Magic Investments SA v Ralph Thierry Broadbent & Anor

The Court dismissed the appeal against the Deputy ICC Judge's grant of reverse summary judgment in an unfair prejudice petition under section 994 of the Companies Act 2006. The Court held that the Subscription Agreement's clause 4.1.5 was at best an "agreement to agree" and did not create enforceable promises that survived the mutual Deed of Release and adoption of new articles of association. The Deed of Release and New Articles performed the Subscription Agreement's aspirations and, having been consented to by all shareholders including Magic, superseded the alleged contractual rights relied on by Magic.

The Court also held that the Nomination Agreement was an informal, limited instrument which conferred only a one-off right to nominate (and, at most, an obligation to consider the nominee), not a perennial right to appoint a director; consequently the Board Seat Allegation was not arguable. Finally, the Court rejected the Pure Dilution Allegation: the offer of shares was made on the same favourable terms to all existing shareholders and Magic declined to participate, and conversion of Founder Loans to equity did not show unfair prejudice.

Background and parties: The Greater Good Fresh Brewing Co Ltd (the Company) was a start-up whose founder shareholders included Mr Broadbent and Mr Dixon. Magic Investments SA (Magic) subscribed for shares in 2021 under a Subscription Agreement, executed a Deed, and received a Nomination Agreement from the Company. Founder shareholders had provided substantial loans to the Company (the Founder Loans).

Procedural posture: Magic brought a petition under section 994 of the Companies Act 2006 (unfair prejudice) complaining of three matters: (i) the Company’s refusal to permit Magic to nominate and secure appointment of a director (the Board Seat Allegation); (ii) the Company’s failure to amend the existing shareholders agreement as allegedly required by clause 4.1.5 of the Subscription Agreement (the Failure to Amend Allegation); and (iii) dilution from an offer of new shares and the conversion of Founder Loans into equity (the Dilution Allegation). Prior to trial Deputy ICC Judge Agnello gave reverse summary judgment for Mr Broadbent on 19 April 2024 ([2024] EWHC 887 (Ch)). Permission to appeal was later granted and this is the appeal from that order.

Issues: (i) Whether the Nomination Agreement conferred a right to appoint a director (and whether that right survived the Deed of Release and New Articles); (ii) whether clause 4.1.5 and related parts of the Subscription Agreement imposed enforceable obligations so as to support an unfair prejudice petition when no new shareholders agreement was concluded; and (iii) whether the issue of new shares and conversion of Founder Loans constituted unfair prejudice by diluting Magic's shareholding.

Court's reasoning and disposition: The Court agreed with the Deputy Judge that clause 4.1.5 was at most an "agreement to agree" requiring the consent of other shareholders and could not be relied on as an enforceable promise; further, the Deed of Release and New Articles, executed with Magic's consent, performed and superseded the envisaged changes to corporate documents. Accordingly the Failure to Amend Allegation and related aspect of the Dilution Allegation failed. On the Pure Dilution Allegation, the Court held that the offer was non-discriminatory to existing shareholders, Magic declined to participate, and the conversion of Founder Loans did not produce unfair prejudice because no less favourable price was paid. Concerning the Nomination Agreement, the Court considered the document informal and limited; clause 2 amounted to a right to nominate once (or at most a limited right to have a nominee seriously considered), not a continuing right to appoint. The Judge's refusal to permit further amendment of the petition was a permissible case management decision. The appeal was dismissed.

Appeal dismissed. The court held that (i) clause 4.1.5 of the Subscription Agreement was at best an "agreement to agree" and, in any event, its aspirations were performed and superseded by the Deed of Release and New Articles consented to by all shareholders; (ii) the Nomination Agreement gave only a limited one-off right to nominate rather than a continuing right to appoint; and (iii) the issue of new shares and conversion of Founder Loans did not constitute unfair prejudice because the offer was non-discriminatory to existing shareholders and no undervalue was shown.

Appeal from Deputy ICC Judge Agnello's orders dated 19 April 2024 and 26 April 2024 in CR-2022-004552 (see Deputy ICC Judge Agnello: [2024] EWHC 887 (Ch)). Permission to appeal was stayed and later granted by Trower J (order dated 15 May 2024 and further order dated 18 October 2024). Extensions of time were granted by Richard Smith J (21 June 2024) and Miles J (16 July 2024). This judgment disposes of the appeal.