McKillen v Misland (Cyprus) Investments Ltd & Ors

Pre-emption rights over shares operate only upon the events which the parties have expressly specified. Practical control over a shareholder, without a transfer of a proprietary interest in the shares, does not trigger such rights. A conditional agreement for sale which requires compliance with the pre-emption machinery does not itself transfer an interest.

A contractual duty of good faith does not ordinarily impose a free-standing duty to extend detailed pre-emption provisions beyond their proper construction. For relief under section 994 of the Companies Act 2006, a petitioner must establish a relevant act or omission of the company which is unfairly prejudicial. A term will be implied only where it reflects the agreement’s reasonable meaning in its contractual context.

McKillen v Misland (Cyprus) Investments Ltd & Ors concerned a minority shareholder’s petition for relief from unfair prejudice under section 994 of the Companies Act 2006. He alleged that arrangements giving the Barclay interests practical control over another shareholder’s shares had bypassed contractual pre-emption rights.

David Richards J dismissed the petition in the Companies Court: [2012] EWHC 2343 (Ch). The appeal concerned the construction of the shareholders’ agreement, including its pre-emption, good-faith and security-enforcement provisions, and whether any failure by Coroin to act was unfairly prejudicial.

1. Appeal dismissed unanimously. The arrangements gave the Barclay interests practical control, but they did not transfer a proprietary interest in the shares. The pre-emption provisions were confined to the transfers and dispositions which they specified. A change in practical or commercial control did not suffice.

2. The February agreement was conditional upon compliance with the pre-emption provisions. It neither passed a proprietary interest in the shares nor constituted an attempt to transfer them otherwise than in accordance with the agreement. The good-faith clause did not enlarge the pre-emption machinery into a general obligation to achieve a result outside its terms. Any relevant breach by shareholders would not, without more, be an act or omission of Coroin for section 994 purposes.

3. Section 994 required both a relevant company act or omission and unfair prejudice. The requirements were cumulative. No complaint based on the arrangements could therefore succeed.

4. All members of the court agreed that the 2005 charge had become enforceable, but the directors did not know this within the one-month period in which clause 6.6 permitted them to deem a transfer notice. No term requiring notification, or extending that period, was implied. Clause 6.17 supplied substantial protection by invalidating non-compliant dispositions, subject to the consequences of any registration and rectification of the register.

5. On the 2004 charge, Moore-Bick and Rimer LJJ considered that an event of default made the security enforceable. Arden LJ took the contrary view. The difference did not affect the result: no unfairly prejudicial act or omission by Coroin had been established, and the standstill arrangements preserved the opportunity for representations to the board.

6. Arden LJ, with whose procedural observations Moore-Bick LJ expressly agreed, also gave obiter guidance that appeal materials, especially skeleton arguments, should be focused and normally comply with the page limits in CPR Practice Direction 52C.

• Court of Appeal (Civil Division): Appeal dismissed: [2013] EWCA Civ 781.
• High Court of Justice (Chancery Division, Companies Court): David Richards J dismissed the section 994 petition: [2012] EWHC 2343 (Ch).