that the company was then allowed to ask under section 793(5) is about "persons interested in the shares in question" (ie the Eclairs shares) or "persons interested in the same shares", (ie the Eclairs shares again). However, what question (d)(i) asked was about arrangements affecting other (ie non-Eclairs) shares. That question is not about the Eclairs shares, and therefore is not within the wording of subsection (5); and it is about the interests of others which have not been shown to exist in relation to the Eclairs shares, and therefore is not a question which requires an answer in the absence of such an interest.
"(d) whether you are party to any agreement or arrangement (whether written or unwritten, formal or informal, direct or indirect):(ii) relating to the exercise of any rights conferred by the holding of shares in JKX (e.g. a shareholders' agreement which governs (directly or indirectly) how the voting rights in the shares in Eclairs Group Limited are to be exercised);"
"whether you are party to any agreement or arrangement (whether written or unwritten, formal or informal, direct or indirect):
(iii) with Mr. Alexander Zhukov, Mr. Oleksandr Ratskevych and/orGlengary
Overseas Limited (or their respective companies or nominees), which relates to the exercise of JKX share voting rights (either directly or via yours and/or their respective companies and nominees)?"
Glengary
/ Ratskevych shares) which, a fortiori are not Eclairs shares. Those three people/entities are not (or have not been shown be) interested in Eclairs shares.
Glengary
notice was not a legitimate question because it was not a request for particulars about
Glengary
's shares. It followed, too, that
Glengary
was not obliged to answer it, and it further followed that the board was not entitled to act on the answers that
Glengary
did give or act on the footing that those answers were inadequate.
(i) The "reasonable cause to believe" qualification applied across the section, so it applied to the interest in subsection (5).(ii) The reference to an interest in shares "includes an interest of any kind whatsoever in the shares" (section 820(2)(a)).
(iii) The kinds of inquiry within section 793(5) are not exhaustive of the questions that can be asked, but rather are examples. See the words "The particulars referred to in subsections (3) and (4) include…". See also what he says is the broad formulation in TR Technology Investment Trust plc [1988] BCLC 256 at 274-5.
(iv) Thus since Mr Kolomoisky and Mr Bogolyubov were interested in the same shares by virtue of their ownership of interests in Eclairs, they could be asked questions about agreements (arrangements) concerning those shares, and full particulars of them, and those full particulars would include the identity of any other parties, including a specific question as to whether Mr Zhukov was a party. Full particulars of the arrangements would have to include terms which extended to the voting of Mr Zhukov's shares.
(v) The relevant reasonable belief for the purposes of the section can include a belief as to an interest of any kind (section 820(2)(a)). This can include agreements falling within section 824. If there is agreement involving the purchase of shares and the voting rights attaching, this creates a deemed interest of all parties in all parties' shares. Furthermore, if an agreement gave control over those shares, a deemed interest was thereby created. Accordingly, if the company held a reasonable belief that such arrangements existed it could ask questions about them, and subsections (4) and 5 of section 793 were not confined to cases where the addressee had an actual interest. This is his "reflexive" analysis.
(vi) The notices in the present case were within what is permissible, but even if they were not they were nonetheless answered and the company was entitled to rely on those answers, which were apparently given in response to the notice. Were it otherwise the addressee could provide a wholly and obviously mendacious response and then complain when restrictions were imposed because he had not been given a proper notice.
The section 793 notices - validity - form - conclusions
"The reason why the definition [of interest] is so extensive is to counter the limitless ingenuity of persons who prefer to conceal their interests behind trusts and corporate entities." (Per Hoffmann J in TR Technology at p249).
"Section 212 [the predecessor of section 793) … allows the company to require anyone whom the company knows or has reasonable cause to believe to be interested in its shares to give "particulars of his own past or present interest" and, where any other interest in the shares subsists, "such particulars with respect to that other interest as may be required by the notice" (section 212(2)(b)). These last words are, on the face of them, very general. Prima facie they allow the company to ask for whatever particulars it thinks fit, provided that they are "with respect to that other interest" … But Counsel accepted that the word "include" in section 212(3) could not be construed as introducing an exhaustive list of matters of which particulars could be asked. If it were, the company could not ask for the number of shares in which a person named in the reply was interested. I do not think that section 212(3) is intended to do more than illustrate the kind of matters of which particulars can be required. It does not in my view limit the ordinary meaning of "such particulars… as may be required by the notice" in section 212(2)(b)."
Question (d)(i)
Question (d)(ii)
Question (d)(iii)
The
Glengary
notices - question (d)(iii)
Glengary
parties' notices separately. No invalidity arises.
Validity - general
Estoppel and waiver
Reasonable cause to believe - general points
"The whole question here is whether there is or is not a mutual contract or arrangement, whether enforceable at law or not. I do not propose to attempt any definition of "arrangement" in section 6(3). But to escape the alleviation afforded to the subject by section 8(3), some arrangement binding 3 or more parties must be spelt out of the facts, it being conceded that the conditions of the subsection are otherwise satisfied. Whether enforceable at law or not, it seems to me that an arrangement must at least connote an arrangement whereby the parties to it accept mutual rights and obligations."
"I think it is highly significant that Parliament did not see fit to include any definition of "arrangement". I infer from this that it was intended that the word should be construed in its ordinary or popular sense. Though it may not be easy to put into words everybody knows what is meant by an arrangement between two or more parties. If the arrangement is intended to be enforceable by legal proceedings, as in the case where it is made for good consideration, it may no doubt properly be described as an agreement. But the Act of 1956 clearly contemplates that there may be arrangements which are not enforceable by legal proceedings, but which create only moral obligations or obligations binding in honour. This seems to me to be entirely consistent with the dictum of Upjohn J. to which I have already referred. Nor do I consider that there is any inconsistency between that and the view expressed by the judge in the present case. For when each of two or more parties intentionally arouses in the others an expectation that he will act in a certain way, it seems to me that he incurs at least a moral obligation to do so. An arrangement as so defined is therefore something "whereby the parties to it accept mutual rights and obligations"".
"No necessary or useful purpose would be served by attempting an expanded and comprehensive definition of the word "arrangement" in section 6(3) of the Act ... I think that I am only expressing the same concept in slightly different terms if I say without attempting an exhaustive definition, for there are many ways in which arrangements may be made, that it is sufficient to constitute an arrangement between A and B, if (1) A makes a representation as to his future conduct with the expectation and intention that such conduct on his part will operate as an inducement to be to act in a particular way, (2) such representation is communicated to B, who has knowledge that A so expected and intended, and (3) such representation or A's conduct in fulfilment of it operates as an inducement, whether among other inducements or not, to act in that particular way."
The attack on reasonable cause
Reasonable cause to believe - the underlying facts
(i) They thought that the company was the subject of a raid in which a minority shareholder was trying to keep the value of the shares down in order to be able to buy other shares more cheaply; or to try to get control of PPC (the Ukrainian subsidiary).(ii) They thought that the individuals behind the raid were Mr Kolomoisky, Mr Bogolyubov and Mr Zhukov. The first two of those had a track record of doing it elsewhere.
(iii) The attempt to remove Dr Davies and Mr Dixon was part of that plan. If successful it would have removed two individuals who were key to the company's activities.
(iv) Since there had been no attempt to engage with the board or the chairman over allegations of poor management, the board did not believe that the circular letter was being accurate when it spoke of the desire to replace directors for that reason.
(v) One of the attempted mechanisms was the attempted introduction of a shadow general manager when Dr Davies approached Mr Kolomoisky for funding in Monaco. This was in the context of the reputation of Mr Kolomoisky causing difficulties in raising finance from normal sources.
(vi) The transfer of shares from Ralkon into Eclairs was seen as a transfer into a clean company for the purposes of the raid.
(vii) The EGM requisition was part of the tactic. This included the proposal of inexperienced or plainly unsuitable directors, and Eclairs failed to respond to requests for details of their experience and qualifications. One of the proposed directors (Mr Ratskevych) was known to be associated with Mr Zhukov, giving rise to the suggestion that Mr Zhukov was associated with this step. Replacing management was known by at least some of the board members to be a standard tactic of raiders who wished to get control of a company in Ukraine.
(viii) Mr Ratskevych said that Mr Zhukov had agreed to support Mr Kolomoisky's attempt to make management changes if Mr Ratskevych was given a place on the board.
(ix) It was discovered that Mr Kolomoisky had transferred part of his shareholding to a known ally (Mr Bogolyubov).
(x) Mr Ratskevych's interest was discovered only in response to the first wave of s793 notices, and not when it had occurred. Mr Zhukov had apparently made a clear mis-statement as to the extent of his interest on the earlier occasion.
(xi) At about this time board members heard of another attempt by Mr Kolomoisky and Mr Bogolyubov to seize control of another Ukranian company (Ferrexpo).
(xii) The board inferred that
Glengary
had approached Natfogaz's judgment creditor to try to get hold of the Naftogaz shares.
(xiii) The
Glengary
responses to the s793 notices revealed that there had been discussions between
Glengary
and Eclairs. Eclairs' responses did not. There was an inconsistency.
(xiv) The open letter proposed the same 3 directors as had previously been proposed, including Mr Ratskevych, who had been seen as Mr Zhukov's man. Now his name was appearing in an open letter emanating from Eclairs, and which acknowledged a degree of common cause with
Glengary
.
Glengary
interests) in relation to the shares that they each had and in relation to the raid (at least). They believed that denials that there were any such arrangements were incorrect. In particular:
(a) Several of the directors articulated the view that it was fundamentally unlikely that Mr Bogolyubov would have taken his shareholding via Marigold without there being some sort of arrangement between Mr Kolomoisky and Mr Bogolyubov as to how they would approach the exploitation of the shareholding, which would include such matters as voting. Several of them said it was in their experience virtually unthinkable that in those circumstances there would be no shareholder agreement. An outright denial in the responses to the s793 agreement (which is what the board got) was not credible.(b) Mrs Dubin, at least, considered she had strong grounds for doubting the honesty of Mr Kolomoisky and Mr Bogolyubov, which emphasised the need for her to have credible answers to the questions asked.
(c) The arrangement (using that word neutrally for the moment) for Mr Zhukov's support for Eclairs' management proposals in exchange for Mr Ratskevych's board membership (which is how the directors saw it) demonstrated that there were arrangements between Mr Kolomoisky and Mr Zhukov.
Whether there was reasonable cause to believe - process
Glengary
", and as a result arrived at a conclusion that was without adequate justification. He also takes a point about non-compliance with natural justice. Between them, Mr Mabb and Mr Gledhill drew attention to the following principal points (my brief findings on some of them also appear):
(i) The company's solicitors were involved, and prepared the briefing paper which was all that some of the directors saw in terms of the notices and responses. The summary was complicated, and since legal advice in it was redacted one cannot see an important part of the directors' reasoning process. The responses were not (contrary to the minutes) produced to the meeting so far as non-present directors were concerned. As a fact, this is true.
(ii) The summary employs the term "Arrangements", which it defines as being "an agreement or arrangement for (i) the acquisition of shares in JKX which imposes obligations or restrictions on the exercise of rights, control or influence in respect of such shares or the retention or sale of such shares or (ii) relating to the exercise of any rights arising from the shareholding in JKX". It then uses that term in relation to Mr Kolomoisky and Mr Bogolyubov. However, not all the directors appreciated that. Its wording does not quite coincide with question (d)(i), using "arising from" in place of "conferred by". I am not sure where this goes, but I think it is said to indicate that the directors were misinformed about the question and therefore the answer.
(iii) The board's purpose was to prevent the votes attaching to the 47m shares from being cast. That provides an important context for considering whether the board had reasonable cause to believe in the falsity of the responses. I deal with this point below in considering "improper purpose".
(iv) The debate at the board meeting was described by Mr Moore as being at a "fairly high level" and there was no focus on whether the sort of arrangement they believed to have existed was one the existence of which was denied. I find that Mr Moore did indeed refer to the high level nature of the discussion in his cross-examination, but he had previously characterised the meeting as being one in which the board were very focused on whether to issue the restriction notices and all the directors had an opportunity to ask all the questions they wanted. I find that there is no clear record of a discussion relating to the believed arrangement and whether it was actually denied, but I also bear in mind that there was a lot of privileged information before the meeting and a number of recorded privileged interventions in the solicitors' records (they are redacted). This factor, so far as accurate, is not a strong pointer against the reasonable forming of a reasonable belief because the directors had a lot of material before them and did not necessarily have to have it all spelt out.
(a) He said what ought to have happened was that each member should have had copies of the notices and responses, and the underlying material, clearly identified in advance, in time to read and assimilate properly and to reflect on it. The failure to do so meant that differing board members had differing perceptions. I find that in terms of documentary distribution this would have been one way of going about the matter, but it was not the only way. An accurate summary by lawyers is capable of being equally as good, and has the benefit of being able to be accompanied by advice. I find as a fact that all directors had time to assimilate the material and did so to the best of their abilities. In my view they brought to bear a conscientious deliberation. Although I do not think that things were rushed unfairly, a prolonged and agonised consideration of the matter, over a number of days, was not possible if a decision was to be reached before the AGM. I find (for reasons that I elaborate below) that the objective of holding a board meeting before the AGM was a perfectly legitimate one, and any shortening of the time available was because the respondents chose (as was their right) to lodge their responses at the end of the response period (something which is not surprising - they did the same in relation to the previous s793 notices).
(b) The board ought to have reflected on the seriousness or gravity of its decision for
Glengary
. The directors were (largely) not aware that if they were right then
Glengary
would have committed a criminal offence, and there would also be a loss of economic and reputational loss. I do not think that this point goes anywhere. The directors were not entitled to reach their decision flippantly or casually, but they were not obliged to address the point as though they were a judge making serious findings of fraud. In my view the board members will all have been well aware of the seriousness of what they were implicitly or explicitly accusing shareholders of. Several of them made serious allegations about Mr Kolomoisky's business ethics. They will have been well aware of the seriousness of what they were alleging.
(c) Mr Gledhill submitted that the board failed to ask itself relevant questions. It failed to ask itself whether any failures on the part of
Glengary
to disclose some relevant arrangement were dishonest or inadvertent. Whether they were one or the other would have been capable of going to the decision to impose restrictions because it is capable of going to whether a failure is "materially" incorrect. Furthermore, the board failed to consider the question of materiality separately at all. I find that the board may well not have considered "materiality" as a separate point, but the evidence that Mr Gledhill relied on as evidence of that sort of absence (the evidence of Lord Oxford and Mrs Dubin) also made it clear that the board was well aware of, and discussed, the whole phrase "false or materially incorrect". Mr Moore made the same thing clear (at Day 4 p43). I find that the directors were aware of both elements, and even if there was no discussion of them as separate alternatives, nonetheless proper consideration was given to each of them. The difference between honest and accidental shortcomings may be thought to be obvious, but on the facts of this case the board would have been entitled to consider that it was irrelevant bearing in mind the nature and seriousness of what it thought the shortcomings were.
(d) In a point that is in some ways allied to the previous points, Mr Gledhill submitted that the board failed to approach the issue in a balanced way. It failed to give proper weight to the previous good relationships with Mr Zhukov, to the fact that Mr Ratskevych had referred to (and not concealed) the arrangement between Mr Kolomoisky and Mr Zhukov in the conversation with Dr Davies, to the fact that
Glengary
had referred to discussions in its response (which was said to give rise to pause for thought as to whether there really was a failure to disclose other reasonable facts, and which pointed away from surreptitious collusion rather than towards it), to the absence of previous collaboration between
Glengary
and the Kolomoisky interest in voting at meetings, to a difference of approach as to why Mr Zhukov did not want to have a power to issue and allot further shares and to the possibility that
Glengary
might have perfectly sensible reasons for wanting a change of management. I accept that all these points might be taken to be relevant, and that there is no evidence that, one by one, they were considered separately by the board, or that the board was told about each of them individually, but I do not consider that that, in the circumstances, is fatal to the decision as suggested by Mr Gledhill. They were the sort of points that the directors were likely to have had in mind. As an example, Mr Murray was asked whether he directed his mind to the point that the inconsistency between the Eclairs and
Glengary
responses might be evidence of there being no collusion. He said that he did address his mind to that possibility (Day 5 p152).
(e) Mr Gledhill relied on a failure by the board to draw any proper distinction between the positions of Eclairs and
Glengary
- it failed to consider whether Eclairs might have failed to disclose relevant agreements but
Glengary
did not. In my view, bearing in mind the arrangements that the board believed existed, I do not think that a failure to take Eclairs and
Glengary
separately affects the reasonableness of the board's view of the accuracy of the statements. The directors (or those who had been directors long enough) are unlikely to have forgotten that Mr Zhukov had a different history with the company, but the main thing they were concerned about was an arrangement, or belief in an arrangement, spanning the two shareholder groupings.
(f) Last there is Mr Gledhill's complaint of breach of natural justice. He submits that before imposing restrictions on
Glengary
the company was obliged by fairness and natural justice to give the
Glengary
parties an opportunity to comment. This requires a little development.
Glengary
's shareholding, the company was obliged by fairness and natural justice to give the
Glengary
parties prior opportunity to comment". This might be thought to be the stage of the exercise at which the board is deciding on penalty, but the rest of his submissions make it clear that that is not the case. It is therefore necessary to consider it at the prior stage; it is a point wrapped up with the concept of "reasonable cause".
"I do not think that much help is to be obtained from discussing whether "natural justice" or "fairness" is the more appropriate term. If one accepts that "natural justice" is a flexible term which imposes different requirements in different cases, it is capable of applying appropriately to the whole range of situations indicated by terms such as "judicial", "quasi-judicial" and "administrative." Nevertheless, the further the situation is away from anything that resembles a judicial or quasi-judicial situation, and the further the question is removed from what may reasonably be called a justiciable question, the more appropriate it is to reject an expression which includes the word "justice" and to use instead terms such as "fairness," or "the duty to act fairly"…" (page 1530D-D)
"It may be that there is no simple test, but that there is a tendency for the court to apply the principles to all powers of decision unless the circumstances suffice to exclude them. These circumstances may be found in the person or body making the decision, the nature of the decision to be made, the gravity of the matter in issue, the terms of any contract or other provision governing the power to decide, and so on… This, of course, does little by way of providing a clear test: but as the authorities stand, it may not be possible to do much more than say that the principles of natural justice will apply unless the circumstances are such as indicate to the contrary. Certainly I would say that the cases show a tendency to expand the scope of natural justice rather than constrict it. The ambit of natural justice is indeed a subject worthy of further academic research."
"Where there is corporate personality, the directors or others exercising the powers in question are bound not merely by their duties towards the other members, but also by their duties towards the corporation. These duties may be inconsistent with the observance of natural justice, and accordingly the implication of any term that natural justice should be observed may be excluded. Furthermore, Parliament has provided a generous set of statutory rules governing companies and the rights of members, as contrasted with the exiguous statutory provisions governing trade unions and the even more exiguous provisions governing clubs. Yet again, the authorities cited by Mr Neill, though not establishing his proposition [that natural justice does not apply to companies limited by shares] do indicate the extent to which the courts will go in enforcing the provisions of the articles, even where those provisions appear to operate harshly or unjustly. These considerations seem to me to militate against the application of the principles of natural justice in this field." (335F-H)
"Where, as in the present case, their duty may impel the council to exercise the power with great speed, whereas natural justice would require delay, I think that this indicates that the council is intended to be able to exercise its powers unfettered by natural justice…
Secondly, the cases on companies limited by shares indicates that provisions in the articles of a company for expropriation or expulsion are valid, even though they deprive the member of valuable proprietary rights. Companies limited by guarantee are, in a sense, in a position a fortiori; for the element of expropriation is lacking, at any rate to any appreciable extent. A member who joins does so on the terms of the articles, including article 7(B), so that what he gets is not an absolute right of membership, nor a right of membership until expelled for misconduct, but a right of membership until that membership is terminated by the Council acting bona fide in what they believe to be the interests of the association. The terms of the contract which bind the members must at least be of some importance.
Thirdly, the wording of article 7(B) seems to me to militate against the implied term. True, it lacks any phrase like "in their absolute discretion",… But it is a wholly unrestricted power, not confined to cases of misconduct, and so on. In other words, if the power had been confined to cases of misconduct or the like, that would have been some indication that the principles of natural justice ought to apply: for since there could be expulsion only if misconduct were established, not only would the machinery of natural justice in making and adjudicating on the charge be readily applicable, but also reputation might well be at stake. It is otherwise where, as here, the power given is absolute in its terms.
Fourthly, the cases in which the principles of natural justice have been held to be applicable have in the main been cases in which what was at stake was liberty, property or a means of livelihood (as in the trade union cases). That does not exhaust the field.… But I think that one of the elements which points to the applicability of the principles of natural justice is the importance and gravity of what is at stake. The mere membership of the association, involving no real interest in property, and no question of livelihood or reputation, does not seem to me to be prima facie a matter in respect of which there is any strong claim to have the principles of natural justice applied, at any rate on motion." (pages 336-7)
"The rule may provide for expulsion either without restriction, giving an absolute discretion, or it may provide for expulsion only for some stated cause, such as misconduct. The principles of natural justice, which apply where the rule is of the latter type, do not apply where it is of the former type, subject to the possible qualification that if the power is exercised on some stated ground which impeaches the character or conduct of the member and it is intended as a penalty for it, he must be given notice and a hearing."
(i) Mr Gledhill relied on the absence of a need for speed – contrast of the first of Megarry J's first factors. However, it seems to me that in some circumstances the board might have to act with great speed, and indeed to a degree this case turns out to be one of them (because of the forthcoming AGM). The power is likely to have to be exercised under circumstances of some commercial pressure. That may well prevent the sort of elaborate enquiry that Mr Gledhill's submission would have to give rise to. It should not be thought that the enquiry would be straightforward, or is one which could be dealt with quickly. The board would not necessarily be obliged to accept a denial (which one assumes will be forthcoming). Mr Gledhill's submissions would logically presuppose the formulation of probing questions, leading, in some cases, to complex answers and, conceivably, further investigations. That does not seem to me to be inherent in the article.(ii) While I have acknowledged the expropriatory effect, to a degree, of article 42, that effect is limited. It is not as though the shareholder is deprived of the entire benefit of his shareholding. Indeed, he can escape from even a bar on transfers if there is a transfer to an arms-length transferee – see paragraph (4) of the article. Accordingly, the second of Megarry J's factors has less force.
Reasonable cause to believe - substance
Glengary
camps which related to the shares, how they would be voted, and to raid. Assuming for the purposes of this section that that belief would entail that the responses were inaccurate, I have to consider whether there was indeed reasonable cause for that belief.
Glengary
boundary as to the voting of shares and consequences of winning the votes that Mr Zhukov was going to support. The presence of Mr Ratskevych on the Eclairs directors ticket in the EGM requisition and in the Eclairs circular letter, the conversation with Mr Ratskevych and the reference to
Glengary
in the circular letter were, in the circumstances known to the directors, indicia of such an arrangement. The expressed interest in the Naftogaz shares was consistent with that (though less probative). From time to time Mr Mabb taxed the directors with a suggestion they did not know what the arrangement was, and they admitted they did not. But they do not have to know what the arrangement is before asking their questions. The main point of the notice exercise is to find out things that the company does not necessarily know already.
(i) Mr Gledhill submitted that, without making enquiries of Mr Zhukov, the most that the board could and should reasonably have concluded about the inconsistency between the responses of theGlengary
respondents and the prior conversation with Mr Ratskevych was that
Glengary
had inadvertently failed to really refer to the existence of the quid pro quo which Mr Ratskevych had told Dr Davies about. I disagree. It is not easy to see how it can have been inadvertent bearing in mind the question and the form of the answer given, but in any event whether inadvertence was a reasonable explanation, it was not the only reasonable explanation. The board was entitled to conclude otherwise. In any event, assuming the answer to have been relevant, the omission made it wrong.
(ii) Mr Gledhill criticised the board for assuming (on the footing of what it was told by Mr Baines) that Mr Ratskevych had made enquiries about buying the Naftogaz shares. The thrust of the concern of the board was that
Glengary
had initiated a contact and was actively pursuing a purchase, at least for a time. That turns out not to be quite the case. On the facts as they appeared at the trial, it appeared that the first direct contact between Hogan Lovells (solicitors for the chargee/sellers) came from them, and not from Mr Ratskevych. Mr Mabb made a similar point. Furthermore, it appeared that the interest of
Glengary
was expressed, but not particularly vigorously pursued. The thrust of the submissions of both claimants was that, as a result, the board had given this factor too great an importance. However, on the information as it first arrived at Dr Davies, it was indeed
Glengary
who approached the sellers, and not the other way around, though the identity of
Glengary
as the possible purchaser was a matter of speculation, since Hogan Lovells merely speculated that the purchaser was connected to Mr Ratskevych. Accordingly, the discrepancy between what Dr Davies originally knew and how the matter was later perceived was not that great. Furthermore, it is not wholly inaccurate to describe the situation as one in which an approach came from
Glengary
, because Hogan Lovells did not approach Mr Ratskevych cold. According to the evidence, they seem to have approached him because they were tipped off as to his possible interest by an associate of Mr Ratskevych. That is a form of approach by
Glengary
, though perhaps not as direct as the board considered to have been the case. The important point was that
Glengary
were apparently interested in getting hold of the shares. That was a legitimate conclusion for the board to draw and its place in the mosaic was a question of judgment for the board.
(iii) Mr Gledhill criticised reliance on the non-disclosure of Mr Ratskevych's interest inGlengary
as going to credit only, and said it was of no relevance in assessing whether there were relevant agreements some 6 years after the apparent non-disclosure. This seems to me to mischaracterise the point. The board's concerns started with a mis-statement by those who, in effect, represented Mr Zhukov's interests to the effect that he was the ultimate beneficial owner of
Glengary
. That was false. It was a statement made a few months after Mr Ratskevych acquired his interest. In the context of the events of 2013, it had some significance. So far as it was also painted as a failure to disclose, Mr Gledhill pointed out that while there were some disclosure obligations in 2007, arising out of a purchase by JKX from Mr Zhukov, the positive obligation of disclosure (under the FSA's Disclosure and Transparency Rules) was a disclosure about voting rights, and Mr Ratskevych had no voting rights. However, that does not deprive the positive mis-statement of its effect. It just means that there was a mis-statement by Mr Zhukov, unaccompanied by a corresponding failure to disclose by Mr Ratskevych. There was still a real point here for the consideration of the directors.
(iv) Mr Gledhill criticised the directors for placing reliance on internet stories linking Mr Zhukov to a charge of arms smuggling in Italy, a charge which they believed he had been acquitted of on a jurisdictional basis. Mr Gledhill himself overstates the significance of this point for the directors. While 3 of them in their evidence do refer to these matters as causing them concern at the beginning of the story, none of them said that it played any particular or particularly active part in their deliberations at the board meeting. By then it seems to have been part of the background only.(v) Mr Mabb criticised over-reliance on the events surrounding the circular letter. He points out that the text of the letter made it clear that, while it proposed its own directors, it also said that it was open to the recruitment of the best qualified candidates. Furthermore, the advertisement in the Financial Times was published by Eclairs and does not even mentionGlengary
. In terms of fact, what Mr Mabb said is correct. Those facts are, however, of little significance in this case. The fact is that the letter proposed 3 directors, of whom one was associated with Mr Zhukov and another was wanted for criminal offences. Those points were of rather greater significance than the statement that Eclairs was open to the appointment of the best candidates. The view might well have been taken that had it been Eclairs' concern to have the best candidates, then they would have justified their identified candidates as falling within that category, or would have taken prior steps to identify some better ones. The fact that the preceding advertisement in the Financial Times, with a clickable link to the circular letter, did not mention
Glengary
is of no real significance when the circular letter itself did.
(vi) Mr Mabb criticised the decision-making process in that the board failed to give weight to the denial by Mr Kolomoisky and Mr Bogolyubov that there was an agreement or arrangement between them. He said that such denials were entitled to "some weight", which was increased by the fact that a mis-statement in the response would or could be a criminal offence. It seems to me that Mr Mabb's own point has little weight. The whole point of the section 793 exercise is to consider whether the statement made is true. Of course, the denial cannot be dismissed, or its falsity assumed, and to that extent the denial has some weight. Doubtless a statement from a source viewed as prima facie respectable and strongly credible would have to be viewed as such, and the directors might consider that they would require something more than might otherwise be required for an unknown or less than credible source if they were to disbelieve the answers to the section 793 questions. Mr Kolomoisky and Mr Bogolyubov did not fall into the category of prima facie respectable and credible sources, in the reasonable view of the directors.(vii) Mr Mabb was particularly critical of the view of a number of the directors that it would be highly likely that there would be some form of shareholders' agreement between Mr Kolomoisky and Mr Bogolyubov. He points out that it is perfectly possible for shareholders in a company not to have any agreement or arrangement in relation to the assets of the company, and that in this case Mr Bakunenko had said that Mr Bogolyubov adopted a passive role and was not surprised that there was no shareholders' agreement. It seems to me there are 2 points here. Mr Bakunenko's evidence of fact as to the absence of an agreement is irrelevant to the issues in this case. The question is what the directors had reasonable cause to believe. Secondly, the views of the directors on the point seem to me to be entirely reasonable. On the information they had, Mr Bogolyubov had acquired a significant interest of very significant value. If he paid for it, one would have thought it was likely that there would be an agreement. Those directors with real experience of such transactions in the same geographical circumstances believe there would be some sort of agreement, and that seems to me to be entirely reasonable if not correct as an expression of likelihood.(vii) Finally I deal shortly with a suggestion of Mr Mabb that the board's views reached only the level of suspicion, and not belief (or reasonable cause to believe). I reject that submission on the facts. It was clear to me that the board's state of mind had moved beyond the realms of suspicion to the realms of belief.
Were the responses to the notices inaccurate, based on what the directors had reasonable cause to believe?
Glengary
. If there is believed falsity in those notices then the other notices do not matter. If there is not then there is unlikely to be falsity in the others.
"I am not party to any agreement or arrangement … (ii) relating to the exercise of any rights arising from the shareholding in JKX".
Glengary
shares).
(a) Mr Kolomoisky has an interest in the 47m JKX shares. Does any element of the assumed agreement relate to his interest in those shares for the purposes of the section so as to fall under the obligation to give particulars of his interest? (The question is not framed in those terms, but if it did so relate then it would not matter that this particular aspect of his interest were spelled out in a more particularised inquiry such as question (e)(iii)). If it were a binding agreement as to how the shares were to be voted then in my view particulars would have to be given on this basis because it would be a serious qualification of the extent of his interest. Such an agreement would also create an interest in favour of Mr Zhukov (section 820(4)(b)), and if Mr Zhukov has such an interest it must logically follow that Mr Kolomoisky's is qualified and that qualification ought to be provided as part of the particularising of his interest. And again, if Mr Zhukov had an interest, then the company was entitled to ask, and Mr Kolomoisky was obliged to answer, questions about that (section 793(4) and (5)).(b) What if the "deal" were not binding as a matter of contract? In my view it would be capable of being an "arrangement". It is therefore necessary to consider whether the section obliges disclosure of the arrangement so far as it related to Mr Kolomoisky's shares. Such a perceived arrangement would not confer an interest under any of the provisions of sections 820 and following. Nonetheless, it seems to me that disclosure would be required as part of the disclosure of particulars of his interest under section 793(3). Section 793(5) is a strong pointer in that direction. Under subsection (4) a shareholder is obliged to give particulars "with respect to that interest" of a third party who has an interest in his shares. Those particulars can include:
"(ii) an agreement or arrangement relating to the exercise of any rights conferred by the holding of the shares" (subsection (5)).
It is therefore anticipated that mere arrangements (as distinct from agreements) can fall within the concept of particulars of an interest that need to be disclosed. That would seem to me to be consistent with the purpose of the section, which is to require persons interested to disclose their hands. It follows from that that if there were an arrangement of the kind reasonably believed to exist by the board, Mr Kolomoisky ought to have given particulars of it, whether in response to a general inquiry about interest (question (b)) or a more directed inquiry (question (e)(iii)). Giving particulars of the arrangement ought to involve giving particulars of the whole arrangement.
Glengary
shares. If there were such an agreement it would create an interest in all participants in all shares (section 825), which opens up the route to asking all the questions in the section 793 notices. This is his "reflexive" argument.
Glengary
parties interests in each other shares. However, I do not think that the facts support a reasonable belief that that sort of agreement existed, in which case it cannot be used as a means of having reasonable cause to believe that all the parties were interested in each others' shares via that route. The company (on my findings) had reasonable cause to believe there were arrangements governing the voting of the Eclairs and
Glengary
shares, but had no reasonable cause to believe that it was part of that agreement that Eclairs would acquire shares. I am not even sure that such a suggestion gets as far as "plausible surmise", on the facts known to the directors. Eclairs could certainly justifiably be seen as a raiding vehicle, but it was not a joint raiding vehicle. On the facts as known it could only reasonably be believed to be Mr Kolomoisky's raiding vehicle. Accordingly, I do not consider this line is open to Mr Swainston.
Glengary
will also be rendered inaccurate. None of them revealed the arrangements or agreements that the board reasonably believed to exist, and enough of them were inaccurate to give rise to the possibility of suspending the shares under article 42. It follows that the directors had reasonable cause to believe that they had not been given proper information within article 42 and their power of restriction was capable of exercise.
Improper purpose - the allegations
Glengary
submit that while the article 42 power of restriction could have been exercised for a legitimate purpose, it was in fact exercised for purposes that went beyond that legitimate purpose. The legitimate purpose was the acquisition of information. The further purpose or purposes of the board in deciding to impose restrictions was for the purpose of altering voting control within the company and ensuring that the resolutions at the forthcoming AGM were duly passed. The directors were obliged to exercise the power only for legitimate purposes, so the illegitimate purpose, which was a substantial purpose, means that the exercise of the power should be set aside.
Improper purpose - findings of fact
Glengary
vote as being in itself a desirable end, not closely linked to the provision of information. That is inherent in the following emails:
(i) The email of 28th March ("we should use every weapon in our armoury to fight Kolomoisky");(ii) The email of 9th May ("Paul and the team are making huge efforts to try to ensure we carry the day, including … looking at any possibility of the Eclairs/
Glengary
votes not being valid" (which Lord Oxford at least thought was a reference to article 42);
(iii) Mrs Dubin's email of 20th May in which she was seeking to set up a board meeting to consider the responses on 29th May (before the AGM);
(iv) The email of 27th May ("tipping the scales in our direction");
(v) The email of 30th May in which Mr Baines (in advance of board meeting) said that the board had reasonable cause to believe the responses to be inaccurate and was minded to issue restriction notices demonstrates the extent to which at least some of the directors (with whom he must have had contact) had moved their thinking towards imposing restrictions, and that was probably influenced by the desirability (as they saw it) of the restrictions as a weapon in the fight against the "raiders" rather than just a mechanism to extract information.
(a) The board members were clearly anxious about the AGM, and anxious to get the resolutions through. They recognised there was a threat to them from Eclairs/Glengary
voting against them.
(b) They regarded getting the resolutions through as being in the best interests of all the shareholders. They discounted issuing more shares as being a way of altering the voting balance in an achievable way. However, the company did embark on an exercise of persuading the other shareholders to support the resolutions and of carrying out a sort of survey to see where the land lay from time to time. This demonstrates the extent of the anxiety of the board. It was considerable.
(c) Some of the directors were concerned about the Naftogaz shares falling into unfriendly hands and considered trying to get more friendly shareholders to take them. They also considered other ways of keeping assets out of the hands of the "raiders" such as selling the Ukrainian subsidiary.
(d) I think that the timing of the sending out of the article 42 notices was so that responses would come in before the AGM. There is nothing wrong with that, and it was not suggested that there was. It was no part of Mr Mabb's case that the decision to send out those notices was somehow impeachable (though his pleaded case takes a point on the probabilities of timing). It is obvious that sending them out so that the responses could be to hand before the AGM would be a justifiable step.
(e) That having been done, a board meeting was set up in advance of receipt of the notices so that they could be considered prior to the AGM. That went with the initial idea to have responses before the AGM. There is, in my view, nothing wrong with that either. The AGM was an important step; the notices were important documents; if they had revealed something important, it would have been relevant to have appreciated its significance before the AGM. If they did not reveal enough it would be relevant to consider restrictions before the AGM. Mr Mabb sought to portray the desire to have a board meeting to consider the responses before the AGM as somehow sinister or as a significant badge of an improper purpose. That is not correct. It was an entirely proper objective in the circumstances. There was no good reason to wait until after the AGM, and potentially very good reasons for making sure the board meeting happened first.
(f) Various of the directors in their own various ways, and to varying extents, considered the possibility of the responses being inaccurate, in advance of the board meeting. However, there was no clear unified purpose to move towards restrictions before then. For some it was clearly an idea; for others it probably was not even that. For those for whom it was an idea I do not think that they automatically associated it with the need to have information. Restrictions had their own independent merit.
(g) Mr Miller's expressed view on the day of the board meeting was that preventing Eclairs and
Glengary
from voting was in the interests of the company and its shareholders generally. He said that he wanted to vote in favour of the restriction notice "with the objective of preventing them from voting at the annual general meeting". Mr Mabb took the point that while Mr Miller had sought to give a proxy vote to Mr Moore, the articles contained no provision for doing so. If Mr Miller's vote was counted it must have been on the basis that Mr Moore was his alternate. It does not seem to me to matter which of these is the case. Mr Miller's vote was counted, and it would be right in the circumstances to treat his view as being the motivation behind one of the votes of the voting directors.
(h) The letter from Mr Baines to the Takeover Panel on the day of the board meeting probably reflected discussions that he had had with directors and reflects the fact that those directors were expressing the view that the notices had not been properly responded to and that restrictions were a possibility. However, I think that the clear terms contained in that email were the result of Mr Baines jumping the gun. I do not believe that it is an expression of the fact that the board had already pre-judged the question. Apart from anything else, he could not have spoken to several of the non-executive directors.
"Q. And this may be repetitive, but as far as you are concerned is the benefit to the members the benefit that we have been talking about during the last half hour? Perhaps let me put it the other way round. Let me ask you again: what is the benefit to the members of imposing the restriction notices?
A. The benefit to the members of imposing the restriction notices would be to prevent those two parties from voting at the annual general meeting and thereby almost certainly ensuring that the resolutions that were being put to the meeting would be passed.
Q. Yes. Rescuing the special resolutions from certain failure and rescuing the ordinary resolutions from the risk of failure?
A. That is correct, my Lord.
Q. And the benefit to the company of securing the passage of those resolutions, can you elaborate on that?
A. The early resolutions were mostly to do with the reappointment of directors and these were the ones that required the majority vote. We were pleased that we would be able to maintain consistency with the board and not have to go through any changes. That was our recommendation, my Lord, to have that. The other resolutions, the special resolutions are the resolutions that provide the board, the company with the flexibility to increase its share base, or to decrease it for that matter.
Q. On the buy-back, the authority to buy back shares?A. That's correct, that was the second special resolution, yes.
Q. Yes, I understand. So was that the purpose of voting for the restriction notices, the achievement of those benefits which you have just described?
A. Those were the direct benefits, that is correct, my Lord.
MR.JUSTICE MANN: Those were the benefits, was that the purpose of voting for them? That was the question to you.
A. Indeed, that was the purpose of voting for those.
MR. MABB: Any other purposes?
A. Ultimately it would be a set back for those parties.
Q. That is the deterrent of - I'm not interested in the precise language, the deterrent of Eclairs and
Glengary
?
A. We would not know which way things would go, but it would be a set back.
Q. So is that again looking at protecting or safeguarding or strengthening the position of the company and its shareholders?
A. Our principal concern is for the shareholders of the company, my Lord, yes."
Glengary
.
Q. Would you go down to paragraph 10 [of the formal company minutes]:"The directors considered ..."? (Pause.)Have you read that?A. Yes.
Q. How would the imposition of restriction notices promote the success of the company in the terms of that paragraph?
A. Eclairs and
Glengary
were seeking to resist certain special resolutions and they had resisted them for several years. It has imposed considerable strain, let us say, on the company's ability to raise finance. So, we wished the special resolutions to pass and that would have promoted the success of the company.
Q. Just spelling out the detail, that would be by preventing the
Glengary
and Eclairs shares from being voted, enabling the resolutions to succeed?
A Yes.
Q. So, was that your purpose in voting for the restriction notices?
A No. My purpose was to ensure or to promote the success of the company and of all shareholders.
Q. Yes, and how did you promote the success of the company?
A. By allowing the special resolutions to pass.
Q. To do which, it was necessary to disenfranchise the Eclairs and
Glengary
shares?
A. They were certainly intending to vote against those resolutions, yes.
Q. So you had to get across that; you had to prevent them voting to get the special resolutions through?
A. Yes.
Q. So your purpose was as you described it. Did you have any other purpose in voting for the restriction notices?
A. In what sense?
Q. I don't know.
A. I don't believe -- I believe -- the best summary is I wished for all the shareholders to have the maximum benefit from the company's resolutions. I take some encouragement from the fact that, admittedly after the event, 99.9 per cent or whatever it was of the other shareholders apart from
Glengary
and Eclairs, voted with the company, which I think reflects the fact that we made a correct and honest judgment."
"Q. So, the Chairman's evidence was that if the information is provided and the restriction lifted, then the company is back to square one. That was the Chairman's view.A. That's what he means. I mean, it depends what you interpret as square one.
Q. Isn't it back to the same position where you have two big blocks of shares minded to vote against the board?
A. Yes.
Q. Does it follow that it would have been unhelpful to the company if the information said not to have been provided had then been provided, such that the restrictions would be lifted?
A. Well, as it turned out it wasn't unhelpful to the board.
Q. Well, no. Had the information been provided and the restrictions been lifted, enabling the two blocks of shares to be voted, would that have been unhelpful to the board?
A. They would have -- I mean, it would have been unhelpful to the board in the sense that the -- as a result of it, as we know now, the special resolutions would have been defeated.
Q. Yes. So you would be back to square one, as the Chairman says?
A, Yes. I mean, square one in -- I can't put words into the Chairman's mind. In my mind, square one remains an attempt by Eclairs and
Glengary
to take control of the company without paying a proper premium.
Q. Well, isn't that -- you would be back to whatever you thought the earlier position was?
A. Exactly.
Q. So you were not particularly thinking, "Let's get the information that we say has not yet been provided". You were not focusing on that?
A. No, I think we were. We were focusing very much on that. We were asking for the provision of information and we hadn't received it.
Q. When I asked you a few minutes ago what your purpose was in voting for the restriction notices, you accepted that your purpose was to prevent Eclairs and
Glengary
from voting, and you spoke about protecting the company and all its shareholders. You didn't at that stage say, "Well, actually our purpose was to elicit this information"?
A. Well, I say it now, and we had always intended to elicit the information.
Q. Looking at these different purposes, how significant was the eliciting of the information?
A. I think it is extremely significant. If we had a statement that we were -- that there was an agreement between them, well, that's a statement of fact, and it has consequences, possible consequences later on"
"Q. …. Why did you consider that the issue of the restriction notices would promote the success of the company?A. Because I was looking at the needs of the 62 per cent of shareholders, who were in danger of suffering from the fact that the company was being destabilised by these two raiders.
Q. And just articulating that, how then would the imposition of the restriction notices be for the benefit of those members?
A. Because it would mean that they wouldn't have the voting rights. Q. And --
A. Sorry -- it meant we could get through the special resolutions, which would give us the freedom to be able to raise new capital.
Q. And the ordinary resolutions that were still in the balance for the coming AGM as well?
A. Yes.
Q. Was that your purpose in voting for the imposition of the restriction notices?
A. It was one of the reasons, yes.
Q. What were the other reasons?
A. I think I have already alluded to that. I think the -- I felt that the company was under attack and had been destabilised. The share price was far too low. It didn't reflect the asset value of the company at all. I felt that the share price -- one of the reasons the share price was low was because the impact of Mr Kolomoisky and Mr Bogolyubov being significant shareholders and the fact that their reputation, as I have already said, was to destabilise companies and try to get the assets cheaply.
Q. How would the imposition of the restriction notices impact on those considerations?
A. Because it would mean they wouldn't be able to vote at the AGM and restrict our ability to increase the equity -- increase the finance.
Q. Isn't that the same point? It is the ability to get through the resolutions?
A. That's a very narrow view in my view. I think it is much wider than that. We have a company to run, and oil and gas is an inherently risky business. You know, to have the inability to have access to new funds, it makes it very, very difficult. The fact that Mr Kolomoisky and Mr Bogolyubov were shareholders has meant, as I think has already been explained, that we have been able to -- unable to raise new finance as easily as other companies in a similar situation can." (Day 3 pages165-167).
"Q. Yes, yes. Can we try to work out what the focus of your objective was, or your purpose? Was the focus the one you described yesterday, that's to say to preventGlengary
and Eclairs from voting, supported by the restriction on transfer, and as you say, more widely, to protect the company in the way you have elaborated this morning?
A. Uh-huh.
Q. Is that correct?
A. Yes.
Q. But when you say, "pending proper disclosure", that's a recognition that the fix is not permanent?
A. It probably wouldn't be, but --
Q. It is not necessarily permanent?
A. -- it is very difficult to predict how things would work out in the future.
Q. Do you agree that the protection you have been talking about would fall away -- well, if the restrictions lapsed, then all the protection that you have been talking about would fall away?
A. I think it probably would, but I would like to talk to my lawyers about that.
Q. Of course. I said if the restrictions lapsed. That was put in as a legal qualification.
A. Yes, yes.
Q. Can I suggest to you then that your substantial or main purpose was the purpose we have talked about and you were talking about yesterday? It was prevent the voting of the shares and to protect the company and its shareholders in the way that you have elaborated?
MR JUSTICE MANN: Mr Mabb, can I just ask for clarification of this question? Is that his purpose at the board meeting in voting for the restrictions?
MR MABB: I am so sorry, my Lord, it is. We are still back at the board meeting, as it were.
A. We are at the board meeting, as it were, as I understand it, yes. There are various bits of the jigsaw, as it were, in my mind, as to how to vote and to, if you like --
MR JUSTICE MANN: Now we have established you are talking about his purpose at the board meeting in relation to restrictions, could you put your question again?
MR MABB: Yes. Sitting at the board meeting, is it correct that your -- it doesn't matter whether you call it principal purpose or your substantial -- purpose in voting for the restrictions be was to prevent Eclairs and
Glengary
from being able to vote the shares issued at the AGM and, as you say, more widely, to protect the company and it shareholders in the way that you have described?
A. Yes, because the main job of a board is to try to create shareholder value.
Q. Yes, yes.
A. And I believe that that was the best way forward to achieve that.
Q. Yes, and although you recognised that provision of the information that you say had not been provided could cause the restrictions to lapse, that was not the focus or the substantial purpose?
A. It was certainly part of the jigsaw that I had in my mind as to how it made up my decision to vote in favour of the restriction notices."
Glengary
.
"Q. All right. Paragraph 10 [of the formal board minutes]:"The directors consider that the issue of the restriction notices would promote the success of the company for the benefit of the members as a whole, having regard to the relevant factors set out in Section 172 of the Companies Acts."How did you consider that the issue of the restriction notices would promote the success of the company?A. I believed that the position that Eclairs and
Glengary
were taking was not consistent with what the other shareholders desired, certainly not approving the remuneration report didn't have a significant impact. Certainly not revoting Dr Davies on the board, I thought it was very serious not to have a CEO and again, I believed that the restrictions in terms of the company's ability to manage its shares to raise capital were in the best interest of all the shareholders and so I didn't actually think that their position – the position they were taking was for the benefit of everybody.
Q. No. So you thought their position was not for the benefit of the members. How would the imposition of the restrictions under article 42 be for the benefit of the members? How did you consider the imposition of those restrictions would benefit the members?
A. Because I thought that they would pass and they would give us the correct authority that the majority of the shareholders were interested in and the flexibility that the company needed to go forward.
Q. So that's the capital resolutions and the buyback resolutions?
A. Uh-huh.
Q. And it would also ensure the re-appointment or re-election of Dr Davies?
A. Certainly having the CEO in place is very important.
Q. Yes, yes."
(a) They all knew that the purpose of the notices was to get information.(b) They all appreciated that the effect of restrictions would be (unless the information was provided before the AGM) that Eclairs/
Glengary
would be prevented from voting, with the effect that all the resolutions would be likely to be passed, or that there was a very enhanced prospect of that happening.
(c) They all saw that as operating for the benefit of the company as a whole, and as hindering the cause of the "raiders".
(d) The majority of the voting directors (Mrs Dubin, Mr Moore, Mr Miller and Lord Oxford) saw that as a sort of standalone proper and useful objective, and achieving it was a substantial purpose of voting for the restrictions, separate from the need to have information. Those directors did not have in mind the protection of the company pending the provision of the information; they had in mind protecting the company full stop. The restrictions were thus a useful weapon to be used against the "raiders". The disenfranchisement of the "raiders" at the AGM was not just an incidental effect of the imposition of restrictions; it was the positively desired effect, seen as beneficial to the company in the long term.
(e) The bona fides of those directors, and the genuineness of their desire to benefit the company as a whole, was not challenged, and in my view cannot be challenged.
The purpose of restriction notices
"…. [I]t would be idle if I were to delude myself into thinking that these applications are made in the course of ordinary litigation. In the first place, an order imposing Part XV restrictions on shares has a much wider effect than an ordinary interlocutory injunction. …. Far from preserving the status quo, they interfere with it. They are granted as a sanction to compel the provision of information to which the company is entitled. It follows, in my judgment, that once the information is supplied, any further justification for the continuance of the sanction disappears." (page 572e-f).
"[I]n my judgment, these restriction orders are not to be used as weapons to gain a temporary advantage over an opponent in a contested takeover bid. Their only legitimate purpose is to coerce a recalcitrant respondent into providing the requisite information. …"
"(3) The court must not make an order under this section unless –
(a) it is satisfied that the relevant facts about the shares have been disclosed to the company and no unfair advantage had accrued to any person as a result of the earlier failure to make that disclosure…"
"172(1) A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to [a list of factors]."
"171 A director of a company must –(a) act in accordance with the company's constitution, and
(b) only exercise powers for the purposes for which they are conferred."
Improper purpose - determination
"4454 To establish that a decision was infected by an improper purpose it is not necessary to show that all of the directors had that purpose. It is enough to establish that the majority of directors were acting improperly: Harlowe's Nominees. In my view the same principle applies to the duty to act in the best interests of the company. The reference to a majority indicates that the actions of an errant fiduciary have to be causative of a breach before it can be said that 'the directors' breached their duties." Bell Group v Westpac Banking Corporation (No 9) [2008] WASC 239 at 4454.
"To define in advance exact limits beyond which directors must not pass is, in their Lordships' view, impossible.… No more, in their Lordships' view, can this be done by the use of a phrase – such as "bona fide in the interest of the company as a whole," or "for some corporate purpose." Such phrases, if they do anything more than restate the general principle applicable to fiduciary powers, at best serve, negatively, to exclude from the area of validity cases where the directors are acting sectionally, or partially: i.e. improperly favouring one section of the shareholders against another. ...
In their Lordships' opinion it is necessary to start with a consideration of the power whose exercise is in question, in this case a power to issue shares. Having ascertained, on a fair view, the nature of this power, and having defined as can best be done in the light of modern conditions the, or some, limits within which it may be exercised, it is then necessary for the court, if a particular exercise of it is challenged, to examine the substantial purpose for which it was exercised, and to reach a conclusion whether that purpose was proper or not. In doing so it will necessarily give credit to the bona fide opinion of the directors, if such is found to exist, and will respect their judgment as to matters of management; having done this, the ultimate conclusion has to be as to the side of a fairly broad line on which the case falls."
"The principle is that although primarily the power [to allot] is given to enable capital to be raised when required for the purposes of the company, there may be occasions when the directors may fairly and properly issue shares for other reasons, so long as those reasons related to a purpose of benefiting the company as a whole, as distinguished from a purpose, for example, of maintaining control of the company in the hands of the directors themselves or their friends. An enquiry as to whether additional capital was presently required is often most relevant to the ultimate question upon which the validity or invalidity of the issue depends; but that ultimate question must always be whether in truth the issue was made honestly in the interests of the company. Directors in whom are vested the right and the duty of deciding whether company's interests lie and how they are to be served may be concerned with a wide range of practical considerations, and their judgment, if exercised in good faith and not for irrelevant purposes, is not open to review in the courts.…"
"So far as authority goes, an issue of shares purely for the purpose of creating voting power has repeatedly been condemned: ….The constitution of a limited company normally provides for directors, with powers of management, and shareholders, with defined voting powers having power to appoint the directors, and to take, in general meeting, by majority vote, decisions on matters not reserved for management. Just as it is established that directors within their management powers, may take decisions against the wishes of the majority of shareholders, and indeed that the majority of shareholders cannot control them in the exercise of these powers while they remain in office …., so it must be unconstitutional for directors to use their fiduciary powers over the shares in the company purely for the purpose of destroying an existing majority, or creating a new majority which did not previously exist. To do so is to interfere with that element of the company's constitution which is separate from and set against their powers. If there is added, moreover, to this immediate purpose, an ulterior purpose to enable an offer for shares to proceed which the existing majority was in a position to block, the departure from the legitimate use of the fiduciary power becomes not less, but all the greater. …."
"The general character of such a regulation is clear, but the ambit of the purpose of the power of course varies with the circumstances of each case. The nature of the company, its constitution and the scheme of its regulations as a whole must all be taken into account in determining whether a given factor comes within its range. Solvency of a transferee is, of course, important… But his solvency is not necessarily the only consideration. The reputation of the company may be an essential element of success, and where, as in the present case, the corporation is one appealing to the public for its confidence and transfers are presented which are of such magnitude as to control the whole administration of the company, the maintenance of a board of directors against whom not even a suggestion of an approach can be made is manifestly a high business consideration, which no person charged with the beneficial administration of the corporate affairs would be likely to overlook, in the interests of the shareholders as a whole."
Can the notices be saved on the footing that the directors would have acted in the same way even if taking only proper considerations into account?
Can this point be properly taken at this stage in the proceedings?
How would the directors have acted absent the improper purpose?
(i) The desire to have the information which the directors felt had been withheld from them was genuine and in no way contrived. It was, at least for the majority, an important objective of the service of the notices, and it remained so at the meeting. The directors felt strongly that they had not been given full information about the arrangements between the parties and they would have wished to have received it.(ii) Since it would have been a proper purpose of the exercise of the power to impose restrictions to compel, or incentivise, the production of information, it would have been proper to have formed the view that the prospect of being disenfranchised at the forthcoming AGM would have increased the incentive. To that extent, at least, there could have been an entirely proper link in the minds of the directors between the restrictions and the forthcoming AGM.
(iii) The directors had no qualms about taking steps that might alter the balance in the company by restricting voting on the claimants' shares so as to improve the chances of the directors being re-elected and removing a blocking vote in relation to the special resolutions. They saw that as being in the interests of the company as a whole, and that view was a reasonable view which they were entitled to reach. For the reasons that I have given above, it was not, by itself, sufficient to justify the imposition of the restrictions, but it was a view that they were entitled to take in conjunction with a more legitimate approach to the decision to impose restrictions.
(iv) Their view about the activities of the "raiders" was strong and it was unlikely that it would change before the vote on the restrictions. Had they confined themselves to "proper" purposes those views would have informed their decision, and would be likely to have led to the same decision being made. In holding those views and applying them to their decision they would not, merely by virtue of those facts, have been acting improperly or for an improper purpose.
(v) A combination of the possibility of imposing restrictions in order to induce the provision of information, coupled with a perception that it would not be unfair to prevent the claimants from voting while they were withholding information which would be of use and interest to the directors and the other shareholders (which would have been a proper perception to have formed) would justifiably have led to the imposition of the restrictions. I think it likely that they would have been so advised, and that they would have acted on that advice.
The legal consequences of a finding that the directors would have acted in the same way anyway
A minor point on the restriction notices
"a notice issued by or on behalf of the company stated, or substantially to the effect, that (until such time as the Board determines otherwise pursuant to paragraph (4) of this Article) the specified shares referred to therein shall be subject to one or more of the restrictions stated therein," ...
Standing and locus
Glengary
that particular justification is not put forward in quite the same way. It is asserted, without any particular evidential basis, that it would have been difficult for
Glengary
to compel the shareholder (Lynchwood) to sue, bearing in mind the indirect relationship between them (with intermediate nominees).
Glengary
also submits that insofar as it is claiming declaratory relief it has sufficient interest to be able to sue anyway.
Glengary
custodianship agreements having been provided) which he says demonstrates that the relevant custodians/nominees reserve to themselves the discretion not to do anything that they perceive to be against local stock exchange rules and the like. Two paragraphs that he cites read as follows.
"Instructions shall be carried out subject to the rules, operating procedures and market practice of any relevant stock exchange, clearing house, settlement system or market ("Rules"). The Nominee is entitled to refuse to carry out Instructions if in the Nominee's opinion they are contrary to any Rules or any applicable law, or other regulatory or fiscal requirements and shall be entitled in its absolute discretion to amend instructions so that they comply with applicable Rules."
"JP Morgan need not act upon Instructions which it reasonably believes to be contrary to law, regulation or market practice but is under no duty to investigate whether any Instructions comply with any applicable law, regulation or market practice. JP Morgan shall be entitled (but not bound), if it deems possible to do so, to amend an Instruction in such a manner to comply with what JP Morgan reasonably believes to be applicable law, regulation or market practice. In addition, JP Morgan may decline to effect any Instruction if, in its reasonable judgment, the result would jeopardize JP Morgan's secured position as to any of Customer's obligations to JP Morgan under this Agreement, provided JP Morgan will promptly notify Customer of JP Morgan's decision to decline to effect an Instruction."
A non-disclosure point
Glengary
stating they were "in concert" with the position of Eclairs and were going to vote against the resolutions.
Glengary
and the resolutions would by now all have been passed. Mr Swainston invites me to reflect the serious non-disclosure, and prevent the claimants from benefiting from it, by undoing the effects of the undertaking with the result that the resolutions can all be held to have carried.
Conclusion
The Eclairs Parties
Notice to Eclairs Group Limited dated 13 May 2013
In accordance with section 793 of the Companies Act 2006 (the Act), please notify us as soon as possible, but no later than by 5 pm (London time) on Tuesday 28 May 2013 with the following information:
- In relation to any of the shares in JKX Oil & Gas plc (JKX) in which you have, or during the last three years had, an interest (the Shares), please provide the following information:
a. The number of Shares in which you have or had an interest;
b. The nature of your interest in the Shares (e.g. beneficial owner, trustee, option);
c. The date(s) you acquired and ceased to hold such interest, in each case, if applicable;
d. Whether you are party to any agreement or arrangement (whether written or unwritten, formal or informal, direct or indirect):
(i) Which includes provision for the acquisition by you and/or any other person of shares in JKX and which imposes obligations or restrictions on the use (including exercise of rights, control or influence arising from such shares) or on the retention or disposal of such shares;(ii) Relating to the exercise of any rights conferred by the holding of shares in JKX (e.g. a shareholders' agreement which governs (directly or indirectly) how the voting rights in the shares in Eclairs Group Limited are to be exercised); or(iii) With Mr Alexander Zhukov, Mr Oleksandr Ratskevych and/orGlengary
Overseas Limited (or their respective companies or nominees), which relates to the exercise of JKX share voting rights (either directly or via yours and/or their respective companies and nominees)?
If so, please provide full particulars of such agreements or arrangements (including the names of all parties thereto).
- Please send the information requested above in writing to Cynthia Dubin, Finance Director at JKX Oil & Gas plc, 6 Cavendish Square, London W1G 0PD and at cynthia.dubin@jkx.co.uk.
- Please note that it is an offence under the Act to fail to comply with this notice (unless you can establish that the requirement to give information under this notice is frivolous or vexatious) or to knowingly or recklessly provide information which is false in a material particular.
- If you fail to comply by the deadline specified above, JKX reserves the right to issue a restriction notice in respect of the Shares under Article 42 of the JKX Articles of Association. You are advised to seek legal advice if you are in any doubt as to how to comply with this notice.
Response from Eclairs Group Limited dated 28 May 2013
- We, Eclairs Group Limited, hereby acknowledge receipt of the notice issued pursuant to section 793 of the Companies Act 2006 (the Notice) and respond to the Notice as follows.
- In relation to the shares in JKX Oil & Gas plc (JKX), we can confirm that we are the beneficial owners of 47,287,027 shares in JKX, as of 5 March 2013.
- We are not a party to any agreement or arrangement: (i) under which the shares in JKX have been acquired and which imposes obligations or restrictions on the exercise of the rights, control or influence in respect of such shareholding or on the retention or sale of such shares; (ii) relating to the exercise of any rights arising from the shareholding in JKX; or (iii) with Mr Alexander Zhukov, Mr Oleksandr Ratskevych and/or
Glengary
Overseas Limited (or their respective companies or nominees), which relates to the exercise of JKX share voting rights.
Notice to Igor Kolomoisky dated 13 May
In accordance with section 793 of the Companies Act 2006 (the Act), please notify us as soon as possible, but no later than by 5 pm (London time) on Tuesday 28 May 2013 with the following information:
- In relation to any of the shares in JKX Oil & Gas plc (JKX) in which you have, or during the last three years had, an interest (the Shares), please provide the following information:
a. The number of Shares in which you have or had an interest;
b. The nature of your interest in the Shares (e.g. beneficial owner, trustee, option);
c. The date(s) you acquired and ceased to hold such interest, in each case, if applicable;
d. So far as you know, the full name(s) and address(es) of the registered holder(s) of the Shares and the number of Shares held by each registered holder;
e. Whether you are party to any agreement or arrangement (whether written or unwritten, formal or informal, direct or indirect):
(i) Which includes provision for the acquisition by you and/or any other person of shares in JKX and which imposes obligations or restrictions on the use (including exercise of rights, control or influence arising from such shares) or on the retention or disposal of such shares;(ii) Relating to the exercise of any rights conferred by the holding of shares in JKX (e.g. an agreement which governs (directly or indirectly) how the voting rights in the shares in JKX held indirectly by you and Mr Gennadiy Bogolyubov (and his family) are to be exercised); or(iii) With Mr Alexander Zhukov, Mr Oleksandr Ratskevych and/orGlengary
Overseas Limited (or their respective companies or nominees), which relates to the exercise of JKX share voting rights (either directly or via yours and/or their respective companies and nominees)?
If so, please provide full particulars of such agreements or arrangements (including the names of all parties thereto).
- We note that you and Mr Bogolyubov (and his family) are the beneficial shareholders in Eclairs Group Limited. We understand, based on the details of a TR1 notice received by JKX on or about 21 March 2013, that a 40.9% interest in Eclairs Group Limited was transferred to a discretionary trust for the benefit of Mr Bogolyubov and his family (the Trust). Prior to this transfer we understand that 100% of the beneficial interest in the shares of Eclairs Group Limited was held by you. In relation to the arrangements which effect the transfer of the 40.9% beneficial interest in Eclairs Group Limited to the Trust, please provide full particulars of any agreement or arrangements (whether written or unwritten, formal or informal, direct or indirect) between you and Mr Bogolyubov and/or the Trust:
(a) Which includes provision for the acquisition by you, Mr Bogolyubov and/or the Trust of shares in JKX (whether directly or indirectly) and which imposes obligation or restriction on the use (including exercise of rights, control or influence arising from such shares) or on the retention or disposal of such shares; and
(b) Relating to the exercise of any rights conferred by the holding of shares in JKX (e.g. an agreement which governs (directly or indirectly) how the voting rights of the JKX shares held indirectly by you and Mr Gennadiy Bogolyubov (and his family) are to be exercised).
- Please confirm whether you and Mr Bogolyubov and/or the Trust are party to any agreement or arrangement (whether written or unwritten, formal or informal, direct or indirect) relating to the exercise of any rights arising from the holding of shares in Eclairs Group Limited and its respective holding of shares in JKX.
- Please send the information requested above in writing to Cynthia Dubin, Finance Director at JKX Oil & Gas plc, 6 Cavendish Square, London W1G 0PD and at cynthia.dubin@jkx.co.uk.
- Please note that it is an offence under the Act to fail to comply with this notice (unless you can establish that the requirement to give information under this notice is frivolous or vexatious) or to knowingly or recklessly provide information which is false in a material particular.
- If you fail to comply by the deadline specified above, JKX reserves the right to issue a restriction notice in respect of the Shares under Article 42 of the JKX Articles of Association. You are advised to seek legal advice if you are in any doubt as to how to comply with this notice.
Response from Igor Kolomoisky dated 28 May 2013
- I, Igor Kolomoisky, hereby acknowledge receipt of the notice issued pursuant to section 793 of the Companies Act 2006 (the Notice) and respond to the Notice as set out below.
- In relation to the shares in JKX Oil & Gas plc (JKX), I hereby confirm that 47,287,027 shares in JKX (the "Shares") are beneficially owned by Eclairs Group Limited ("Eclairs") as of 5 March 2013. Trival Limited ("TL") is the registered holder of 59.1% of the total share capital of Eclairs and I am the beneficial owner of TL by virtue of the deed of trust between the registered shareholder of TL and myself.
- As far as I am aware, the registered shareholder of the Shares in Hanover Nominees Limited ("Hanover"), a holding/custodian vehicle of J.P. Morgan Chase Bank, N.A, whose registered office is at 25 Bank Street, Canary Wharf, London E14 5JP. The number of JKX shares held by Hanover in favour of Eclairs (through another custodian) is 47,287,027 shares.
- I am not a party to any agreement or arrangement: (i) which includes provision for the acquisition of shares in JKX and which imposes obligations or restrictions on the exercise of the rights, control or influence in respect of such shareholding or on the retention or sale of such shares; (ii) relating to the exercise of any rights arising from the shareholding in JKX; or (iii) with Mr Alexander Zhukov, Mr Oleksandr Ratskevych and/or
Glengary
Overseas Limited (or their respective companies or nominees), which relates to the exercise of JKX share voting rights.
- I, Mr Bogolyubov and Marigold Trust Company Limited are not party to any agreement or arrangement which (a) includes provision for the acquisition by me, Mr Bogolyubov or Marigold Trust Company Limited of shares in JKX and which imposes obligations or restrictions on the use or on the retention or disposal of such shares; or (b) relating to the exercise of any rights conferred by the holding of shares in JKX.
- I am not a party to any agreement or arrangement (whether written or unwritten, formal or informal, direct or indirect) relating to the exercise of any rights arising from the holding of shares in Eclairs Group Limited and its interest in JKX shares.
- Other than as set out in paragraph 2 of this letter, I confirm that I do not hold any interest in JKX shares.
Notice to Gennadiy Bogolyubov dated 13 May
In accordance with section 793 of the Companies Act 2006 (the Act), please notify us as soon as possible, but no later than by 5 pm (London time) on Tuesday 28 May 2013 with the following information:
1. In relation to any of the shares in JKX Oil & Gas plc (JKX) in which you have, or during the last three years had, an interest (the Shares), please provide the following information:
a. The number of Shares in which you have or had an interest;
b. The nature of your interest in the Shares (e.g. beneficial owner, trustee, option);
c. The date(s) you acquired and ceased to hold such interest, in each case, if applicable;
d. So far as you know, the full name(s) and address(es) of the registered holder(s) of the Shares and the number of Shares held by each registered holder;
e. Whether you are party to any agreement or arrangement (whether written or unwritten, formal or informal, direct or indirect):
(i) Which includes provision for the acquisition by you and/or any other person of shares in JKX and which imposes obligations or restrictions on the use (including exercise of rights, control or influence arising from such shares) or on the retention or disposal of such shares;(ii) Relating to the exercise of any rights conferred by the holding of shares in JKX (e.g. an agreement which governs (directly or indirectly) how the voting rights in the shares in JKX held indirectly by you (and your family) and Mr Igor Kolomoisky are to be exercised); or(iii) With Mr Alexander Zhukov, Mr Oleksandr Ratskevych and/orGlengary
Overseas Limited (or their respective companies or nominees), which relates to the exercise of JKX share voting rights (either directly or via yours and/or their respective companies, nominees and trusts)?
If so, please provide full particulars of such agreements or arrangements (including the names of all parties thereto).
- We note that you (and your family) and Mr Kolomoisky are the beneficial shareholders in Eclairs Group Limited. We understand, based on the details of a TR1 notice received by JKX on or about 21 March 2013, that a 40.9% interest in Eclairs Group Limited was transferred to a discretionary trust for the benefit of you and your family (the Trust). Prior to this transfer we understand that 100% of the beneficial interest in the shares of Eclairs Group Limited was held by Mr Kolomoisky. In relation to the arrangements which effect the transfer of the 40.9% beneficial interest in Eclairs Group Limited to the Trust, please provide full particulars of any agreement or arrangements (whether written or unwritten, formal or informal, direct or indirect) between you, the Trust and/or Mr Kolomoisky:
(a) Which includes provision for the acquisition by you, the Trust and/or Mr Kolomoisky of shares in JKX (whether directly or indirectly) and which imposes obligation or restriction on the use (including exercise of rights, control or influence arising from such shares) or on the retention or disposal of such shares; and
(b) Relating to the exercise of any rights conferred by the holding of shares in JKX (e.g. an agreement which governs (directly or indirectly) how the voting rights of the JKX shares held indirectly by you (and your family), the Trust and Mr Kolomoisky are to be exercised).
- Please confirm whether you, the Trust and/or Mr Kolomoisky are party to any agreement or arrangement (whether written or unwritten, formal or informal, direct or indirect) relating to the exercise of any rights arising from the holding of shares in Eclairs Group Limited and its respective holding of interests in JKX shares.
- Please send the information requested above in writing to Cynthia Dubin, Finance Director at JKX Oil & Gas plc, 6 Cavendish Square, London W1G 0PD and at cynthia.dubin@jkx.co.uk.
- Please note that it is an offence under the Act to fail to comply with this notice (unless you can establish that the requirement to give information under this notice is frivolous or vexatious) or to knowingly or recklessly provide information which is false in a material particular.
- If you fail to comply by the deadline specified above, JKX reserves the right to issue a restriction notice in respect of the Shares under Article 42 of the JKX Articles of Association. You are advised to seek legal advice if you are in any doubt as to how to comply with this notice.
Response from Gennadiy Bogolyubov dated 27 May 2013
- I, Gennadiy Bogolyubov, hereby acknowledge receipt of the notice issued pursuant to section 793 of the Companies Act 2006 (the Notice) and respond to the Notice as follows.
- In relation to the shares in JKX Oil & Gas plc (JKX), I hereby confirm that 47,287,027 shares in JKX (the "Shares") are beneficially owned by Eclairs Group Limited (Eclairs) of which Marigold Trust Company Limited (MTCL) is the registered holder of 40.9% of the total share capital. MTCL is the trustee of a discretionary trust for the benefit of myself and the member of my family. MTCL was registered as a 40.9% shareholder of Eclairs on 19 March 2013.
- As far as I am aware, the registered shareholder of the Shares in Hanover Nominees Limited (Hanover), is a holding/custodian vehicle of J.P. Morgan Chase Bank, N.A, whose registered office is at 25 Bank Street, Canary Wharf, London E14 5JP. The number of JKX shares held by Hanover in favour of Eclairs (through another custodian) is 47,287,027 shares.
- I am not a party to any agreement or arrangement: (i) which includes provision for the acquisition of shares in JKX and which imposes obligations or restrictions on the exercise of the rights, control or influence in respect of such shareholding or on the retention or sale of such shares; (ii) relating to the exercise of any rights arising from the shareholding in JKX; or (iii) with Mr Alexander Zhukov, Mr Oleksandr Ratskevych and/or
Glengary
Overseas Limited (or their respective companies or nominees), which relates to the exercise of JKX share voting rights.
- I, MTCL and Mr Kolomoisky are not party to any agreement or arrangement which (a) includes provision for the acquisition by me, MTCL and Mr Kolomoisky of shares in JKX and which imposes obligations or restrictions on the use or on the retention or disposal of such shares; or (b) relating to the exercise of any rights conferred by the holding of shares in JKX.
- I am not a party to any agreement or arrangement (whether written or unwritten, formal or informal, direct or indirect) relating to the exercise of any rights arising from the holding of shares in Eclairs Group Limited and its interest in JKX shares.
- Other than as set out in paragraph 2 of this letter, I confirm that I do not hold any interest in JKX shares.
[Notices and responses in respect of the other Eclairs parties are not set out here]
Glengary
, Zhukov and Ratskevych
The following is the text of the notice served on Mr Ratskevych. Mr Zhukov received one in the same terms, with appropriate name substitutions.]
Notice issued pursuant to section 793 of the Companies Act 2006
In accordance with section 793 of the Companies Act 2006 (the Act), please notify us as soon as possible, but no later than by 5 pm (London time) on Tuesday 28 May 2013, with the following information:
- In relation to any of the shares in JKX Oil & Gas (JKX) in which you have, or during the last three years had, an interest (the Shares), please provide the following information:
(a) the number of Shares in which you have or had a direct or indirect interest;
(b) the nature of your interest in the Shares (e.g. beneficial owner, trustee, option);
(c) the date(s) you acquired the Shares and ceased to hold such interest, in each case, if applicable;
(d) so far as you know, the full name(s) and address(es) of the registered holder(s) of the Shares and the number of Shares held by each registered holder;
(e) whether you are party to any agreement or arrangement (whether written or unwritten, formal or informal, direct or indirect):
(i) which includes provision for the acquisition by you and/or any other person of shares in JKX and which imposes obligations or restrictions on the use (including exercise of rights, control or influence arising from such shares) or on the retention or disposal of such shares;(ii) relating to the exercise of any rights conferred by the holding of shares in JKX (e.g. an agreement which governs (directly or indirectly) how the voting rights in the shares in JKX held indirectly by you and Mr Alexander Zhukov are to be exercised); or(iii) with Mr Igor Kolomoisky, Mr Gennadiy Bogolyubov and/or Eclairs Group Limited (or their respective companies, nominees or family or other trusts), which relates to the exercise of JKX share voting rights (either directly or via yours and/or their respective companies, nominees and trusts)?If so, please provide full particulars of such agreements or arrangements (including the names of all parties thereto).- We note that you have previously advised that you and Mr Zhukov are the beneficial shareholders in
Glengary
Overseas Limited. Please provide full particulars of any agreement or arrangement (whether written or unwritten, formal or informal, direct or indirect) between you and Mr Zhukov:
(a) which includes provision for the acquisition by you and/or Mr Zhukov of shares in JKX (whether directly or indirectly) and which imposes obligations or restrictions on the use (including exercise of rights, control or influence arising from such shares) or on the retention or disposal of such shares; and
(b) relating to the exercise of any rights conferred by the holding of shares in JKX (e.g. an agreement which governs (directly or indirectly) how the voting rights in the JKX shares held indirectly by you and Mr Zhukov are to be exercised).
- Please confirm whether you and Mr Zhukov are party to any agreement or arrangement (whether written or unwritten, formal or informal, direct or indirect) relating to the exercise of any rights arising from the holding of shares in
Glengary
Overseas Limited and its respective holding of shares in JKX.
- Please send the information requested above in writing to Cynthia Dubin, Finance Director at JKX Oil & Gas plc, 6 Cavendish Square, London W1G 0PD and at [email address provided].
- Please note that it is an offence under the Act to fail to comply with this notice (unless you can establish that the requirement to give information under this notice is frivolous or vexatious) or to knowingly or recklessly provide information which is false in a material particular.
- If you fail to comply by the deadline specified above, JKX reserves the right to issue a restriction notice in respect of the Shares under Article 42 of the JKX Articles of Association. You are advised to seek legal advice if you are in any doubt as to how to comply with this notice.
Response from Oleksandr Ratskevych to JKX Oil and Gas dated 27th May 2013
In response to your notice of 13 May 2013 and in accordance with section 793 of the Companies Act 2006, please, be hereby advised as follows.
- In relation to the shares in JKX Oil & Gas ("Shares") I have, and during the last three years had, the interest as stated below:
(a) I hold an interest in 19 656 344 Shares;
(b) I hold an indirect interest in the Shares by holding a beneficial ownership interest of 5% in
Glengary
Overseas Limited of 3rd Floor, Geneva Place, Waterfront Drive, Road Town, Tortola, BVI ("
Glengary
");
(c) On 8 March 2007 I acquired a 5% beneficial ownership interest in
Glengary
which I still hold. At the time I acquired my beneficial interest in
Glengary
,
Glengary
had an interest in 39 312 688 Shares. On 27 December 2007
Glengary
disposed of 19 656 344 Shares leaving
Glengary
with an interest in 19 656 344 Shares.
(d) As far as I am aware, the registered holder of the Shares in question is Lynchwood Nominees Ltd of 55 Moorgate, London EC2R 6PA, United Kingdom;
(e) I am not a party to any type of agreement or arrangement referred to in paragraphs 1(e)(i)-(iii) of the notice. I have however participated in discussions with Eclairs Group Limited regarding JKX's recent operational and financial performance and the need to change the management team. I have been proposed by Eclairs Group as a candidate for the JKX board as per the open letter to JKX shareholders dated 23 May 2013.
- There are no agreements or arrangements between us regarding the acquisition of Shares or their use, as referred to in paragraph 2(a) of the notice. There are also no agreements or arrangements between us relating to the exercise of rights conferred by holding the Shares, as referred to in paragraph 2(b) of the notice.
Please note however that I hold a 5% beneficial interest in
Glengary
and Mr Zhukov holds a 95% beneficial interest in
Glengary
. My Zhukov controls a group of companies which includes
Glengary
("Group"). I was appointed by Mr Zhukov as CEO of the Group and I am responsible for the day-to-day management of the Group, including
Glengary
. In connection with my position as CEO of the Group I was granted a 5% beneficial interest in
Glengary
.
Although I am consulted regarding matters relating to
Glengary
's interest in the Shares, Mr Zhukov, as the holder of a 95% beneficial interest in
Glengary
, ultimately decides how
Glengary
exercises its rights in the Shares.
- Neither myself nor Mr Zhukov are party to any agreement or arrangement relating to the exercise of rights arising from the holding of shares in
Glengary
and its holding of Shares. Mr Zhukov, by way of a 95% beneficial interest, ultimately controls
Glengary
and, as such, he decides how
Glengary
exercises its rights in the Shares.
Response from Alexander Zhukov dated 27th May 2013
Dear Sirs
In response to your notice of 13 May 2013 and in accordance with section 793 of the Companies Act 2006, please, be hereby advised as follows.
- In relation to the shares in JKX Oil & Gas Plc ("Shares") I have, and during the last three years had, the interest as stated below;
(a) I hold an interest in 19 656 344 Shares
(b) I hold an indirect interest in the Shares by holding a beneficial ownership interest of 95% in
Glengary
Overseas Limited of 3rd Floor, Geneva Place, Waterfront Drive, Road Town, Tortola, BVI ("
Glengary
");
(c)
Glengary
was incorporated on 28 May 2004 and I was the sole beneficial owner of the entire issued share capital in
Glengary
.
Glengary
acquired 23,810,862 Shares on 27 October 2004. On 1 December 2004
Glengary
acquired a further 750,000 Shares resulting in a total interest in 24,560,862 Shares. On 15 June 2006
Glengary
acquired 14 751 826 Shares increasing its total holding to 39,312,688 Shares. On 27 December 2007
Glengary
disposed of 19,656,344 Shares leaving
Glengary
with an interest in 19 656 344 Shares. On 08 March 2007 I transferred 5% of my beneficial ownership interest in
Glengary
to Oleksandr Ratskevych. I currently hold a 95% beneficial ownership interest in
Glengary
;
(d) as far as I am aware, the registered holder of the Shares in question is Lynchwood Nominees Ltd of 55 Moorgate, London EC2R6PA, United Kingdom;
(e) I am not a party to any type of agreement or arrangement referred to in paragraphs 1(e)(i)-(iii) of the notice. I have however participated in discussions with Eclairs Group Limited regarding JKX's recent operational and financial performance and the need to change the management team as per the open letter to JKX shareholders dated 23 May 2013.
- There are no agreements or arrangements between us regarding the acquisition of Shares or their use, as referred to in paragraph 2(a) of the notice. There are also no agreements or arrangements between us relating to the exercise of rights conferred by holding the Shares, as referred to in paragraph 2(b) of the notice.
Please note however that I hold a 95% beneficial interest in
Glengary
and Mr Ratskevych holds a 5% beneficial interest in
Glengary
. I control a group of companies which includes
Glengary
("Group"). I appointed Mr Ratskevych as CEO of the Group and Mr Ratskevych is responsible for the day-to-day management of the Group, including
Glengary
. In connection with Mr Ratskevych's position as CEO of the Group I granted a 5% beneficial interest in
Glengary
to him. As the holder of 95% beneficial interest in
Glengary
I ultimately decide how
Glengary
exercises its rights in the Shares.
- Neither myself nor Mr Ratskevych are party to any agreement or arrangement relating to the exercise of rights arising from the holding of shares in
Glengary
and its holding of Shares. As I have a 95% beneficial interest in
Glengary
, I ultimately control
Glengary
and I decide how
Glengary
exercises its rights in the Shares.
Glengary
Overseas Ltd
Notice issued pursuant to section 793 of the Companies Act 2006
In accordance with section 793 of the Companies Act 2006 (the Act), please notify us as soon as possible, but no later than by 5 pm (London time) on Tuesday 28 May 2013, with the following information:
- In relation to any of the shares in JKX Oil & Gas (JKX) in which you have, or during the last three years had, an interest (the Shares), please provide the following information:
(a) the number of Shares in which you have or had an interest;
(b) the nature of your interest in the Shares (e.g. beneficial owner, trustee, option);
(c) the date(s) you acquired the Shares and ceased to hold such interest, in each case, if applicable;
(d) whether you are party to any agreement or arrangement (whether written or unwritten, formal or informal, direct or indirect):
(i) which includes provision for the acquisition by you and/or any other person of shares in JKX and which imposes obligations or restrictions on the use (including exercise of rights, control or influence arising from such shares) or on the retention or disposal of such shares;(ii) relating to the exercise of any rights conferred by the holding of shares in JKX (e.g. an agreement which governs (directly or indirectly) how the voting rights in the shares inGlengary
Overseas Limited are to be exercised); or
(iii) with Mr Igor Kolomoisky, Mr Gennadiy Bogolyubov and/or Eclairs Group Limited (or their respective companies, nominees or family or other trusts), which relates to the exercise of JKX share voting rights (either directly or via yours and/or their respective companies, nominees and trusts)?If so, please provide full particulars of such agreements or arrangements (including the names of all parties thereto).- Please send the information requested above in writing to Cynthia Dubin, Finance Director at JKX Oil & Gas plc, 6 Cavendish Square, London W1G 0PD and at [email address provided].
- Please note that it is an offence under the Act to fail to comply with this notice (unless you can establish that the requirement to give information under this notice is frivolous or vexatious) or to knowingly or recklessly provide information which is false in a material particular.
- If you fail to comply by the deadline specified above, JKX reserves the right to issue a restriction notice in respect of the Shares under Article 42 of the JKX Articles of Association. You are advised to seek legal advice if you are in any doubt as to how to comply with this notice.
Response of
Glengary
:
Dear Sirs,
In response to your notice of 13 May 2013 and in accordance with section 793 of the Companies Act 2006, please be hereby advised as follows.
In relation to the shares in JKX Oil & Gas Plc ("Shares"),
Glengary
Overseas Limited ("
Glengary
") has, and during the last three years had, the interest stated below:
(a)
Glengary
currently has an interest in 19,656,344 Shares. During the last three years
Glengary
's shareholding in JKX has not changed.
(b)
Glengary
is the beneficial owner of the Shares.
(c)
Glengary
acquired 23,810,862 Shares on 27th of October 2004. On 1 December 2004 Glengarry acquired a further 750,000 Shares resulting in a total interest in 24,560,862 Shares. On 15 June 2006
Glengary
acquired 14,751,826 Shares increasing its total holding to 39,312,688 Shares. On 27 December 2007
Glengary
disposed of 19,656,344 Shares leading Glengarry with an interest in 19,656,344 Shares.
(d)
Glengary
has participated in discussions with Eclairs Group Limited regarding JKX's recent operational and financial performance and the need to change the management team.
Glengary
however is not a party to any agreement or arrangement as mentioned in paragraph 1. (d)(i), (ii), and (iii) of your notice.
Glengary
is simply a holding vehicle for the Shares in favor of its ultimate beneficial owners – Alexander Zhukov and Oleksandr Ratskevych and acts upon their instructions.
[The remaining
Glengary
parties' notices and responses are not set out here.]
Appendix 2 - Restriction notices [The Eclairs/Mr Kolomoisky/Mr Bogolyubov notice]"Dear Sirs,JKX Oil & Gas plc – Restriction Notice Issued under Article 42 of the Articles of AssociationWe refer to the notices issued by JKX Oil & Gas plc (JKX) to each of Eclairs Group Limited (Eclairs), Mr. Igor Kolomoisky and Mr. Gennadiy Bogolyubov on 13 May 2013 in accordance with 793 of the Companies Act 2006 (the Section 793 Notices).We also refer to the responses dated 27 and 28 May 2013 to the Section 793 Notices of each of Eclairs, Mr. Kolomoisky and Mr. Bogolyubov (the Section 793 Responses).Having reviewed public statements made by, and correspondence and other communications from, you andGlengary
Overseas Limited (
Glengary
), Mr. Alexander Zhukov and Mr. Oleksandr Ratskevych, the board of directors of JKX (the Board) has reasonable cause to believe that information provided in the Section 793 Responses is false or materially incorrect. Without prejudice to the generality of the foregoing, the Board has reasonable cause to believe that the following statements made in the Section 793 Responses are false or materially incorrect:
None of Mr. Kolomoisky, Mr. Bogolyubov (or his family) or Eclairs (or their respective companies or nominees) are party to any agreement or arrangement (whether written or unwritten, formal or informal, direct or indirect) (Arrangements) relating to the exercise of any rights conferred by the holding of shares in JKX (e.g. an Arrangement which governs (directly or indirectly) how the voting rights in shares in JKX held indirectly by Mr. Kolomoisky and Mr. Bogolyubov (and his family) are to be exercised); and
None of Mr. Kolomoisky, Mr. Bogolyubov (or his family) or Eclairs (or their respective companies or nominees) are party to any Arrangements with Mr. Zhukov, Mr. Ratskevych and/or
Glengary
(or their respective companies or nominees) which relate to the exercise of JKX shares voting rights (either directly or via such persons' respective companies and nominees).
Please provide full and proper details of all information requested in the Section 793 Notices, including (without limitation) the scope and nature of all Arrangements of the type referred to in paragraph 3 above, as soon as possible.Accordingly, the JKX board of directors has resolved to issue the following restriction notice in accordance with Article 42.RESTRICTION NOTICE UNDER ARTICLE 42This is a restriction notice issued under Article 42 in respect of 47,287,027 ordinary shares in JKX held by Hanover Nominees Limited (Hanover) on behalf of Eclairs (the Shares).In accordance with Article 42(3) the following restrictions are imposed with respect to the Shares:Hanover is not entitled, in respect of the Shares, to attend or be counted in the quorum or vote either personally or by proxy or otherwise at any general meeting or at any separate meeting of the holders of any class of shares or upon a poll or to exercise any other right or privilege in relation to any general meeting or any meeting of the holders of any class of shares; and
no transfer of the Shares shall be effective or shall be registered by JKX except as provided for in Article 42(4).
6. In accordance with Article 42(9) the Board has the right, at its discretion, to suspend, in whole or in part, this restriction notice either permanently or for any given period.…
[The
Glengary
/Mr Zhukov/Mr Ratskevych notice]
[The opening and closing paragraphs are the same as those above, substituting the names of the
Glengary
/Mr Zhukov/Mr Ratskevych where appropriate.] Paragraph 3 reads:
"3. Having reviewed public statements made by, and correspondence and other communications from, you and Eclairs Group Ltd (Eclairs), Mr Igor Mr Kolomoisky and Mr Gennadiy Bogolyubov, the board of directors of JKX (the Board) has reasonable cause to believe that information provided in the Section 793 Responses that none of Mr Zhukov, Mr Ratskevych or
Glengary (or their respective companies or nominees) are party to any Arrangements with Mr Kolomoisky, Mr Bogolyubov (or his family) and/or Eclairs (or their respective companies or nominees) which relates to the exercise of JKX share voting rights (either directly or via such persons' respective companies and nominees) is false or materially incorrect."
[The remainder of the notice is in similar form to that appearing above.]