McKillen v Misland (Cyprus) Investments Ltd & Ors

Pre-emption provisions concerning shares must be construed according to their language, read in context. A reference to an interest in shares ordinarily means a direct proprietary interest, unless the agreement clearly provides otherwise. The sale of a company which legally and beneficially owns shares does not, without more, transfer or evidence a desire to transfer the underlying shares or an interest in them. Commercial purpose cannot supply detailed change-of-control provisions which sophisticated parties omitted from a complex agreement. Contractual background may be considered, but subjective intentions, unavailable facts, negotiations and post-contract conduct are inadmissible on construction. Where a shareholder merely desires to transfer shares, a transfer notice may be given but is not mandatory; the shares cannot subsequently be transferred or disposed of without compliance with the pre-emption machinery.

The judgment determined preliminary issues arising from a petition under section 994 of the Companies Act 2006 and an associated claim. Patrick McKillen challenged the sale of the issued share capital of Misland, a company which owned shares in Coroin Limited. The sale gave the purchasers control of Misland and, indirectly, of its Coroin shares.

The central questions were whether that sale constituted a transfer of, or desire to transfer, an interest in Coroin shares under clause 6 of the shareholders agreement and article 5 of Coroin’s articles of association, and whether a transfer notice was required.

1. Preliminary issues. The court treated the issues as suitable for early determination because they concerned construction. Disclosure was refused. A party resisting summary determination on construction must identify admissible evidence capable of affecting the interpretation; speculation that further material may emerge is insufficient, applying ICI Chemicals Polymers Ltd v TTE Training Ltd [2007] EWCA Civ 25.
2. Construction of the shareholders agreement. “Shareholder” meant the registered holder and, where applicable, the sole beneficial owner. A company owning shares remained a separate legal person from its shareholder. The sale of the company’s shares therefore did not change the legal or beneficial ownership of the underlying Coroin shares, and did not itself evidence a desire to transfer them.
3. The expressions “transfer” and “any interest therein” referred to direct legal and beneficial proprietary interests in the shares. Although “interest” can have a wider meaning in an appropriate statutory context, as illustrated by British American Tobacco Co Ltd v IRC [1943] AC 335, the wording and structure of this agreement did not extend it to indirect ownership or a change of control.
4. Commercial considerations concerning the personal nature of the venture could not overcome the absence of express provisions dealing with a sale or change of control of a corporate shareholder. The agreement was professionally drafted and addressed many eventualities, including permitted transfers and Misland’s shareholder group. The omission was therefore consistent with an objective decision not to regulate such a sale.
5. The same conclusion applied to article 5. Articles ordinarily fall to be construed without extrinsic circumstances because they operate as a registered statutory contract for present and future members. In this unusual case it was unnecessary to decide finally whether the shareholders agreement and its background could be considered together with the articles.
6. Clause 6.1 used “may”. A shareholder merely desiring to transfer shares or an interest in them could give a transfer notice, but was not obliged to do so at that stage. Once the shareholder proceeded to transfer, sell or dispose of the shares or interest, compliance with the pre-emption procedure became necessary.
7. The sale of Misland did not contravene clause 6.17, did not trigger the pre-emption rights, and did not require a transfer notice under clause 6.1. Preliminary issues 1, 2, 3, 5, 6 and 7 were answered in the negative. Issue 4 did not arise.