“When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to ‘what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean’ … And it does so by focussing on the meaning of the relevant words … in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of [the contract], (iii) the overall purpose of the clause and [the contract], (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions.”
“Articles of association are commercial documents. They should not be interpreted as meticulously as, e.g. conveyances. In interpreting them, the maxim ut res magis valeat quam pereat should be applied which, in the words of Vaisey J, “directs us to validate if possible.”
“I think that the articles of association of the company should be regarded as a business document and should be construed so as to give them reasonable business efficacy, where a construction tending to that result is admissible on the language of the articles, in preference to a result which would or might prove unworkable. …””
“Whatever it means, it has always meant what it means. A contract cannot mean one thing when it is made and another thing following court proceedings. Nor, in my judgment, can it mean one thing to some people (e.g. the parties to it) and another thing to others who might be affected by it. … We are not, in my judgment, seeking to ascertain “what the parties intended to agree” but what the instrument means.”
“21. It follows that in every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean. It will be noticed from Lord Pearson’s speech [i.e. in Trollope & Colls Ltd v North West Metropolitan Regional Hospital Board[1973] 1 WLR 601 , at 609] that this question can be reformulated in various ways which a court may find helpful in providing an answer – the implied term must "go without saying", it must be "necessary to give business efficacy to the contract" and so on – but these are not in the Board's opinion to be treated as different or additional tests. There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?... 26. In BP Refinery (Westernport) Pty Ltd v Shire of Hastings(1977) 180 CLR 266 , 282-283 Lord Simon of Glaisdale, giving the advice of the majority of the Board, said that it was "not … necessary to review exhaustively the authorities on the implication of a term in a contract" but that the following conditions ("which may overlap") must be satisfied: "(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying' (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract". 27. The Board considers that this list is best regarded, not as series of independent tests which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means, or in which they have explained why they did not think that it did so. The Board has already discussed the significance of "necessary to give business efficacy" and "goes without saying". As for the other formulations, the fact that the proposed implied term would be inequitable or unreasonable, or contradict what the parties have expressly said, or is incapable of clear expression, are all good reasons for saying that a reasonable man would not have understood that to be what the instrument meant.”
“In my judgment, the judicial observations so far considered represent a clear, consistent and principled approach. It could be dangerous to reformulate the principles, but I would add six comments on the summary given by Lord Simon in BP Refinery as extended by Sir Thomas Bingham in Philips and exemplified in The APJ Priti. First, in Equitable Life Assurance Society v Hyman[2002] 1 AC 408 , 459, Lord Steyn rightly observed that the implication of a term was "not critically dependent on proof of an actual intention of the parties" when negotiating the contract. If one approaches the question by reference to what the parties would have agreed, one is not strictly concerned with the hypothetical answer of the actual parties, but with that of notional reasonable people in the position of the parties at the time at which they were contracting. Secondly, a term should not be implied into a detailed commercial contract merely because it appears fair or merely because one considers that the parties would have agreed it if it had been suggested to them. Those are necessary but not sufficient grounds for including a term. However, and thirdly, it is questionable whether Lord Simon's first requirement, reasonableness and equitableness, will usually, if ever, add anything: if a term satisfies the other requirements, it is hard to think that it would not be reasonable and equitable. Fourthly, as Lord Hoffmann I think suggested in Attorney General of Belize v Belize Telecom Ltd[2009] 1 WLR 1988 , para 27, although Lord Simon's requirements are otherwise cumulative, I would accept that business necessity and obviousness, his second and third requirements, can be alternatives in the sense that only one of them needs to be satisfied, although I suspect that in practice it would be a rare case where only one of those two requirements would be satisfied. Fifthly, if one approaches the issue by reference to the officious bystander, it is "vital to formulate the question to be posed by [him] with the utmost care", to quote from Lewison, The Interpretation of Contracts 5th ed (2011), para 6.09. Sixthly, necessity for business efficacy involves a value judgment. It is rightly common ground on this appeal that the test is not one of "absolute necessity", not least because the necessity is judged by reference to business efficacy. It may well be that a more helpful way of putting Lord Simon's second requirement is, as suggested by Lord Sumption in argument, that a term can only be implied if, without the term, the contract would lack commercial or practical coherence.”
“(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. (2) …Subject to the requirement that it should have been reasonably available to the parties and to the exception [that the law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent], it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.”
“In 2001, there was a restructuring of the Lush Group of Companies and this resulted in the formation of Cosmetic Warriors and Lush Cosmetics. The Claimants were incorporated on22 February 2001 and16 February 2001 respectively. Both sets of relevant Articles are dated18 May 2001 . Despite its expansion, the Lush business has always been run along the lines of a “tight knit family owned enterprise” and it continues to aim to have to the feel of a small business. At all material times, the business has been managed by a small number of individuals, who were also the shareholders. In 2001, the pre-existing shareholdings in Lush Limited [i.e. the subsidiary of the Second Claimant to which the First Claimant had granted a licence] were exchanged for equivalent holdings in the Second Claimant. At that time, Mark Constantine held 30% of the shares and Margaret Constantine held 20%.Six other shareholders (including Mr Gerrie) held the other 50% in total between them. Accordingly, control of the company was tightly balanced and could be altered by any transaction, especially any transaction by which the Constantines either sold or acquired shares. The 2001 Articles incorporated Table A as it stood in 1985 and did not vary Article 70 thereof which gives the members power to override the directors by special resolution, requiring a 75% majority … In the present case, the admissible background includes the matters set out above as at18 May 2001 . In particular, it may be relevant to bear in mind that the Claimants were run as tightly knit enterprises by their shareholders. More specifically, when the Articles were agreed, substantially all the shareholders of each Claimant were involved in its management and control was tightly balanced with the two Constantines between them holding exactly 50%. The precise constellation of other shareholders could be critical on any given issue given the requirement of a 75% majority to pass a special resolution.”
“The implication [was] not based upon extrinsic evidence of which only a limited number of people would have known but upon the scheme of the articles themselves and, to a very limited extent, such background as was apparent from the memorandum of association and everyone in Belize would have known, namely that telecommunications had been a state monopoly and that the company was part of a scheme of privatisation.”
“Although the courts’ approach to the construction of the words used in the articles of association may be a liberal one, that liberality does not extend to the implication of terms into the articles, where such implication is not derived purely from a consideration of the language used in the articles. On the contrary, an implication based on a consideration of extrinsic evidence, in order to give the articles business efficacy, is not permissible. This is because the articles are a statutory contract which is registered and upon which potential shareholders are entitled to rely in its registered form. For the same reason it is not possible to have the articles rectified. It is, however, permissible for a court to imply a term into articles of association in order to give business efficacy to those articles.”
“…I will readily accept that the law should not adopt a black-letter approach. It is possible to imply a term purely from the language of the document itself: a purely constructional implication is not precluded. But it is quite another matter to seek to imply a term into articles of association from extrinsic circumstances. Here, the company puts forward an implication to be derived not from the language of the articles of association but purely from extrinsic circumstances. That, in my judgment, is a type of implication which, as a matter of law, can never succeed in the case of articles of association. After all, if it were permitted, it would involve the position that the different implications would notionally be possible between the company and different subscribers. Just as the company or an individual member cannot seek to defeat the statutory contract by reason of special circumstances such as misrepresentation, mistake, undue influence and duress and is furthermore not permitted to seek a rectification, neither the company nor any member can seek to add to or to subtract from the terms of the articles by implying a term derived from the extrinsic surrounding circumstances. If it were permitted in this case, it would be equally permissible over the spectrum of company law cases. The consequence would be prejudicial to third parties, namely potential shareholders who are entitled to look to and rely on the articles of association as registered.”
“If the articles provide for a pre-emption right but fail to provide a complete procedure to effect that process the courts can imply a term to ease such difficulties. This happened in Tett v Phoenix Property & Investment Co Ltd(1986) 2 BCC 99140 . In that case, the Court of Appeal implied a term that before transferring the shares to a non-member, a transferor should first take all reasonable steps to give the other members a reasonable opportunity to make an offer to buy. That offer had to be at a fair value, to be determined by the auditors in default of agreement. Reasonable steps meant giving notice of the intention to transfer to the other members so as to give them the opportunity to make the offer to buy. In general, however, the courts will only imply terms which are necessary for the process to work rather than to establish the fairness of the procedure. [Re Benfield Greig Group Plc,[2000] 2 BCLC 488 ; Re Coroin Ltd (No2)[2013] EWCA Civ 781 at [87], per Arden LJ]”
“The price at which the share shall be sold (hereinafter called the fair value) shall be such sum as shall have been nominated by the retiring member in the sale notice and agreed to by the directors, or, in the event of no such nomination or of disagreement, as shall be certified in writing by the auditors for the time being of the company upon the application of the retiring members or the directors to be the fair value thereof at the date of such certificate on a sale by a willing vendor to a willing purchaser.”
“Notwithstanding the foregoing provisions of this regulation, any member who is a director or employee of the company or any of its subsidiaries … shall upon such director or employee … ceasing to hold office as a director of or to be employed by the company or any of its subsidiaries, and if required by the holders of the majority in nominal value of the issued shares for the time being in the company, give a sale notice in respect of all the shares then registered in his or their respective names and, notwithstanding anything to the contrary contained in this regulation, the fair value in respect of such shares shall be that value certified by the auditors in accordance with cl. 9.2 hereof.”
“Accordingly, I return to the articles and specifically art. 9.10. I notice that it starts off with the words “notwithstanding the foregoing provisions of this regulation”, hence the terms of it are to prevail in the event of any conflicts with other parts of art. 9. A director who is required to give a sale notice – as is the petitioner – is required to give it in respect of all his shares. Then again, notwithstanding anything to the contrary, which is repeated later in the article, it states that the fair value in respect of such shares – all the petitioner's shares – is to be the value certified by the auditors in accordance with cl. 9.2. Thus we see that the property to be valued is the entire block of shares held by the petitioner. Referring, therefore, to art. 9.2, as we are required to do, we see that it declares that the price at which “the share” (in the singular) is to be sold is, in the event of disagreement, to be “the fair value thereof … on a sale by a willing vendor to a willing purchaser”
“It is true that there may be an issue as to the precise mode of valuation where each share is to be regarded singly, but in a case where the sale notice covers all the relevant shares and it is all such shares which are to be valued, it is the block, in my judgment, which has to be valued.”
“The market price of an asset is the price which that asset will fetch in the open market between a willing vendor and a willing purchaser. If the asset is a holding of shares in a private company the market price will normally, if not invariably, depend upon the proportion of the shares of the company comprised in the holding and on any special rights or restrictions contained in the articles of association of the company as well as on the value of the net assets of the company and its profit and dividend record. The addition of the word “fair” adds nothing except to remind the valuer that the market value must be ascertained on the assumption that there is a willing vendor and a willing purchaser, that there is a fair market and that no one would be excluded from bidding in it.”
“In Bird Precision Bellows the articles provided for the service of a transfer notice by a member who was minded to dispose of his shares and for the auditors to fix the fair value of the shares. That value was to be fixed as if there had been a separate transfer notice in respect of each of the members' shares. AsOliver LJpointed out, that might also have had the consequence that the fair value would have to be ascertained without regard to the size of the member's holding by an arithmetical apportionment between each share of the fair value of all the shares. That principle has no possible application in the instant case where what has to be ascertained is the fair market price of Mr Crawford's 40 per cent holding.”
“As I have said, one does not have an express provision to value the company's shares as a whole, but one has an express provision that if a transfer notice is given in respect of more than one share, it is to be treated as a separate notice in respect of each. So the valuer has, theoretically, to go through the process of ascertaining the value separately in relation to each share concerned, and I am bound to say that it is difficult to see then how there could be any room for any account to be taken of whether the shares comprised in a transfer notice as a whole formed a minority or a majority holding. Without expressing any concluded view on the matter, I am very much inclined to the view that the valuation of a share under the pre-emption articles in this case ought to be on the same basis as that held by this court to be appropriate in Dean v Prince, and that if the valuer were unwise enough to give his reasons for valuation, and to indicate that in those reasons he had taken into account the fact that all the shares which were being offered by all the deemed separate transfer notices together constituted a majority or minority holding, I think his valuation could be upset. But as I say, it is unnecessary to express any concluded view on the matter, because in a sense this is a make weight submission.”
“(A) Subject as in these Articles provided, any share may be transferred to any member of the company and any share may be transferred by a member to his or her father or mother, or to any lineal descendant of his or her father or mother, or to his or her wife or husband, and any share of a deceased member may be transferred to the widow or widower, or any other such relative as aforesaid of such deceased member, or may be transferred to, or placed in the names of, his or her executors or trustees; and in any such circumstances (but subject as aforesaid) regulation 3 of Table A, Part II, shall not apply, save to ensure that the number of members shall not exceed the prescribed limit, or to prevent a transfer of shares on which the company has a lien. (B) A share shall not be transferred otherwise than as provided in Paragraph (A) of this Article unless it first be offered to the members at a fair value, to be fixed by the company's auditors. Any member desiring to sell a share (hereinafter referred to as a “retiring member”) shall give notice thereof in writing to the company (hereinafter referred to as a “sale notice”) constituting the company his agent for the purpose of such sale. No sale notice shall be withdrawn without the directors' sanction. The directors shall offer any share comprised in a sale notice to the existing members, and if within 28 days after the sale notice has been given a purchasing member is found, such purchasing member shall be bound to complete the purchase within seven days. Notice of the finding of the purchasing member shall be given to the retiring member, who shall be bound, on payment of the fair value, to transfer the share to the purchasing member. If the retiring member fails to complete the transfer, the directors may authorise some person to transfer the share to the purchasing member and may receive the purchase money and register the purchasing member as holder of the share, issuing him a certificate therefor. The retiring member shall deliver up his certificate and shall thereupon be paid the purchase money. If within 28 days after the sale notice has been given the directors shall not find a purchasing member for the share, and shall give notice accordingly; or, if through no default of the retiring member the purchase is not duly completed, the retiring member may at any time within six months after the sale notice was given, but subject to regulation 3 of Table A Part II, sell such share to any person and at any price.”
“93. The next is what is meant by ‘fair value’ and a related point is whether the offer which will include all of the 400 shares must be accepted in respect of all, or may be accepted as regards all or any one or more, of the shares, ignoring for this purpose multiple acceptances. 94. The article uses the singular throughout: a share or the share. It speaks once of any share as regards the directors’ obligation to make an offer. In that sentence, ‘any’ does not mean ‘one, some or several’, it means ‘all’ or ‘every’.”
“112 … Accordingly, I find nothing in these authorities to support a rule requiring a pro rata valuation under the articles. 113 In any event, unless such a valuation is a consequence of the article and its reference to ‘a share’, it seems inherently unlikely that any one basis of valuation would be required as the fair value in relation to any block of shares, however large or small, and at whatever stage of the history and business of the company it arises.”
“125 But I am still left with the question whether what he must fix, as art.8(B) seems to say, is a value per share, or whether it is to be a value for the entire block of shares to be offered. The problem to which I have alluded, of fixing a price for a block of shares, not knowing by whom, if at all, it will be taken up, or, if the article permits, in respect of how many shares it will be taken up, is referred to by Robert Walker J in Macro v Thompson (No. 3)[1997] 2 BCLC 36 at p.70a–d. That problem would be avoided if the auditor's task is to fix a price per share, which Mr Hurst submits results from the use of the singular in the article. The value would then have to be taken by reference to the value of the company as a whole, divided by 2000 to get a value per share. It would eliminate what might be seen as unfairness or inconsistency as regards valuation of different blocks of shares, of differing interest to different shareholders, but at the expense of depriving the majority shareholder of what might be thought to be the added value of control. It would also go naturally with an ability for members to choose the number of shares offered which they wished to take up. … 127 Either construction can be regarded as achieving one of the purposes of a pre-emption clause, which is to give existing shareholders the opportunity, within limits, to control who becomes a new member. The singular construction, allowing acceptance of all or any part of the block of shares on offer, may produce an unsatisfactory result in some cases for the member seeking to dispose of shares, who may find that he has disposed of some of them but is left with a block of smaller size and lesser value proportionately that he is free to dispose of otherwise. But there may always be an incentive for existing members to accept in respect of all the shares offered if they can, because otherwise they may find that a stranger comes in as a member and even if with only a limited shareholding the presence of such a person may widen very considerably the privileged class. 128 It seems to me that it would be possible to construe art.8(B) as requiring acceptance in respect of the whole block of shares, and also requiring a fair value for the whole block, but such a reading would have to depend on reading the singular references as including the plural, under the Interpretation Act . It seems to me that this is not the natural reading of the article and despite it opening the way to some anomalies and possible unsatisfactory outcomes (for some of those concerned) I should hold that, although all shares referred to in any sale notice to the company must be offered to the existing members, any such existing member may accept in respect of all or any one or more of the shares, leaving the others, if not taken up, at the free disposal of the shareholder seeking to dispose of them, under the last words of art.8(B). 129 I also hold that the fair value to be fixed by the auditors is a value per single share, from which it follows, as it seems to me and I so hold, that the auditors must take a fair value for the whole company and divide it between the 2,000 issued shares, thereby producing a figure which applies consistently, whether the block offered is over 50 per cent, is between 25 and 50 per cent, or is less than 25 per cent of the issued share capital, whatever may be the size of holding of any likely buyer and whatever may be the number of shares that the buyer chooses to take up. 130 In reaching this conclusion, I am influenced above all by the consistent and apparently careful use of the singular throughout art.8(B) and the contrast with art.5, with its use of the plural in relation to a subject matter which, though different, has some analogy to that of art.8(B). … 133 The fair value, under art.8(B) is a value per individual share and is to be derived from the auditors' assessment of the net value of the entire issued share capital; therefore, on a pro rata basis without regard to the size of the block of shares to be offered. 134 In assessing the fair value of the company on this basis, it is for the auditors to consider all relevant circumstances known to them, as to which what I have said in my judgment probably amounts to no more than platitudes but might be of some assistance, but the only material point on which I have ruled of relevance is that they should not take into account litigation between the shareholders or between a shareholder (as such) and the company.”
“Whether the accountants referred to in Article 5(c) (“the Accountants”) are required to conduct their valuations on the basis (a) of a pro rata proportion of the value of the whole equity of each company; or (b) on the basis of the price that might be achieved for the Transfer Shares as between a willing buyer and a willing seller of that block of shares (having regard to, among other things, its status as a minority shareholding, if and insofar as the Accountants consider that a willing buyer and willing seller of that block of shares would consider the same to be material); or (c) on some other, and if so what, basis; or whether (d) the Accountants are entitled to use whichever basis of valuation they consider to be appropriate.”
“The ‘prescribed price’ shall be such sum per share as shall be agreed between the Vendor and the Company failing which it shall be the median price of the prices as determined and certified in writing by two independent chartered accountants as being in their opinion the fair value thereof as between a willing buyer and a willing seller valuing the Company on a going concern basis”
“If the answer to question (1) is (b), whether the Accountants are, in respect of the Defendants’ shares in each of the Claimants, required to value the tranche of 955 shares that Mr Gerrie owns outright (“Tranche A”) and the tranche of 853 shares that Mr Gerrie and Ms Hawksley own jointly (“Tranche B”) (a) separately; (b) together; or (c) entitled to make their own decisions as to the basis of valuation.”
“Whether the Accountants’ valuations should be conducted on the basis of (a) publicly available information only; or (b) on the basis also of such further information available and relating to the Claimants as the Accountants may request from them.”
“Whether a potential transferee of the Defendants’ shares under Article 5(L) is to be provided with (a) publicly available information only; or (b) such further information available and relating to the Claimants as the potential transferee may reasonably request from them (upon giving appropriate undertakings as to confidentiality); or (c) some other, and if so what, information.”
“Whether the “any person” to whom Article 5(L) gives the Vendor liberty to transfer shares is (a) restricted to natural persons (so as to exclude a corporate transferee); or (b) not so restricted.”
“‘Person’ includes a body of persons corporate or unincorporate.”
“... in the case of the restriction of transfer of shares I think it is right for the court to remember that a share, being personal property, is prima facie transferable, although the conditions of the transfer are to be found in the terms laid down in the articles. If the right of transfer, which is inherent in property of this kind, is to be taken away or cut down, it seems to me that it should be done by language of sufficient clarity to make it apparent that that was the intention.”
“Whether liability for the fees and expenses of the Accountants is (as between the Claimants and the Defendants) (a) the responsibility of the Defendants in any event, (b) to be shared between the Claimants and the Defendants; or (c) a matter to be determined by the Accountants themselves.”