Cosmetic Warriors Ltd & Anor v Gerrie & Anor

Articles of association are construed as commercial documents, using ordinary contractual principles and their public character. Background facts are admissible only to the extent that a reasonable reader of the articles would reasonably be supposed to know them. Private extrinsic circumstances cannot ordinarily support an implied term.

Where pre-emption articles prescribe a price per share and require the company to be valued as a going concern, the valuation is made per individual share rather than by reference to the particular block transferred. The appointed valuers may obtain the information they reasonably require. A vendor may disclose relevant information to a prospective transferee, subject to confidentiality obligations. “Any person” includes corporate as well as natural persons. Valuation costs are shared equally where the articles make no provision.

The claim was brought under CPR Part 8 for determination of agreed questions concerning the construction of Article 5 of the claimants’ articles of association. Article 5 restricted transfers of shares through pre-emption rights and provided for a prescribed price determined by independent chartered accountants where the parties could not agree.

The defendants wished to sell their shares. The court was asked to determine the basis of valuation, the information available to the accountants and prospective transferees, the meaning of “any person” in the residual transfer provision, and responsibility for the accountants’ fees.

1. Issue 1: The prescribed price under Article 5(C) was a price per individual share. The words “fair value thereof” referred to an individual share, not to the Transfer Shares as a block. The references to a willing buyer and seller and to valuing the company as a going concern did not alter that conclusion.
2. The wider machinery in Articles 5(B)(a), 5(D), 5(F), 5(G) and 5(L) supported a per-share valuation. When the valuation was undertaken, the accountants might not know how many shares would ultimately be transferred, in what lots, or to whom. A block valuation would therefore be difficult or impossible to perform consistently across the circumstances contemplated by Article 5.
3. The reasoning in Re Castleburn Ltd [1989] 5 BCC 652 and Howie v Crawford [1990] BCC 332 did not assist because those decisions concerned the valuation of an entire holding. The reasoning in Pennington v Crampton [2004] BCC 611 and the observations of Oliver LJ in Re Bird Precision Bellows Ltd [1986] Ch 658 supported the conclusion.
4. Issue 2: This issue did not arise because Issue 1 had not been answered in favour of a block valuation.
5. Issue 3: Article 5 did not restrict the accountants to publicly available information. The accountants were entitled to decide what information they reasonably required to perform the valuation. If necessary, that term would be implied to make the valuation machinery workable.
6. Issue 4: A prospective transferee under Article 5(L) was not limited to publicly available information. The vendor could disclose information known to the vendor and relevant to value, including the accountants’ valuation and information learned through the valuation process, unless confidentiality obligations prevented disclosure. The court could give directions where confidentiality disputes arose.
7. Issue 5: “Any person” in Article 5(L) included a natural or legal person. The court declined to read in a restriction to natural persons.
8. Issue 6: The accountants’ fees and expenses were to be shared equally between the parties, subject to joint and several liability to the accountants.
9. The defendants succeeded on Issues 1, 3, 5 and 6, and substantially succeeded on Issue 4. The parties were directed to agree an order.