Blindley Heath Investments Ltd v Bass

The Court of Appeal dismissed the appellants' challenge and upheld the High Court judge's conclusions that (1) pre-emption restrictions evidenced in the February and November shareholders' letters existed but could not be relied upon by certain shareholders and directors because of an estoppel by convention, and (2) the directors at the October 2011 board meeting had effectively decided not to object to the transfers so that the transferee was entitled to registration on presentation of stock transfer forms.

Key legal principles applied included the modern equitable doctrine of estoppel by convention (as developed in Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd and related authorities), the Duomatic principle on unanimous assent of members/directors, and statutory rules on registration and directors' power to refuse registration under the Companies Act 2006 (notably the effect of a board decision not to reject a transfer and the two month/"reasonable time" rule under section 771 as explained with reference to In re Zinotty Properties Ltd).

Subsidiary findings included that the appellants had engaged in conduct (including late disclosure and benefit from prior transfers) that made it unconscionable to assert the pre-emption rights; the mis-description of the transferee on the transfer forms was a mere misnomer and did not invalidate the transfers; and the court did not need to reach a concluded view on whether the November board could properly change its mind because estoppel and the October meeting conclusions were dispositive.

Background and procedural posture

The dispute concerned control of EFI (Loughton) Ltd and the transfer on 7 October 2011 of 200 shares (the "Sale Shares") from members of the Bass/Mingay group to a BVI corporate acquired by Mr Peter Boam and now called Blindley Heath Investments Limited ("BHIL"). Lesley Anderson QC, sitting as Deputy Judge of the High Court, after a 10-day trial, found that the February and November shareholders' letters conferred pre-emption rights but that the transferee was entitled to registration because (a) the relevant parties were estopped by convention from enforcing the pre-emption rights and/or (b) the October 2011 board meeting had given informal unanimous approval to the transfers. The claimants (Mr Dixon and the company) appealed to the Court of Appeal; BHIL cross-appealed on costs and on its dismissed claims against the vendors (contingent on the main appeal).

Parties and relief sought

• Appellants: Christopher Charles Dixon and EFI (Loughton) Ltd.
• Respondent/Cross-Appellant: Blindley Heath Investments Limited (BHIL).
• Relief sought by BHIL at trial: damages for deceit/breach of warranty or rescission against the vendors; declaration that no binding pre-emption agreement existed as at 7 October 2011; rectification of the register under section 125 Companies Act 2006 to record BHIL as member; alternatively damages/statutory compensation; costs.

Issues framed by the court

1. Whether there was an estoppel by convention preventing certain shareholders/directors (notably Mr Dixon, Mr Wells and Mr Clarke) from relying on pre-emption rights.
2. Whether the October 2011 board meeting produced unanimous (albeit informal) approval of the transfers (and application of the Duomatic principle), and if so whether the subsequent November 2011 board could validly refuse registration.
3. Whether the mis-description of the transferee on the stock transfer forms invalidated the transfers.
4. Costs and the appropriateness of various orders including indemnity and Bullock-type relief.

Court's reasoning and conclusions

• The Court of Appeal endorsed the judge's exposition of estoppel by convention and concluded that the parties had conducted themselves on a shared conventional assumption that there were no operative pre-emption impediments to transfers. The judge's factual findings of mutually manifest conduct (including earlier transfers and board dealings) satisfied the evidential threshold that an assumption had "crossed the line" and that it would be unconscionable for those who had benefited from that assumption to rely upon the true legal position once it was rediscovered. The court held that forgetfulness or ignorance of rights does not preclude the application of estoppel by convention where the other requirements are met.
• Alternatively, the Court accepted the judge's finding from the recording of the October board meeting that there was unanimous assent or at least a decision not to object to the transfers, which entitled BHIL to registration on presentation of transfer documentation subject to the directors' later acting within their fiduciary powers; the Court did not need finally to decide whether the November board could lawfully change its mind because estoppel and the October meeting findings were determinative.
• The mis-description of the transferee was treated as a misnomer: there was no realistic doubt which corporate entity was intended and the defect did not defeat the transfers.
• Accordingly the substantive appeal was dismissed, BHIL was entitled to be registered, and many of BHIL's cross-appeals on costs were permitted to proceed to leave to appeal on particular points relating to indemnity and contribution although the main appeal's dismissal rendered some cross-appeals otiose.

Appeal dismissed. The Court upheld the High Court judge's principal findings that (a) an estoppel by convention prevented the relevant shareholders/directors from asserting the pre-emption rights because the parties had mutually conducted themselves on the conventional assumption that those rights did not operate and it would be unconscionable for beneficiaries of that assumption to rely on it after rediscovery, and (b) the October 2011 board meeting manifested a decision not to object to the transfers so the transferee was entitled to registration. The Court further held the mis-description of the transferee was a mere misnomer and did not invalidate the transfers. Costs issues were left for further consideration in part.

Appeal from the Chancery Division, High Court (Deputy Judge Lesley Anderson QC) - Judgment dated 16 May 2014 (Chancery cause HC12D01365). Permission to appeal granted by Briggs LJ on 21 October 2014. Judgment of the Court of Appeal delivered 9 October 2015: [2015] EWCA Civ 1023.