Cosmetic Warriors Ltd & Anor v Gerrie & Anor

This judgment concerned the construction of Article 5 of the articles of association of the claimants, a pre-emption clause governing transfers of shares. The court applied ordinary principles of contractual construction for articles (citing Arnold v Britton and other leading authorities) and treated implication of terms with caution in light of the authorities on articles and implied terms (including Belize and Marks & Spencer). The court decided that (i) the accountants appointed under Article 5(c) must determine a prescribed price expressed as a sum per share (a pro rata price derived from valuing the company and dividing to a per‑share figure), not a valuation of the specific block of Transfer Shares as a single block; (ii) the accountants are entitled to request and rely on such further company information as they reasonably require (not restricted to publicly available material); (iii) a vendor is entitled to disclose to a prospective third‑party transferee information which the vendor knows and is not prevented from disclosing by confidentiality (including the accountants’ certified prices if produced), subject to confidentiality claims being asserted and resolved; (iv) the words "any person" in Article 5(L) include corporate transferees as well as natural persons; and (v) the fees and expenses of the accountants are to be shared between the parties (joint and several liability), not borne solely by the vendor. The court gave reasons for each issue and explained why several earlier authorities were distinguishable.

This was a Part 8 claim to determine the construction of Article 5 of the articles of association of the two claimant companies. The claim arose after the defendants, who together held shares and had served transfer notices, sought to trigger the Article 5 pre‑emption procedure. The court was asked to determine six discrete issues of construction and practical effect arising under Article 5.

• Nature of the application: a declaration/issue‑determination under CPR Part 8 as to the meaning and effect of Article 5 (pre‑emption, prescribed price, valuation and related procedures).
• Issues framed: (1) whether the accountants must value on a pro rata per‑share basis or by reference to the price a willing buyer would pay for the block of Transfer Shares, (2) whether two tranches of the defendants’ holdings must be valued together or separately, (3) whether the accountants may use only publicly available information or may request further information, (4) what information a potential transferee under Article 5(L) should be provided with, (5) whether "any person" in Article 5(L) excludes corporate transferees, and (6) who bears the accountants’ fees and expenses.
• Key factual and legal background: the articles incorporated Table A, the companies operated as comparatively small, closely held businesses, and the parties disputed the admissible background for interpretation. The judgment summarised the principles of interpretation of articles as contracts and the law on implied terms (Arnold v Britton, Belize, Marks & Spencer) and accepted limits on admissible extrinsic background when articles are public documents.
• Court’s reasoning: the judge construed Article 5(C) by focussing on the words and their context. The phrase "such sum per share" and the requirement to value "the Company on a going concern basis" led to the conclusion that the accountants’ task is to fix a price per individual share (a pro rata approach). The court rejected the claimant’s contention that the accountants must value the particular block of Transfer Shares, observing that the Article 5 process (directors’ discretion to sell in lots, the application period and allocation mechanism) means that the accountants could not reliably value a specific block which might later be split. On information, the court held that Article 5 does not limit the accountants to publicly available material and, applying construction and/or implication principles, concluded the accountants are entitled to request such further information as they reasonably require. For transferees under Article 5(L) the court held that a vendor may disclose what the vendor knows and is not prevented from disclosing by confidentiality, including the accountants’ certified prices, subject to confidentiality claims and undertakings. The ordinary meaning of "any person" was held to include corporate persons; the claimant’s attempt to read "person" as "natural person" was rejected. Finally, because the articles were silent on costs, the court preferred the ordinary expert‑determination practice that costs be shared, and ruled that the accountants’ fees should be shared between the parties.
• Result: the defendants succeeded on Issues 1, 3, 5 and 6 and substantially on Issue 4; Issue 2 did not arise. The court ordered counsel to agree an appropriate form of order and reserved other ancillary matters.

This first instance claim was determined by reference to six discrete issues. The court held that Article 5(C) requires the accountants to fix a prescribed price expressed as a sum per share (a pro rata valuation derived from valuing the company on a going‑concern basis), not a valuation of the Transfer Shares as a single block; the accountants are entitled to request and rely on such further non‑public information as they reasonably require to perform the valuation; a vendor may disclose to a potential transferee information the vendor knows and is not prevented from disclosing by confidentiality (including the accountants’ certified prices), subject to confidentiality claims and undertakings; "any person" in Article 5(L) includes corporate transferees; and the accountants’ fees and expenses are to be shared between the parties. The reasons were that the natural language of Article 5(C) requires a per‑share price, the operation of Articles 5(B)/(D)/(F)/(G)/(L) makes block valuation impractical at the valuation stage, and practical business efficacy and established practice support allowing the accountants access to information they reasonably need.