Romer-Ormiston v Claygreen Ltd. & Ors

Articles of association must be construed so that a shareholder is not compulsorily deprived of shares unless the articles clearly authorise that result. A transfer notice under pre-emption provisions must satisfy each substantive requirement, including an unconditional intention to transfer and a stated transfer price. Communications seeking consent to an outsider’s acquisition do not necessarily trigger pre-emption rights. Where articles prohibit dealings in shares, including beneficial interests, persons with constructive notice of the articles acquire no equitable interest through a prohibited transaction. The court’s discretion to rectify the register must be exercised in accordance with the statutory purpose and cannot be used to remove a shareholder merely because of an outsider’s influence.

The claimant sought rectification of the company’s register under section 359 of the Companies Act 1985. She had held 33 shares, but the company treated two letters concerning a proposed transfer to Epsom as a transfer notice under the articles’ pre-emption provisions. The shares were valued by the company’s auditors and allocated to the other members.

The central issues were whether the letters triggered the pre-emption provisions, whether Epsom acquired any legal or beneficial interest in the shares, and whether the court should exercise its discretion against rectification because of the alleged influence of Mr Harris.

1. Construction of the articles. Articles 4.5 and 4.6 required a transfer notice to state both an unconditional desire to transfer the entire shareholding and the transfer price. Those requirements were not severable formalities benefiting only the other shareholders. The claimant’s letters, read together and in their commercial context, sought unanimous consent to the proposed transfer to Epsom. They did not constitute an unconditional transfer notice.
2. The articles did not authorise compulsory acquisition merely because the claimant had acted, or might have acted, in breach of them. A shareholder’s right to retain shares formed part of the proprietary rights represented by the shares. That right could not be removed unless the articles fairly and clearly provided for its removal.
3. The articles were intended to prevent the passing of any legal or beneficial interest in the shares, or their use as security, unless the pre-emption rights had been exhausted or all members consented. The articles were publicly inspectable, so Epsom and those acting for it had constructive notice of their terms. The purported transfer and charge were therefore prohibited and Epsom acquired no interest in the shares.
4. Section 359 conferred a discretion to rectify the register. Since the other members had acquired no right to purchase the claimant’s shares, rectification should ordinarily restore her to the register unless proper reasons justified refusing relief. The alleged influence of Mr Harris did not provide such a reason. The articles did not prohibit influence over voting, and the claimant could not be stripped of her property on that basis.
5. The court was not asked to decide whether the power of attorney granted to Mr O’Doherty complied with the articles, and expressed no conclusion on that issue.

The register was to be rectified in the claimant’s favour.

Not stated in the judgment.