McKillen v Misland Investments Ltd (Re Coroin Ltd)

The Court of Appeal dismissed the appellant's challenge to the High Court's answers to preliminary issues about the scope of pre-emption provisions in a shareholders' agreement and in the company's articles. Applying ordinary principles of contractual interpretation (as explained in Rainy Sky and Investors Compensation Scheme), the court held that the words "any interest therein" in the pre-emption provisions (clause 6.1 and clause 6.17 of the shareholders' agreement) are directed to direct proprietary interests in the shares themselves and do not extend to a change in ownership or control of a corporate shareholder (the sale of Misland). The court also held that it was not appropriate to read into or rewrite the agreement to impose additional change‑of‑control restraints where the language did not do so. The petition was an unfair prejudice petition under section 994 of the Companies Act 2006; the preliminary issues were correctly decided as a matter of construction and the appeal was dismissed.

This is an appeal from a Chancery Division decision (David Richards J, [2011] EWHC 3466 (Ch)) on seven preliminary issues arising in an unfair prejudice petition under section 994 of the Companies Act 2006 concerning Coroin Limited. The petition sought relief in relation to a series of transactions by which the Barclay interests acquired effective control of several Coroin shareholders, including a sale of the share capital of Misland (the holder of C shares in Coroin). The respondents applied for determination of the preliminary issues addressing whether the shareholders' agreement and article 5 required a transfer notice to be given where there was a sale of the shares in a corporate shareholder rather than a transfer of the underlying Coroin shares.

The principal legal issues framed by the court were:

• Whether the expression in clause 6.1 and clause 6.17 (and the matching article 5 provisions) that a "Shareholder desiring to transfer one or more Shares (or any interest therein)" is triggered by registration of a transfer of the shares in a corporate shareholder (i.e. whether a sale of Misland constituted a transfer of an "interest" in the Coroin shares);
• Whether the definition of "Shareholder" encompassed holders of shares in registered holders; and
• Whether the court should, for present purposes, admit background evidence and whether the preliminary issues should be decided before disclosure.

The Court of Appeal, applying established principles of contractual construction (Rainy Sky, Investors Compensation Scheme) and taking into account admissible background, concluded that the relevant language unambiguously referred to direct proprietary interests in the Coroin shares themselves. A sale of the legal and beneficial interest in the holding company (Misland) did not change the legal and beneficial ownership of the Coroin shares and therefore did not trigger the pre-emption procedure. The court rejected the submission that the agreement should be read or amended to impose a wider change‑of‑control restraint: there was no sufficiently clear language or necessity to justify reading in such a provision. The court also accepted the High Court's approach to admissible background evidence and saw no reason to defer determination of the issues. The appeal was dismissed.

Appeal dismissed. The Court of Appeal upheld the High Court’s construction of the pre-emption provisions in clause 6 and article 5: the phrases "transfer" and "any interest therein" refer to direct proprietary interests in Coroin shares and do not extend to the sale of the share capital of a corporate shareholder. The court declined to rewrite the agreement to impose wider change‑of‑control restraints absent clear language to that effect and upheld the judge’s approach to admissible background evidence and to deciding the preliminary issues promptly.

Appeal from the High Court of Justice, Chancery Division, Companies Court (David Richards J) [2011] EWHC 3466 (Ch). Permission to appeal was given and the appeal was expedited and heard by the Court of Appeal on 20 February 2012, with judgment delivered 24 February 2012.