Magic Investments SA v Ralph Thierry Broadbent & Anor

An agreement to agree, requiring the consent of other shareholders, does not guarantee that the contemplated shareholders’ agreement will be concluded. The relevant obligation may extend only to using good faith and reasonable endeavours to seek that result. Where all shareholders subsequently terminate the existing agreement and adopt new articles, a shareholder cannot ordinarily reopen that agreed arrangement as unfair prejudice.

An offer of new shares to all shareholders on equal terms does not ordinarily constitute unfair prejudice merely because one shareholder declines to participate. Conversion of shareholder debt into equity does not alter that conclusion where the debt holders pay the same price for the shares and the company receives equivalent balance-sheet benefit. A loosely drafted nomination document may confer only a limited, one-off right to nominate a director, rather than a continuing right of appointment.

Magic Investments SA appealed against Deputy ICC Judge Agnello KC’s grant of reverse summary judgment in favour of Ralph Thierry Broadbent on Magic’s petition under section 994 of the Companies Act 2006. The petition alleged unfair prejudice arising from the refusal to provide a board seat, failure to amend the company’s corporate documents as contemplated by a subscription agreement, and an allegedly prejudicial share issue involving conversion of founder loans into equity.

The judge had dismissed each allegation and refused to permit amendments intended to advance an oral agreement preserving Magic’s asserted rights after termination of the existing shareholders’ agreement. The appeal also raised whether the subscription and nomination agreements had been superseded by the deed of release and adoption of new articles.

1. Disposition. The appeal, including Ground 4A, was dismissed. The appellate court held that the respondent’s supersession argument provided a complete answer to the failure-to-amend allegation and to the dilution allegation insofar as it depended on that allegation.
2. Agreement to agree. The substantive provisions contemplated by clause 4.1.5 of the subscription agreement were not promises guaranteeing a particular shareholders’ agreement. At most, the company had undertaken to use good faith and all reasonable endeavours to seek amendments, subject to agreement by the other shareholders. Failure to achieve the desired outcome did not itself establish breach or unfair prejudice. The deed of release and new articles represented performance of the stated objective, and Magic had participated in and endorsed that process.
3. Pure dilution. An offer of additional shares to all shareholders on the same terms could not ordinarily be unfairly prejudicial merely because Magic declined to participate. The conversion of founder loans into equity made no difference where the loan holders paid no less for the shares and the company’s balance sheet was improved in the same way as by an equivalent subscription of new money.
4. Board seat. The nomination document had to be read as a whole. Its informal and partly aspirational character coloured clause 2. It conferred, at most, a one-off ability to nominate a director, possibly coupled with an obligation to give the nominee serious consideration, but not a guaranteed or perpetual right of appointment. A specific appointment right would ordinarily need to bind all shareholders through the articles or a shareholders’ agreement.
5. The judge’s refusal to permit a further amendment pleading an oral agreement was a case-management decision within her discretion and was unimpeachable.

• High Court, Chancery Division: Deputy ICC Judge Agnello KC granted reverse summary judgment for Mr Broadbent on all allegations in [2024] EWHC 887 (Ch) and refused proposed amendments.
• Chancery Appeals: Marcus Smith J dismissed the appeal and refused permission in relation to Ground 4A.