McKillen v Misland (Cyprus) Investments Ltd & Anor

Contractual pre-emption provisions must be construed objectively, as a unitary exercise, using the language, admissible background and, where appropriate, business common sense. Established legal expressions in professionally drafted provisions should not be expanded by general commercial considerations. “Any interest” in shares ordinarily refers to a direct proprietary or beneficial interest. A parent company or ultimate controller has no proprietary interest in a subsidiary’s assets merely because it owns or controls the subsidiary. A sale of the parent therefore does not transfer the subsidiary’s shares or an interest in them. Words may be read into a contract only where it is clear that the language has gone wrong and equally clear what correction the reasonable person would understand; the court must not rewrite the bargain.

Patrick McKillen appealed against an order made by Mr Justice David Richards in a petition under section 994 of the Companies Act 2006. The petition concerned alleged unfairly prejudicial conduct of the affairs of Coroin Limited.

The preliminary issues concerned whether the sale of the shares in Misland, a corporate shareholder holding shares in Coroin, triggered the pre-emption provisions in the shareholders’ agreement and Coroin’s articles. They also concerned whether Misland’s parent or ultimate controller had an indirect interest in the Coroin shares, and whether the issues should be decided before disclosure. The judge refused to defer determination and answered the material issues in the negative. The appeal challenged those conclusions.

1. Appeal dismissed. Rimer LJ delivered the leading judgment. Tomlinson and Lloyd LJJ agreed, making the decision unanimous.
2. The proper approach to the agreement was the orthodox objective and unitary construction exercise. The court had to consider the language used and admissible background, and could prefer a commercially sensible meaning where genuine alternatives existed. That approach did not permit the court to disregard the familiar legal meaning of expressions used in carefully drafted pre-emption provisions.
3. The words “any interest therein” in clauses 6.1 and 6.17 referred to a direct proprietary or beneficial interest in the Coroin shares. Misland was the legal and beneficial owner of its Coroin shares. A&A, as Misland’s parent, and the Green family, as ultimate controllers, had no legal, beneficial or other proprietary interest in those shares merely because they owned or controlled Misland. The decision in British American Tobacco Company, Limited v Inland Revenue Commissioners [1943] AC 335 concerned the different statutory expression “controlling interest” and did not support the proposed construction.
4. Clause 6 was to be read as a complete code. Clauses 6.1 to 6.7 established the pre-emption procedure, clauses 6.14 to 6.16 addressed permitted transfers, and clause 6.17 operated as a general prohibition on transfers except as permitted by the code. The apparent omission of a change-of-control restriction in relation to Misland did not justify rewriting clause 6.15.
5. Words could be read into a contract only where it was necessary to give effect to its true meaning and it was clear both that something had gone wrong with the language and what the reasonable person would have understood the correction to be. The principles in Attorney General of Belize v Belize Telecom [2009] 1 WLR 1988 and Chartbrook v Persimmon Homes [2009] 1 AC 1101 did not permit the court to improve the agreement or select an uncertain solution to an apparent commercial gap.
6. The sale of Misland did not constitute a transfer of Misland’s Coroin shares or any interest in them and did not trigger pre-emption rights under either the agreement or the articles. The issues were therefore correctly answered in the negative. Because clause 6.1 used “may”, a mere desire to transfer did not itself require a transfer notice, but an actual transfer or disposal could not proceed without compliance with the pre-emption procedure.

• Court of Appeal (Civil Division): In [2012] EWCA Civ 179, the appeal was dismissed unanimously.
• High Court of Justice, Chancery Division, Companies Court: Mr Justice David Richards determined preliminary issues in [2011] EWHC 3466 (Ch), refused to defer determination until after disclosure, and answered the material issues in the negative.