Re Coroin Ltd, McKillen v Misland (Cyprus) Investments Ltd

The court answered a set of preliminary issues concerning whether the sale of Misland (the registered and beneficial holder of C shares in Coroin Limited) triggered the pre-emption provisions in clause 6 of the shareholders agreement and article 5 of the articles of association. The judge held that, properly construed, clause 6.1 and the related provisions refer to direct legal or beneficial interests in the company’s shares and that a sale of the share capital of a corporate shareholder (Misland) did not, of itself, constitute a transfer of those underlying shares or an interest in them for the purposes of the pre-emption provisions. The court excluded most of the subjective and negotiation evidence relied on by the petitioner as inadmissible on the construction issues and applied established principles distinguishing admissible background for contracts from the more limited admissible background for articles of association.

This is a first instance trial of preliminary issues arising from a petition under section 994 of the Companies Act 2006 and an associated Part 7 claim. The petitioner, Patrick McKillen, an original investor and director in Coroin Limited, challenged steps taken by the Barclay interests to obtain control of Coroin, in particular the January 2011 sale of Misland (the registered holder of the C shares). He alleged those steps breached the shareholders agreement and the articles and constituted unfairly prejudicial conduct.

Nature of the proceedings: a petition under s.994 CA 2006 (unfair prejudice) and a Part 7 action for conspiracy; the court was asked to decide seven preliminary issues about the scope and operation of pre-emption provisions in clause 6 of the shareholders agreement and article 5 of the articles of association.

Issues framed by the court: whether (i) registration of a transfer of the shares in a corporate shareholder is itself a transfer of the underlying shares for the purpose of clause 6.1/article 5.1; (ii) a holder of shares in any registered holder is a "Shareholder" under the agreement; (iii) a desire by such a holder to transfer the shares in the registered holder is a desire to transfer an interest in the underlying shares; (iv) whether notice must be given under clause 6.1 in those circumstances; and related questions directed to the facts in January 2011.

Court’s reasoning: the judge considered admissibility of background evidence, distinguishing construction of the shareholders agreement (where background is admissible) from construction of articles of association (where extrinsic evidence is generally limited). Much of the petitioner’s witness evidence was excluded as inadmissible (subjective intentions, negotiations known only to some parties, post-contractual conduct). On construction, key defined terms ("Shareholder", "transfer", "interest therein") were interpreted in their ordinary legal/property senses. Clause 6.1 was held to apply to transfers of legal or direct beneficial title or interests; clause 6.17 read with clauses 6.1, 6.6 and 6.15 showed the parties used "interest" in that direct proprietary sense. The judge rejected the argument that "interest" should be read commercially to include the sale of a corporate shareholder, finding no clear drafting to that effect and noting the absence of change-of-control or other express provisions that would have been expected if that was intended. The judge also addressed and distinguished authorities relied on by the parties. The result was that the sale of Misland’s share capital in January 2011 did not trigger the pre-emption procedures and the related director appointments were not invalid on that ground.

Other procedural findings: the court dismissed the petitioner’s application for specific pre-hearing disclosure from Mr Quinlan as unnecessary or misconceived for the construction issues; the company was treated as effectively a party to the shareholders agreement for the preliminary issues (Duomatic principle) and permitted separate representation given its independent commercial interests.

The court answered the preliminary issues against the petitioner. It held that the pre-emption provisions in clause 6 (and article 5) concern direct legal or beneficial interests in Coroin’s shares and do not extend, in the absence of explicit drafting, to a sale of the share capital of a corporate shareholder. For those reasons the January 2011 sale of Misland did not trigger a duty to give a transfer notice under clause 6.1 and did not amount to a prohibited transfer under clause 6.17. The judge also excluded much of the petitioner’s background evidence as inadmissible for construction and refused the specific disclosure application against Mr Quinlan.