Jackson v Dear & Anor

Contractual interpretation requires the court to ascertain the meaning conveyed to a reasonable person with the relevant background knowledge, reading the provision within the agreement as a whole. The court may imply a term where it is necessary to spell out the agreement’s meaning, including where performance of the express terms would otherwise contradict that meaning. A party must not voluntarily render the contractual bargain inoperative or futile. Where a further-assurance clause is engaged, it may require lawful steps within the agreed framework to make the bargain effective. Accordingly, contractual obligations to nominate and reappoint a director implied obligations not to procure or participate in his removal, absent an agreed terminating event.

The claimant, Alexander Jackson, and the defendants, Patrick Dear and Reade Griffith, were parties to an agreement concerning the claimant’s appointment and continuing reappointment as a non-independent director of Tetragon Financial Group Limited. The agreement required PCH II, which held TFG’s voting shares, to nominate and vote for the claimant’s appointment and reappointment unless one of five specified termination events occurred.

TFG’s articles separately empowered all other directors to remove a director by notice under article 88(e). After the claimant’s appointment, the defendants participated in his removal and declined to reappoint him. The court was asked to decide two preliminary construction issues: whether the agreement contained implied obligations restricting removal, and whether its further-assurance clause required steps to give effect to the appointment and reappointment obligations.

1. The court held that the agreement required the defendants, after securing Mr Jackson’s appointment, not to take steps to remove him unless and until a Termination Event occurred. This obligation arose either by implication, by the general rule that a contracting party must not of his own motion make performance impossible or futile, or by both.

2. Article 88(e) was materially different from the automatic vacation provisions in articles 88(a)–(d) and (h), and from the truancy provision in article 88(f). It was a no-fault removal power capable of defeating the substance of Mr Jackson’s apparently unqualified reappointment right. Its exercise required the active concurrence of the defendants as directors.

3. The agreement was to be interpreted objectively and in the context of TFG’s constitution as a whole. The express reference to applicable law did not preserve an unrestricted power to remove Mr Jackson under article 88(e), because the implied contractual restriction was compatible with Guernsey company law.

4. The further-assurance clause had substantive effect. Consistently with Brady v Brady [1989] 1 AC 755, it required the defendants, where necessary, to take lawful steps within the framework of the agreement. They could procure a direction under article 83(a), obtain shareholder exoneration under the principle in Re Duomatic [1969] 2 Ch 365, or amend article 88(e) under article 142. The court did not prescribe which method should be used.

5. The defendants were therefore obliged not to invoke article 88(e), or any other removal power, against Mr Jackson in the absence of a Termination Event. Where necessary to avoid a breach of fiduciary duty, they were also required to take available lawful steps to absolve themselves from, or disapply, any duty to concur in his removal. The court would hear submissions on the form of the declaratory order.