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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Dashfield & Anor v Davidson & Ors [2008] EWHC 486 (Ch) (18 March 2008) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2008/486.html Cite as: [2009] 1 BCLC 220, [2008] EWHC 486 (Ch), [2008] BCC 662 |
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CHANCERY DIVISION
BRISTOL DISTRICT REGISTRY
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
(1) BRENDA MARY DASHFIELD (2) JOHN LESLIE SHEPHERD |
Claimants/ Part 20 Defendants |
|
-And- (1) NIGEL JOHN DAVIDSON (2) NOEL EDWARD RUDDY And (3) KENNETH IAN WOODBURY (4) JACK PROWTING |
Defendants/ Part 20 Claimants Part 20 Defendants |
____________________
Mr Clive Freedman QC Mr Simon Mills (instructed by Paul Davidson Taylor) for the Defendants.
Hearing dates: 25, 26, 27, 28th February 2008
____________________
Crown Copyright ©
Mr. Justice Lewison:
Paragraph | |
Introduction | 1 |
History | 3 |
Article 14 | 8 |
Further interest | 9 |
Avingtrans | 13 |
Mr Peet's death | 23 |
The issue | 41 |
What, if anything, was agreed at the end of March 2004? | 43 |
Construction of article 14 | 50 |
Equitable overlays | 59 |
Unfair prejudice | 61 |
What price? | 69 |
Result | 85 |
Introduction
History
Article 14
"On the death of any Shareholder the personal Representatives of such a deceased shareholder shall be required to transfer the deceased shareholders shares in the company as follows:
(i) Within three months of the shareholders death the company secretary will issue a transfer notice to the personal representative of the deceased shareholder
(ii) The auditors will value the deceased shareholders shares in accordance with the following formula. The value of the company will be the net asset value of the company per the last set of audited accounts.
The value of the deceased shareholding will be the proportion of this value of shares held divided by the total issued share capital multiplied by the net asset per the latest audited accounts.
(iii) If the company has sufficient distributable reserves, the company will purchase the shares from the personal representative of the deceased. On production of a Banker's Draft at the value ascertained in (ii) above the personal representative will transfer the shares to the company and the company will cancel the shares.
(iv) If the company has insufficient distributable reserves to purchase the shares, the shares of the deceased will be offered at the value noted in (ii) above to the other shareholders in the proportion of their existing shareholding. On acceptance of the offer the existing shareholder will pay the appropriate proportion of the valuation to the deceased personal representative by bankers draft.
(v) If the arrangements in section 14 (iii) or (iv) have not been completed within three months of the date of the Transfer Notice referred to in section 14 (i) then the personal representative of the deceased shareholder shall be free to offer the said shares to a third party. Before completing the sale to a third party, however the shares must be offered to the existing shareholders at the same price as agreed with the third party. If existing shareholders do not accept at this price within 21 days the shares are offered at this price per share to other shareholders. If this has not resulted in acceptance and payment within a further 21 days then the personal representative of the deceased will be free to sell the shares to the third party at the agreed price and the company will be obliged to register such transfer."
Further interest
Avingtrans
i) A period of eight weeks exclusivity was to be given to Avingtrans for the completion of legal, financial and due diligence;
ii) The due diligence was to cover the completion of definitive documentation which was to include representations and warranties;
iii) Directors were to be retained on a part time consultancy for a minimum period of six months;
iv) The company and Avingtrans were each to pay their own costs
v) The consultancy agreement with Mr Woodbury was to be extended for a period to 31 May 2005, and thereafter on six months notice.
"All x 3 agreed
John Peet – ill
- making will with Mead-King
- IW is executor
- P of A - to negotiate transaction on his behalf (letter of authority info needed
- to sign dox – SPA, STF, Con Agmt etc
- but will not assist if he dies"
Mr Peet's death
"4. The pre-emption rights relating to Crown was reviewed in detail and it was confirmed that the other shareholders of Crown had given notice that they intended to exercise those rights. Angie confirmed that in her view the business had been built up by the three shareholders and that she would not wish to dispute those rights. It was agreed that Ian W would fax a copy of the documents to Rosie.
5. However, in view of the significance to the Estate the Executors confirmed that they had asked the Estates Solicitors to seek Counsel's opinion on the validity of the pre-emption rights and the correct convening of the meeting to introduce those rights…. Counsel's advice had been requested 18 May and an answer requested within 7 days.
6. The offer for the purchase of the share capital of Crown was discussed and the requirement by the Purchasers that the transaction be completed before the end of May which coincided with the Purchasers financial year end. Due diligence was at an advanced stage and Completion was scheduled for 27 May. The surviving shareholders would exercise the pre-emption rights immediately prior to completion but proceeds would remain on Solicitors account pending clarification from Counsel. The shareholders would, pending clarification, only be able to draw from this account as if pre-emption had not been exercised.
7. … When selling a company the purchaser seeks warranties and if these warranties were not given the value of the company is reduced or in extreme cases the purchaser would choose not to proceed. Because the pre-emption rights were being exercised these warranties were falling on the shoulders of the other two shareholders of Crown as were all of the professional costs involved in the sale thus reducing exposure as far as the Estate of John Peet was concerned."
"The parties agree that it is their respective intentions that the following principles should apply in relation to reaching agreement between them as to the manner in which the Retention should be applied:
a) that if no claim is made by the Executors or the Estate to the Retention (or any part thereof), the whole of the Retention shall be paid to Brenda and John in equal amounts;
b) that the Estate and the Executors will only seek to make a claim to the Retention (or any part thereof) if they have received a written opinion (from a suitably experienced barrister of at least 10 years call) to the effect that the Estate and/or the Executors were (on a balance of probabilities) not legally obliged to offer to sell (or to sell) John Peet's shares in Crown to Crown either at all or not at the price at which such shares were in fact sold to the Company…"
i) Article 14 was void because it contravened section 165 of the Companies Act 1985, and consequently the executors were not obliged to sell Mr Peet's shares to the company;
ii) It was arguable that there was an implied waiver of the requirements of article 14;
iii) The court would not have ordered the executors to transfer the shares to the company before 28 May 2004 because article 14 did not specify a date for completion of the sale to the company;
iv) Consequently the executors were, on a balance of probabilities, not legally obliged to sell Mr Peet's shares to the company.
The issue
"the Estate and/or the Executors were (on a balance of probabilities) not legally obliged to offer to sell (or to sell) John Peet's shares in Crown to Crown either at all or not at the price at which such shares were in fact sold to the Company."
What, if anything, was agreed at the end of March 2004?
"Most contracts are, of course, made expressly, whether orally or in writing. But here, on the evidence, nothing was said, nothing was written. So regard must be paid to the conduct of the parties alone. The questions to be answered are, I think, twofold: (1) Whether the conduct of the bill of lading holder in presenting the bill of lading to the ship's agent would be reasonably understood by the agents (or the shipowner) as an offer to enter into a contract on the bill of lading terms. (2) Whether the conduct of the ship's agent in accepting the bill or the conduct of the master in agreeing to give delivery or in giving delivery would be reasonably understood by the bill of lading holder as an acceptance of his offer.
I do not think it is enough for the party seeking the implication of a contract to obtain "it might" as an answer to these questions, for it would, in my view, be contrary to principle to countenance the implication of a contract from conduct if the conduct relied upon is no more consistent with an intention to contract than with an intention not to contract. It must, surely, be necessary to identify conduct referable to the contract contended for or, at the very least, conduct inconsistent with there being no contract made between the parties to the effect contended for. Put another way, I think it must be fatal to the implication of a contract if the parties would or might have acted exactly as they did in the absence of a contract."
Construction of article 14
i) The fact of the shareholder's death. A shareholder might, for instance, have retired and gone to live abroad, or might have disposed of his shares during his lifetime;
ii) The identification of the deceased shareholder's personal representatives;
iii) The examination of the articles and the drafting of a transfer notice;
iv) The consideration whether the company has distributable profits and if so, what their level might be.
i) The transfer notice had been issued;
ii) The auditors had certified the value; and
iii) The company had both sufficient distributable reserves to buy the shares at the certified price and sufficient cash to procure the necessary banker's draft.
Equitable overlays
"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."
Unfair prejudice
"The first of these two features leads to the conclusion that a member of a company will not ordinarily be entitled to complain of unfairness unless there has been some breach of the terms on which he agreed that the affairs of the company should be conducted. But the second leads to the conclusion that there will be cases in which equitable considerations make it unfair for those conducting the affairs of the company to rely upon their strict legal powers. Thus unfairness may consist in a breach of the rules or in using the rules in a manner which equity would regard as contrary to good faith."
"In my view, a balance has to be struck between the breadth of the discretion given to the court and the principle of legal certainty. Petitions under section 459 are often lengthy and expensive. It is highly desirable that lawyers should be able to advise their clients whether or not a petition is likely to succeed. Lord Wilberforce, after the passage which I have quoted, said that it would be impossible "and wholly undesirable" to define the circumstances in which that application of equitable principles might make it unjust, or inequitable (or unfair) for a party to insist on legal rights or to exercise them in particular way. This of course is right. But that does not mean that there are no principles by which those circumstances may be identified. The way in which such equitable principles operate is tolerably well settled and in my view it would be wrong to abandon them in favour of some wholly indefinite notion of fairness."
"to ask whether the exercise of the power in question would be contrary to what the parties, by words or conduct, have actually agreed. Would it conflict with the promises which they appear to have exchanged? In Blisset v. Daniel the limits were found in the "general meaning" of the partnership articles themselves. In a quasi-partnership company, they will usually be found in the understandings between the members at the time they entered into association. But there may be later promises, by words or conduct, which it would be unfair to allow a member to ignore. Nor is it necessary that such promises should be independently enforceable as a matter of contract. A promise may be binding as a matter of justice and equity although for one reason or another (for example, because in favour of a third party) it would not be enforceable in law."
What price?
"The value of the company will be the net asset value of the company per the last set of audited accounts."
"The valuation is to be made, according to the order appealed from, as at the death of the testator. There is no appeal about that, and it is justified, I feel, because the right to have the land by the exercise of the option accrued at that date. But that does not mean, or it will not mean, when valuation comes, that the valuers are to draw blinkers over their eyes or to shut their eyes to the fact that some time has passed since the testator's death and very likely the lands have very much increased in value since, they are entitled to say what, today, knowing what they do, and discounting back for the three years, is the proper market value of these farms."
"Fourthly, the date for valuation is the death. The will, I think, is to be construed as offering the property with effect from the death. But it is admitted that subsequent developments may be considered in that valuation."
"Turning now to the present case, the question is whether the implied term of requiring members to contribute to maintenance of the amenities can be implied not on the basis of any language to be found in the articles, but on the basis of extrinsic circumstances. The question is, is it notionally ever possible to imply a term in such circumstances? I will readily accept that the law should not adopt a black-letter approach. It is possible to imply a term purely from the language of the document itself: a purely constructional implication is not precluded. But it is quite another matter to seek to imply a term into articles of association from extrinsic circumstances."
Result