JKX Oil & Gas Plc & Ors v Eclairs Group Ltd

Restrictions on shareholder voting imposed to obtain information about interests in shares operate within the statutory and constitutional transparency regime. Where disclosure questions are fairly asked and the recipient could avoid the restriction by giving full and accurate answers, a board’s predominant purpose of preventing that shareholder from voting does not, by itself, invalidate the restriction.

The majority distinguished authorities on the improper use of directors’ powers because those powers operated unilaterally and gave the affected persons no equivalent choice. A minority view was that fiduciary powers affecting shareholder rights remain subject to proper-purpose limits.

These conjoined appeals arose from orders made by Mann J on 1 October 2013 in claims brought by the beneficial owners of shares in JKX Oil & Gas plc. The shares were registered in nominee names. JKX’s directors had issued disclosure notices under Part 22 of the Companies Act 2006 and the company’s Article 42, then imposed restrictions on voting and transfers after concluding that the responses were false or materially incorrect.

Mann J held that the beneficial owners had standing, the notices were valid, the directors had reasonable cause for their belief, but the restrictions were imposed for an improper purpose. JKX appealed on standing and improper purpose. Eclairs cross-appealed on the validity of the notices and reasonable cause. The central issue was whether the restrictions were invalid because the directors principally sought to secure the passage of resolutions at the annual general meeting.

Disposition. By a majority, Sir Robin Jacob and Lord Justice Longmore allowed JKX’s appeals on improper purpose and dismissed the cross-appeals. Briggs LJ would have dismissed all the appeals.

1. The beneficial owners had standing. The regimes in Part 22 of the Companies Act 2006 and Article 42 were intended to affect persons with economic interests in shares, so the court should give such persons a wide opportunity to challenge the validity or regularity of steps taken under them.
2. The section 793 notices were valid. “The same shares” meant shares in which the addressee was or had been interested. The company could ask about agreements or arrangements concerning voting rights, including arrangements involving persons who had no interest in the particular shares. The statutory examples were inclusive rather than exhaustive. The requests for acquisition agreements, voting arrangements and full particulars were within section 793. The judgment also indicated that, where a recipient answered without challenging the notice, Article 42 could support restrictions for false or materially incorrect answers.
3. The directors had reasonable cause to believe that the information was false or materially incorrect. The appropriate standard was not close to knowledge or substantially above the balance of probabilities. It required a firm belief rather than suspicion. The appellate court found no legal error or irrationality in the judge’s assessment of the evidence.
4. The majority held that the purpose of the Article 42 sanction was to prevent voting while the company reasonably treated the required information as absent, false or materially incorrect. Where questions were fairly asked and the shareholder could have answered them correctly, the improper-purpose doctrine did not invalidate restrictions merely because the directors principally sought to prevent voting at the AGM. Howard Smith Limited v Ampol Petroleum [1974] AC 821 and Hogg v Cramphorn Limited [1967] Ch 254 were distinguished because the affected persons in those cases had no equivalent choice to avoid the consequence.
5. Briggs LJ’s dissent was that Article 42 and Part 22 powers remained fiduciary powers subject to proper-purpose limits. He would have treated the predominant AGM objective as improper and held that the subsidiary wish to obtain information did not save the restrictions.

1. Court of Appeal (Civil Division) By majority, JKX’s appeals were allowed on improper purpose and the cross-appeals were dismissed.
2. High Court, Chancery Division Mann J’s orders of 1 October 2013 in two conjoined claims held that the beneficial owners had standing, the disclosure notices were valid and the directors had reasonable cause to believe the information was false or materially incorrect, but that the restrictions were imposed for an improper purpose.