CA-2024-001924 - [2025] EWCA Civ 1206

In my view, the Judge was right.

In the first place, I do not think that the references in clause 7.1 to “events” and “within” help Mr Butler. There is no need to see the relevant “event” in the case of a remediable breach as the breach itself. There is no difficulty in taking that event as failure to remedy the breach before the end of 10 business days after a notice to remedy has been served. Nor need “within 10 Business Days” be read to mean “no later and no earlier than”. It can instead be understood to signify that remediation must be complete by the expiry of 10 days after service of a notice. It would, moreover, be very odd if the parties had intended a shareholder who had committed a “material or persistent” breach but remedied it promptly to be in a less good position than one who undertook no remediation until after he had been served with a notice to remedy.

Secondly, Mr Butler’s approach to clause 7.1(d) would render much of the provision more or less redundant. The Company’s board cannot serve a notice to remedy without “Shareholder Consent”, which requires the prior consent of a majority of the A Shareholders excluding any shares held by an “Excluded Shareholder”. In practice, therefore, an innocent shareholder with more than half of the A Shares once those of the shareholder in breach had been discounted could prevent the service of any notice to remedy.

Thirdly, clause 7.1 does not in terms provide for a “twilight period” such as Mr Butler contemplated and, to the contrary, the language of the SHA tends to confirm that no such period was intended. Far from confirming that a Deemed Transfer Notice pursuant to clause 7.1(d) can cease to have effect if the breach is remedied following service of a notice to remedy, the SHA stated in clause 6.7 that a Deemed Transfer Notice “may not be withdrawn”. Further, had the parties intended that a Deemed Transfer Notice pursuant to clause 7.1(d) could take effect but then be negated by the service of a notice and remediation, they could be expected to have limited the time within which a notice could be served. No such limit was, however, specified.

Fourthly, it is of significance that a Deemed Transfer Notice allows the other shareholder(s) to compel the shareholder who has committed a “material or persistent” breach of the SHA to transfer his shares and, moreover, to do so on potentially disadvantageous terms (since, by clause 7.3(d), the Transfer Price is to be “restricted to a maximum of the lower of the subscription price paid for each Sale Share, including any share premium, and the Fair Value of each such Sale Share unless agreed otherwise in writing with Shareholder Consent”). That suggests that the Court should be slow to adopt a wide interpretation of clause 7.1. Remarks made by Arden LJ in Re Coroin Ltd [2013] EWCA Civ 781, [2014] BCC 14 are relevant in this context. When considering the meaning of a clause in a shareholders’ agreement providing for the deemed giving of a transfer notice by a shareholder, Arden LJ said:

“65.

In addition, cl.6 of the shareholders’ agreement and the pre-emption provisions in the articles set out circumstances in which members may lose the right to their shares. They are, therefore, expropriatory in nature. Given the ambiguity in the meaning of the phrase ‘becomes enforceable’, the court should in my judgment prefer the narrower meaning. This approach is consistent with the earlier decisions of this court on construing articles of association of a company restricting the transfer of shares laid down in: Re Smith and Fawcett Ltd [1942] Ch. 304 at 306 and Greenhalgh v Mallard [1943] 2 All E.R. 234 at 237: see, for example, per Lord Greene M.R. in the first of the cases cited:

‘[When using their power under the articles to reject a share transfer, the directors] must have regard to those considerations, and those considerations only, which the articles on their true construction permit them to take into consideration, and in construing the relevant provisions in the articles it is to be borne in mind that one of the normal rights of a shareholder is the right to deal freely with his property and to transfer it to whomsoever he pleases. When it is said, as it has been said more than once, that regard must be had to this last consideration, it means, I apprehend, nothing more than that the shareholder has such a prima facie right, and that right is not to be cut down by uncertain language or doubtful implications. The right, if it is to be cut down, must be cut down with satisfactory clarity. It certainly does not mean that articles, if appropriately framed, cannot be allowed to cut down the right of transfer to any extent which the articles on their true construction permit.’

…

67.

In my judgment, the authorities reflect the basic principle that rights of property should not be taken away by a side wind and without warrant ….”

It is fair to say, as Mr Butler did, that the other members of the Court (Moore-Bick and Rimer LJJ) parted company from Arden LJ as to the meaning of “becomes enforceable”, but I do not think that denudes Arden LJ’s comments of all their force. As Gower’s Principles of Company Law, 11^th. ed., explains in paragraph 26-007, “since shareholders have a prima facie right to transfer to whomsoever they please, this right is not to be cut down by uncertain language or doubtful implications”.

Fifthly, the decision of the Court of Appeal in Force India Formula One Team Ltd v Etihad Airways PJSC [2010] EWCA Civ 1051, [2011] ETMR 10 (“Force India”) lends a degree of additional support to the Judge’s approach. That case concerned a sponsorship agreement relating to a Formula One team which had been called the “Etihad Aldar Spyker F1 Team” but had been renamed as “Force India Formula One Limited”. The agreement contained a termination provision whose terms were very comparable to those of clause 7.1 of the SHA. It stated:

“The Sponsors may terminate this Agreement with immediate effect on the giving of written notice to SPYKER at any time on the happening of any of the following events by or in relation to the other party:

(a)

SPYKER has committed any material breach of this Agreement which, if capable of remedy, has not been remedied within ten (10) Business days of receipt of written notice giving particulars of the breach and requiring its remedy ….”

As was pointed out by Mr Jonathan Crow KC, who appeared for Gwent with Mr Thomas Braithwaite, it was assumed in Force India that the “Sponsors” could not terminate on the strength of a remediable breach without serving a notice. Rix LJ explained in paragraph 86 that counsel for the “Sponsors” “accepts that if the breachescomplained about are remediable, then the sponsors must lose on liability, for no notice to remedy was ever given”.

Sixthly, while the Judge’s construction of the SHA means that an innocent shareholder cannot force a shareholder who has committed a remediable breach of the SHA to transfer his shares unless the latter has failed to remedy by the expiry of 10 business days after a notice to remedy has been served, that does not necessarily mean that there is no other remedy available. Only clause 7.1 is at issue. Depending on the circumstances, it may potentially be open to an innocent shareholder to accept a repudiatory breach, to claim damages for any loss or to seek relief by way of unfair prejudice petition under section 994 of the Companies Act 1996 (albeit that, as Mr Butler said, the scope for such a petition may be affected to an extent by the terms of the SHA: see Re Saul D Harrison & Sons plc [1994] 1 BCC 475, at 488-489).

This issue is raised by ground 2 of the grounds of appeal.