Monecor (London) Ltd. v Euro Brokers Holdings Ltd.

Formal corporate procedures may be dispensed with where all members who could exercise the relevant power unanimously assent to the substance of the act. The Duomatic principle applies to procedures in articles, legislation and shareholders’ agreements regulating corporate governance. Thus, shareholders may treat a capital call as validly made by the board even where the board lacks a quorum. A contractual capital-adequacy call may include an agreed buffer above the regulator’s minimum where the agreement does not confine it to that minimum. Failure to pay may trigger an option to acquire the defaulting shareholder’s shares, for which specific performance is ordinarily available.

Monecor and Euro Brokers were equal shareholders in Euro Brokers Finacor Limited under a Shareholders’ Agreement. Clause 11(2) provided for further funding required for capital adequacy or payment of debts, and gave the funding shareholder an option to acquire the entire shareholding of a shareholder who failed to meet the call.

After the company’s B directors resigned, its board lacked a quorum. Its finance director requested further funding by email. Monecor agreed to contribute but paid only part of its share, while Euro Brokers funded its contribution and exercised the option. The Deputy High Court Judge ordered specific performance on 9 May 2002. The appeal concerned the board formalities, the scope of the capital-adequacy provision, Monecor’s awareness of the call, waiver and estoppel, and the remedy.

Mummery LJ gave the judgment of the court, with which Waller and Pill LJJ agreed. The appeal was dismissed.

1. Validity of the Capital Call. Monecor could have appointed replacement B directors under Article 15(3), but failed to do so through ignorance of its power. The information reasonably required to assess the call had been supplied, and there was no contractual requirement for audited figures. By their conduct, Monecor and Euro Brokers agreed to proceed as though the finance director’s notice had been issued by the board. The parties could vary the requirement in clause 11(2), which regulated their relationship as shareholders.
2. Duomatic principle. The principle stated in Re Duomatic [1969] 2 Ch 365 applied. Where all shareholders entitled to attend and vote at a general meeting assent to a matter which that meeting could effect, their assent is binding as if the formal procedure had been followed. The principle applies whether the procedure is found in the articles, the Companies Acts or a separate shareholders’ agreement. Re New Cedos Engineering Co Ltd [1994] 1 BCLC 797, Barron v Potter [1914] 1 Ch.895 and Re Torvale Group Ltd [2000] BCC 626 supported that conclusion.
3. Capital adequacy. Clause 11(2) was not limited to the FSA’s stated minimum. The agreed £500,000 buffer formed part of the applicable capital-adequacy requirements. Forecasts and predictions could therefore justify a call to maintain the buffer.
4. Awareness and remedy. The evidence supported the finding that Monecor knew the request was a Capital Call under clause 11(2), with the stated consequences of non-payment. It was unnecessary to decide the alternative waiver and estoppel arguments. There was no improper or unconscionable conduct by Euro Brokers. Specific performance was ordinarily available for an obligation to transfer shares, and the Deputy Judge had made no error of principle and was not plainly wrong.

The order was affirmed, save that the stay was lifted forthwith. Leave to appeal to the House of Lords was refused. Monecor was ordered to pay Euro Brokers’ appeal costs.

• Court of Appeal (Civil Division) — [2003] EWCA Civ 105, 11 February 2003. Appeal dismissed and the Deputy Judge’s order affirmed, subject to the stay being lifted.
• High Court (Chancery Division) — Mr Leslie Kosmin QC, sitting as a Deputy High Court Judge, ordered specific performance on 9 May 2002.