Blomqvist v Zavarco Plc & Ors [2016] EWHC 1143 (Ch)

Case No 2692[2016] EWHC 1143 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Venue Royal Courts of Justice, The Rolls Building,, Fetter Lane, London, WC4A 1NLDate 17/05/2016
Before
HHJ DAVID COOKE
Between
PETER OLA BLOMQVISTClaimantZAVARCO PLCDefendantOPEN FIBRE SDN BHDDefendantAND BETWEEN:PetitionerPETER OLA BLOMQVISTPetitionerTEOH HOCK PENGRespondentsTUNKU MAZLINA BINTI TUNKU ABD AZIZRespondentsZAVARCO PLCRespondents
ZOE O'SULLIVAN QC (Instructed by Gallant Maxwell) appeared for Claimant/PetitionerANDREW LATIMER (Instructed by Needle Partners Ltd) appeared for First Defendant and the Third RespondentHUGH NORBURY QC (Instructed by Cooke Young & Keidan LLP) appeared for Second DefendantHearing Hearing dates: 1-3 March 2016
JudgmentHHJ David Cooke :
[1]Mr. Blomqvist brings two sets of proceedings relating to Zavarco Plc. It is a company incorporated in England but whose shares are or were listed on the Frankfurt Stock Exchange (FSX). Its principal asset (which it described as "the jewel in the crown", see bundle C/p59) is or was a fibre optic network in Malaysia, owned by a Malaysian company called V Telecoms Bhd ("VTel"), which was an indirect subsidiary of Zavarco plc. Mr Blomqvist is the registered holder of 100m shares of Eur 10 cents each in Zavarco plc, and has an interest in 16m further shares held by nominees or trusts of which he is a beneficiary. On his case, he has spent a substantial amount to acquire these shares because he and other investors with whom he was in collaboration saw Zavarco plc as an undervalued asset of which they might obtain control.[2]On 20 February 2015 Mr Blomqvist served notice on Zavarco plc under Companies Act 2006 s303 requesting that the directors call a general meeting for the purpose of removing the existing directors and appointing himself and others named by him. That was met by an allegation that his shares were not fully paid (and therefore gave no right under s303). This, on Mr Blomqvist's case, was the first he had heard of such an allegation, which was wholly inconsistent with all the company's public accounts and records and with the listing of the shares on the FSX.[3]When the directors did not comply with this request, Mr Blomqvist sent out his own notice convening a meeting under Companies Act 2006 s305, on 16 March 2015. This was met by a letter from solicitors for Zavarco plc (C/232) stating that as at 17 March 2015 Mr Blomqvist's holding, previously over 6%, now amounted to just over 1%. They sent a copy share register showing a very recently issued massive holding of 7,052,159,653 shares (referred to as "the 7Bn shares") in the name of Open Fibre Sdn Bhd ("OFSB") which had the effect of diluting all previous holdings by a factor of about 6.[4]These proceedings were issued in April 2015. In the first ("the petition") Mr Blomqvist seeks relief under 994 Companies Act 2006 declaring that his notice convening a meeting under s305 is valid and a direction that the meeting be held. In the second ("the Part 8 claim") he seeks rectification of the share register so as to delete the 7Bn shareholding in the name of OFSB.[5]Mr Blomqvist has discovered, subsequent to the issue of proceedings, that on 23 July 2014 Zavarco plc had entered into a consent order ("the consent order") settling litigation in Malaysia brought by OFSB under which Zavarco plc agreed to transfer its entire indirect shareholding in VTel to OFSB and in addition issue shares in itself to OFSB with a market value of RM (Malaysian Ringitts) 150m, equivalent to about Eur 34m. It is not clear when the VTel shares were transferred. The board of Zavarco plc only resolved to issue new shares in itself to OFSB on 27 February 2015, a week after Mr Blomqvist's first notice. A simplistic calculation was done showing that at the average of the closing prices of Zavarco plc shares over the past 5 days of about EUR 0.005, or half a Euro cent; this came to 7,052,159,653 shares, enough to swamp the previously issued shares (of which there were 1.5Bn in total). In truth of course, on the basis of that price the entire market capitalisation of Zavarco plc would have been about Eur 7.5m, so unless additional capital was contributed no amount of newly created shares would ever be worth Eur 34m.[6]Mr Blomqvist considers this transaction to be deeply suspicious. In his evidence, he said that in his view he had been "royally screwed over". There are, I am told, a number of claims pending in the Malaysian courts in which it is alleged to be a fraudulent device to strip Zavarco plc of its asset, ie VTel. However, the issues in these proceedings are limited by the pleadings. In order to explain those issues, I will need to refer to the history of events, including matters which are not agreed but where the facts are not in issue before me. In doing so I shall endeavour to make clear where this is the case.[7]In December 2010 OFSB exchanged its then shareholding of about 91% of the ordinary shares of VTel for shares in Vasseti Bhd, since renamed Zavarco Bhd, which name I will use throughout for clarity. The sale agreement (C/2) does not show who were the holders of the remaining 9% of VTel shares, or what other shares were in issue in Zavarco Bhd.[8]On June 2011, as a precursor to obtaining a listing on the FSX, Vasseti plc (since renamed Zavarco plc, which name I will again use throughout) was incorporated. By a share sale agreement bearing the same date (CB/2, referred to as "the SSA") Zavarco plc and four individuals who between them were the registered owners of all the shares of Zavarco Bhd agreed to sell those shares to Zavarco plc in exchange for the issue of 1.5Bn shares of Eur 0.1 each in Zavarco plc. A table (CB/6) shows that Zavarco Bhd had an issued capital of RM411m, of which by far the largest part was held by OFSB, which had 396,000,000 shares of RM100 (96.35%). The next largest holding was of Mr. Ranjit Singh Sidhu ("Mr. Sidhu") who had 9,999,999 shares of RM1 (2.43%). Tan Sri Syed Mohammed Yusof Bin Syed Nasir ("Mr Nasir") held 4m shares of RM1 (0.97%).[9]The SSA provided for completion on 23 July 2011 (cl 1.1). Clause 4.2 provided for the consideration to be satisfied by the issue of shares in Zavarco plc (referred to as "the VUK shares") as follows:
“The Parties hereby agree that the VUK shares shall be issued to the persons named in Schedule 2, which will be made available to the Purchaser by 23 July 2011 or such other dates to be agreed by the Parties herein… Schedule 2 shall consist of detailed particulars of the names and allotment of the Consideration for the 1.5 billion VUK shares.”
The SSA contained a page headed "Schedule 2 Settlement of purchase consideration", but it was blank, merely containing the note "To be provided to the Purchaser by 23 July 2011 or such other dates to be agreed by the Parties".[10]By this unusual mechanism, the sellers reserved to themselves the decision as to who should receive the consideration shares. It must presumably be the case that they did not envisage that those shares would be issued to themselves in proportion to the shares they sold, since otherwise the SSA could have said so when signed. What factors were to influence this distribution of the consideration are not explained in the documents.[11]A further document headed "Schedule 2" has been produced, which does contain a list of names and numbers of shares. It contains no date or signature, save that the secretary of Zavarco plc has signed a stamp certifying it as a "true copy". The authenticity of this document is challenged; a document serving the purpose of allocating the consideration due to the vendors would have to be authorised or agreed by them, but the certification by the secretary of the purchaser on its face shows only that he confirms that this document is a true copy of some other, and says nothing about the origin of either or whether they have been approved by the vendors or any of them.[12]This document has been referred to as "Sch 2" and I will use that term, though as I say its authenticity is not admitted. According to it, 1,395,000,000 Zavarco plc shares should be issued to OFSB, amounting to 93.0%, so less than its apparent pro rata entitlement. 36,500,000 shares should go to Mr. Sidhu, which does correspond to his 2.43% holding in Zavarco Bhd. Just over 30m shares are "to be held in trust as Treasury shares…for purpose of employee subscription and for other future cash investors as per board of directors approval". Mr Nasir is to receive 17,598,540 shares or 1.17%, so more than his apparent entitlement. The remainder are to go to a list of some 30 names, mostly individuals but including two investment companies. So far as I can see, neither of the other two vendors appears in this list. If they are behind the investment companies, the shares to be issued to those companies do not correspond to the original holdings of those vendors. There is no explanation in the evidence for this pattern of distribution.[13]In fact the incorporation documents of Zavarco plc state that 1.2 Bn shares were issued to the subscribers at incorporation, 840m to Mr. Sidhu and 360m to Mr Nasir (D/209). All these shares are said to be fully paid. Since the incorporation was on 29 June 2011, the date of the SSA, this issue would necessarily have preceded the date for completion of the SSA, so on the face of it these shares should not be part of the consideration.[14]Some indication of what may have been going on in the background may perhaps be gleaned from email traffic originating from Mr. Shailen Gajera (also known as Shailen A/L Poplatl) ("Mr. Shailen"), who gave evidence stating himself to be a consultant engaged to assist the directors of Zavarco plc. Some of these documents were produced by him at the start of the trial. I should say that he was not cross examined about these documents, or the suggestions of his wider involvement that I will refer to below. I do not therefore make any findings of fact based on these documents, but refer to them as background and as illustrating both the issues that may have to be resolved in the proceedings in Malaysia and the danger of making or appearing to make findings in these proceedings on issues that have not been fully explored in the evidence, where such findings may be capable of being misrepresented as somehow determinative of issues before the Malaysian court.[15]In general terms, these emails appear to show Mr. Shailen directing the process of preparation for listing Zavarco plc on the FSX, for instance by i) Giving instructions to prepare a business plan (part of which he had drafted himself) and preparing cash flow projections and valuations (C/58) ii) Seeking the backing of a bank for a valuation of shares at listing of Eur 1.65 billion (C/112) iii) obtaining an external valuation opinion on its assets for the purpose of the listing (C/114)[16]It appears from these emails that Mr. Shailen is at least familiar with the arrangements made in the SSA and the way in which the consideration shares are to be distributed. In an email of 15 July 2011 (C/112), which appears to be sent to a bank he asks to support the valuation of shares to be listed, he says:
“On 23 June 2011 (sic) VUK [ie Zavarco plc] has acquired 100% equity interest in VB [ie Zavarco Bhd] for a consideration sum of €1.65bil[lion]…to be satisfied by the issuance of 1.5 bil x €0.10 shares in VUK to the existing shareholders (more than 35 of them).”
In relation to valuation opinions he says "I presume the first one may be required by Company House (UK) to issue the 1.5bil shares". This appears to relate to a valuation of "shareholder equity in VB" which he states to be €200m, though for reasons not immediately apparent to me at least he says the "value of acquisition by VUK" is €1.65 billion.[17]The reference to there being more than 35 existing shareholders of Zavarco Bhd is plainly not consistent with the SSA, unless some of the five registered holders held as nominees for other people. If that is the case, it may explain the number of names appearing on the disputed Sch 2. Another explanation may have been that OFSB (and other vendors) had decided to make gifts of some of the consideration due to it to others, and Mr. Shailen was disguising this in what he told the bank. On any basis it appears that Mr. Shailen is familiar with the arrangements behind the SSA and OFSB's intentions in making that agreement, and may have seen either the disputed Sch 2 or some similar list.[18]The reference to the valuation of the shares sold in Zavarco Bhd being relevant to the issue of shares in Zavarco plc would appear to be premised on their being the consideration for that issue.[19]In an email of 1 August 2011 (C/118a, which was produced on the first day of trial) Mr. Shailen instructs someone called Edmund (with copies to Mr. Sidhu and a Roslina Ibrahim) that:
“To expedite certain matters we had incorporated [Zavarco plc] using RSS [Mr. Sidhu] and TSSY [Mr Nasir] as trustees of the final shareholders, 360 mil shares in TSSY name and 840 mil shares in the name of RSS. All these shares in [Zavarco plc] need to be transferred to actual beneficial owners immediately. As such, you may need to prepare 50-75 of this J10 [share transfer] forms… … can you get TSSY sign J10 form for block transfer of his 360 mil shares in [Zavarco plc] to OFSB… The rest of the J10 will be signed by RSS (who is trustee for 840 mil shares in [Zavarco plc]”
[20]With this are three share transfer forms. One (C/118B) is for transfer of 360m shares from Mr Nasir to OFSB. It bears a seal of OFSB and what appear to be signatures of Mr Nasir (signing as "Syed") and Mr. Sidhu. The form requires execution on behalf of transferor and transferee, so it would appear Mr. Sidhu may have signed for OFSB and that either he or someone with access to a seal of OFSB applied it to the transfer.[21]Another (C/118C) is also for 360m shares, this time transferred from Mr. Sidhu to OFSB. It too has the seal of OFSB, Mr. Sidhu's signature presumably as transferor, and two illegible signatures presumably for OFSB.[22]The third (C/118D) is for 337m odd shares, from Mr. Sidhu to China Finance Ltd, with an address in Samoa.[23]It would appear that all these transfers were executed at the request of Mr. Shailen. Further, that Mr. Shailen was at least familiar with there being an arrangement, apparently part of the process of exchanging shares in Zavarco Bhd for shares in Zavarco plc with a view to the listing, that 1.2 Bn shares were issued on some sort of temporary basis to Mr. Sidhu and Mr Nasir, with an arrangement in the background that they would be transferred to others in due course. Since he seems to have been at least familiar with OFSB's intentions, the implication may be that this arrangement was agreed by OFSB.[24]Further, on the face of these documents, as part of this arrangement OFSB appears to have had transfers to it for at least 720m shares in Zavarco plc executed, and so, presumably, at least the opportunity to have such shares registered in its name if it so chose. It appears that these transfers cannot have been registered, but how and why that came about is not apparent.[25]On 5 August 2011 Mr. Shailen sent a series of emails to "Edmund", with copies to Mr. Sidhu and Ms Ibrahim, with proposed wording for a number of resolutions of directors and shareholders dealing with the approval of the acquisition of Zavarco Bhd, the transfer of shares "as per SPA and list dated 23 July 2011", the increase in capital from 1.2 Bn to 1.5Bn shares and the "allotment of additional 300m €0.10 shares in [Zavarco plc] to OFSB" (C/122-4). At the time of all these emails, he appears to have been working in co-operation with Mr. Sidhu. It would appear from this email that Mr. Shailen had either seen, or was aware of the existence of, a list of intended recipients of shares. Since 23 July 2011 was the stated date for completion of the SSA and provision of a completed Sch2, it seems likely he was referring to a list that was intended to form Sch 2. Whether that was the document produced in these proceedings cannot be said.[26]A witness statement was filed in these proceedings by Mr. Sidhu. He was not called as a witness and Ms O'Sullivan did not rely on his statement or put the allegations in it to Mr. Shailen. Accordingly again I make no findings based on it, but refer to it only to illustrate what may be the issues in the Malaysian proceedings and the need to avoid appearing to make findings that might be misrepresented in those proceedings.[27]According to Mr. Sidhu, and in summary: i) Mr. Shailen is the effective owner of OFSB though his name does not appear on any documents relating to it and he controls it through others, including Ms Ibrahim and a Mr. Zulizman Abidin ("Mr. Zulizman"). ii) In 2010 he and Mr. Shailen agreed to co-operate to develop VTel and that he, Mr. Sidhu, would be an equal joint owner of OFSB. Their intention was to achieve a flotation, and the exchanges of shares in VTel for Zavarco Bhd , and later of Zavarco Bhd for Zavarco plc, were to that end. iii) The recipients of the share consideration issued by Zavarco plc under the SSA were to be determined by himself and Mr. Shailen, with the intention that apart from people who invested cash, the two of them would have equal holdings. Sch 2 was left blank in the SSA to be agreed later between himself and Mr. Shailen. iv) The initial issue of shares in Zavarco plc to himself and Mr Nasir was agreed with or done at the direction of Mr. Shailen. Mr Nasir's involvement was necessary to secure political approval of VTel's business in Malaysia. v) Mr. Shailen gave directions for the further issue of 300m shares and a list of who they should be given to (C/148; the list referred to is at C/149 though it is not obviously linked to p148). vi) By agreement with Mr. Shailen, Mr. Sidhu transferred half of the 840m shares issued to him to VCB AG, which he says is Mr. Shailen's company (he does not produce a copy of any such transfer). vii) Accordingly, all the shares in Zavarco plc issued to him were so issued as part of the arrangement made with OFSB for the transfer of shares in Zavarco Bhd.[28]If that is right (and as I say I make no findings on these allegations either way) Mr. Shailen is more than just familiar with the arrangements made for issue of shares in Zavarco plc; he made them himself on behalf of OFSB.[29]Returning to the history of events, Zavarco plc was listed on the FSX in August 2011. In 2012 Mr Blomqvist met Mr. Sidhu and at his suggestion began to invest in Zavarco plc shares, which he bought through nominees or family trusts. In all, on his evidence, he made approximately 150 purchases, on and off market.[30]The share price, which had initially been buoyant, declined. In June 2013 Mr. Sidhu and two others who had been initial directors of Zavarco plc resigned. In November 2013 Mr. Teoh, who is the first named respondent to the petition, was appointed a director. By February 2014 all the other original directors including Mr. Nasir had also resigned.[31]In February 2014 Zavarco plc held its AGM. Mrs Hashim, a director of OFSB who gave evidence on its behalf, attended. She says that she was told at the meeting by Mr. Teoh that as OFSB was not a registered shareholder, she could only attend the meeting as an observer. On 16 April 2014 she wrote a letter to Zavarco plc (CB/19) saying:
“We are surprised to learn that the Board of Directors of [Zavarco plc] is unaware of the pending issuance of shares [of Zavarco plc] to …OFSB which had (sic) been delayed since 2011. As you may be aware, pursuant to the above share sale agreement we have been asking [for] the delivery of our shares in [Zavarco plc] … since early 2012 but all we have been given is continuous run-around by [Zavarco plc] and its representatives. We are now writing to demand the issuance of all our shares in [Zavarco plc] be completed in the next fourteen days…failing which we will have no choice but to appoint a lawyer to exercise our full rights on this matter according to the law.”
[32]There is no evidence of any previous correspondence or other measures seeking to obtain an issue of shares to OFSB or of it being given the run-around in response. Mrs Hashim was asked about this and said that she herself had no personal knowledge of the SSA and was not aware of any such previous requests. She had written the letter at the direction of her fellow director Mr Zulizman. She accepted that he was the person who controlled OFSB. It was apparent from her evidence that all the significant decisions in relation to Zavarco plc and OFSB's claims against it were made by Mr Zulizman.[33]There was no response, so OFSB instructed a Malaysian lawyer, Gunavathy Manikam, to write a letter to Zavarco plc dated 7 May 2014 (CB/20) in which they said that under the SSA "you… were to transfer to OFSB 1,445,255,274 shares… upon receipt of OFSB's shares in [Zavarco Bhd]" and demanded the re-transfer of shares in Zavarco Bhd "or failing which pay OFSB the value of the [Zavarco plc] shares calculated as at 29 June 2011". Mrs Hashim said that Mr Zulizman and not she had given these instructions. It appears from this letter that (notwithstanding it was headed "Demand for compensation or specific performance [of the SSA]") OFSB had already decided it did not want to receive shares (by now worth little) in Zavarco plc, but wanted either the return of Zavarco Bhd, or cash equivalent to the value of the Zavarco plc shares in 2011. It seems unlikely that anyone thought Zavarco plc would be able to pay that amount given the decline in its fortunes. If the shares in Zavarco Bhd were returned, there was no claim for damages in addition.[34]Mrs Hashim said that she had come up with the figure of c 1.45Bn shares. It was not mentioned in the SSA. She evidently could not have got it from the disputed Sch 2, and gave a muddled explanation of how that figure related to Sch 2. She worked it out as the proportion of the total of 1.5Bn consideration shares attributable to the shares sold by OFSB (96.35%). She evidently cannot have asked about the arrangement for the later completion of Sch 2 (which she said was a matter for Mr Zulizman) or taken any steps to check the figure she calculated with Mr Zulizman or anyone who had knowledge of the transaction. It may not have seemed important, since OFSB's primary aim was recovery of the Zavarco Bhd shares- "basically we wanted Vasseti back", she said in cross examination.[35]A response was sent the next day (CB/22) signed by an unnamed "General Counsel" of Zavarco plc, denying the claim without any detail and advising that papers could be served on Malaysian lawyers AR Yahya & Co. OFSB issued a claim in the Malaysian court on 12 May 2014 (CB/23) seeking the same relief as specified in the earlier letter, ie damages or the return of the Zavarco Bhd shares, but (notably) not the issue to it of any shares in Zavarco plc and not any damages in addition to return of the Zavarco Bhd shares. Mrs Hashim again said it was Mr Zulizman and not she who had given the instructions to the lawyers. A defence (CB/27) was filed on behalf of Zavarco plc which is, frankly, difficult to follow.[36]There was then a mediation held under the auspices of the Malaysian court. Each party prepared a case statement (C/178, C/180) dated 2 July 2014. OFSB's statement set out its claim for relief in the same terms as before. According to Mrs Hashim's evidence, there were "2 or 3 mediation sessions" "in June and July 2014", which she attended as the sole representative of OFSB. During these sessions an agreement was reached which was then embodied in an order of the Malaysian court, sealed on 23 July 2014. It was accepted that these terms were matters of agreement between the parties, not the result of determinations of the court. Mrs Hashim said it was Mr Zulizman's decision, not hers, to accept these terms, "based on the lawyer's advice". It is not explained why she attended rather than Mr Zulizman or someone with knowledge of the SSA transaction or the authority to make decisions.[37]The principal terms of the consent order were, as indicated above: i) Zavorco plc would immediately procure the transfer of all the shares held by Zavarco Bhd in VTel (not the shares in Zavarco Bhd itself acquired in the original transaction) to OFSB, ii) Zavorco plc would issue shares in itself to OFSB "based on market value of shares in [Zavarco plc] amounting to RM 150m… as full settlement of liabilities that have been imposed on [VTel] for the negligence of the officers of [Zavarco plc] between 2011 until 2012 in using the said sums for the Defendants' interests", and iii) Zavorco plc would hand over management control of VTel and not change its management.[38]Mrs Hashim explained that these terms were agreed as a compromise, because Zavarco Bhd in addition to VTel owned another subsidiary called KKM which owned some prime land in Kuala Lumpur worth RM 500m, so Zavarco plc had not wanted to transfer shares in Zavarco Bhd itself. The RM 150m had been asked for because VTel had taken a loan of RM400m, on which it had to pay interest, and had also incurred legal and other costs. Zavorco Bhd had no debt when transferred to Zavarco plc in 2011, so OFSB's objective had been to get it back debt free. In answer to my question, she said that VTel had received the loan itself and spent it on developing its fibre network. She gave a very confused account of how the existence of this debt led to the figure of RM 150m, which she acknowledged had not been any part of the claim advanced previously:
“Q. Can you explain where the figure of RM150 million comes from? A. Okay. It’s actually V Telecoms actually had a bank loan, okay, of RM400 million and then- and plus also all the interest and other charges, so, basically, it was RM150 million. Q. Sorry, what was RM150 million? A. It’s actually the interest of the bank loan made by V Telecoms. Q. Yes. I see. A. In which when I hand over V Telecoms it’s clear [it's debt] free, all right, but at this moment, okay, it has a loan worth of RM400 million plus the interest of 7 per cent and other charges. Q. So, the object was to hand back V Telecoms debt free? A. Yes.”
Q. Sorry, what was RM150 million?

Q. So, the object was to hand back V Telecoms debt free?

[39]The object cannot in fact have been to recover VTel free of a debt of RM400m, since that could not be achieved by OFSB (or VTel) receiving RM150m, even if in cash. Mr. Latimer put forward an alternative explanation, without as far as I could see any basis in the evidence, that it would not have been appropriate to seek compensation for the amount of the loan itself, since borrowing the money and spending it on VTel's business would leave it no worse off. No doubt one would expect that to be true, but it would apply equally to the ordinary costs of borrowing, such as payment of interest, so there is a similar lack of apparent justification for any obligation to reimburse OFSB or VTel for that cost. Nothing in Mrs Hashim's evidence supported the implication of the terms of the consent order that taking the loan had been negligent, or that the proceeds had been used for purposes other than those of VTel.[40]At p C/177.3 in the bundle is a set of minutes of a meeting of the directors of Zavarco plc approving the entry into the consent order, which is described as follows:
“It was resolved that [Zavarco plc] enter into a consent judgment pursuant to the High Court of Malaya in Kuala Lumpur suit no… primarily comprising the following terms:- a) Return all the shares in [VTel] to [OFSB]. b) Ascertained damages yet to be confirm. c) Not to change the upper management of [VTel].”
The minutes record the "justification" for the decision, which explains inter alia firstly that shares in Zavarco Bhd would not be transferred as it had acquired two other subsidiaries since VTel (one of which appears to be the company holding the land Mrs Hashim referred to) and secondly that there could be "litigation problems" with Mr. Sidhu and the other vendors of shares in Zavarco Bhd. The bank loan to VTel is referred to, but only in order to say that repayments on this loan would "put a strain on the cash flow of the group".[41]There is no reference to any allegation that this loan had been negligently taken or had caused any loss to Zavarco Bhd, or been used for purposes other than VTel's business. No indication is given why payment of damages is approved in addition to transfer of the shares in VTel, which is particularly odd since there had been no claim for such damages. There is no indication how the damages are to be "ascertained" or who on behalf of Zavarco plc is to approve the final figure.[42]These minutes are dated 25 June 2014, a month before the consent order was sealed, and a week before the parties prepared their mediation case statements. It is possible on the basis of Mrs Hashim's witness statement that there could have been a mediation appointment earlier in June, but it seems surprising that statements of case would have been prepared later, and apparently after the main terms of settlement had been agreed.[43]This sequence of events and these documents are plainly such that reasonable questions may be asked about them. I assume that they will be in issue in the Malaysian proceedings. Again however I am not in a position to make any findings in these proceedings in relation to the way in which Zavarco plc conducted the mediation and came to agree the terms of the consent order. Ms O'Sullivan did wish to ask questions of Mr. Teoh, the director of Zavarco plc who gave evidence, about these matters, but I upheld Mr. Latimer's objection that the questions did not go to any pleaded issue in the present proceedings.[44]The consent order was dated 23 July 2014, but was not acted upon immediately. Mrs Hashim sent a letter dated 3 December 2014 (C/187), which referred to earlier phone calls, chasing compliance. There was no response, so in January UK lawyers (Penningtons Manches) were instructed, apparently by Mr Zulizman, to advise on registration of the consent order in England with a view to enforcement.[45]On 20 February 2015 Mr Blomqvist signed his request for a meeting under Companies Act 2006 s 303 (C/201). It is not clear from the documents when it was delivered, though Mr Blomqvist's witness statement implies it was the same day. Three days later Penningtons Manches wrote to Zavarco plc (C/209) saying that they had been instructed to register the consent order but "in the interest of minimising costs we request that [Zavarco plc] complies with the Malaysian judgment and transfer (sic) the shares". It appears that this refers to the transfer of VTel shares, and not the issue of Zavarco plc shares. Mr Blomqvist suspects this timing is not coincidental, but there is nothing in the documents before me to support that suspicion.[46]On 27 February 2015 the board of Zavarco plc resolved to comply with the consent order (C/204). Although the transfer of shares in VTel is referred to as one of the terms of the consent order, the resolutions do not address what steps are required to achieve that. Instead, they deal with the issue of shares in Zavarco plc, setting out a calculation based on the closing prices over the preceding 5 days and leading to the figure of 7,052,159,653.36 shares to be issued.[47]On 10 March 2015 AR Yahya, the Malaysian lawyers acting for Zavarco plc, wrote a letter addressed to Zavorco plc's directors and also to a Mr. Greg O'Donovan at Computershare (Zavarco plc's registrars) and Maureen Caveley at Formacompany & Co Ltd, the formation agents who had incorporated Zavarco plc and still apparently provided its registered office and kept its statutory books. This letter was of an officious and threatening nature, saying:
“…TAKE NOTE that pursuant to the said Consent Judgment and the letter from Penningtons Manches dated 23 February 2015 Zavarco plc … is required to issue the 7,052,159,653.36 new shares of Zavarco plc to [OFSB] immediately. … TAKE FURTHER NOTICE that the Consent Judgment is a valid and enforceable judgment duly obtained from the High Court in Kuala Lumpur, hence the compliance to the terms as mentioned therein shall not be questioned by neither the Board of Directors nor the Shareholders… Any non–compliance to the Consent Judgment [is] tantamount to a contemptuous act on your part and you shall be held liable for contempt of court. The actions here are in line with Zavarco plc Articles of Association and the UK Companies Act…”
[48]Mr. Teoh was asked whether this letter was addressed to the directors so that they could say they had no alternative but to comply with the consent order. He denied that, saying that it was supposed to be addressed to Mrs Calveley, because she had not complied with her instructions. The sudden urgency to complete the issue of shares may have been prompted by Mr Blomqvist's request, or Penningtons Manches letter, or both. Why the board thought it appropriate to threaten the company's own agent in this way, rather than explaining her instructions and (if necessary) passing on any legal advice received by the board, is unexplained. The letter reads more as if it were written on behalf of the party entitled to enforce the order than the reluctant subject of it.[49]The letter appears to have secured co-operation from Mrs Calveley and the Registrar; a certificate for the 7Bn shares was issued on 20 March 2015 (C/252.1) though for some reason not sent to OFSB until 9 April (C/252).[50]On 10 March 2015 AR Yahya wrote to Mr Blomqvist (C/220) in relation to his s303 notice. That letter also was in hostile terms, saying:
“We act for Zavarco plc and we refer to your letter dated 20 February 2015 issued to our client. Please be informed that our client had appointed an independent auditor to investigate the mismanagement and share fraud issues in the company. According to investigations by the said auditors, the shares purportedly held by you are in fact unpaid shares and therefore you do not have the right to request for a shareholders meeting… Our client hereby reserve their rights to pursue the necessary legal action should you insist on pursuing with the notice…including lodging a police report for fraudulently claiming unpaid shares as paid shares.”
[51]This was the first Mr Blomqvist had heard of any suggestion that his shares were unpaid. It is extraordinary that this was asserted without explanation and with a simultaneous accusation of fraud against him.[52]The reference to an investigation by an "independent auditor" was also new to Mr Blomqvist and unexplained. It referred to a report commissioned by the board from Ferrier Hodgson, a firm of accountants in Kuala Lumpur. Mr. Shailen gave evidence that as a consultant to Zavarco plc he had assisted the board by recommending them to Ferrier Hodgson, that they had been instructed about the same time as the mediation, that the purpose was to investigate whether OFSB's claim had merit, that he had met Ferrier Hodgson who had asked him about his knowledge of the SSA transaction and taken notes, that Ferrier Hodgson were aware of the consent order and that Ferrier Hodgson had provided him with the disputed Sch 2 document.[53]The commissioning of this report and its conclusions were put forward by Mr. Latimer as indicating that the board had taken a proper approach to evaluating the claim by OFSB and had entered into a sensible commercial settlement of that claim. As appears below, these are not issues that are before me, and I express no conclusions about them. I note however the following from the report and later correspondence from Ferrier Hodgson: i) The report is said to be of "preliminary findings" and dated 27 October 2014 (C/293). It does not indicate any further work to be done and no further report is before me, apart from two subsequent clarifying letters. ii) It does not say when it was commissioned, though it refers to an engagement letter dated 8 August 2014 (C/298). iii) The purpose of the report is described thus in the Executive Summary: “…the current directors of [Zavarco plc] have recently discovered that [Zavarco plc] has yet to issue and allot the shares in [Zavarco plc] to OFSB as per the [SSA]. Accordingly, OFSB has initiated legal action against [Zavarco plc] and [Zavarco Bhd] to recover its entitled shares in [Zavarco plc]. Accordingly the Board of directors of [Zavarco plc] appointed [Ferrier Hodgson] as an Investigative Accountant to review the [SSA] and ascertain whether the issuance and the allotment of shares by [Zavarco plc] was undertaken in accordance with the [SSA]” iv) This appears to read as if the purpose of the report was to confirm a conclusion the directors had already reached. It is hard to see that the intention was to investigate OFSB's claim to see if settlement was justified, since that claim was settled in July (at the latest), long before the report was available and possibly even before it was commissioned. v) Ferrier Hodgson's summary of the OFSB claim is not accurate; it did not include a claim for issue of the Zavarco plc shares to which it was entitled under the SSA. The claim documents are not among those listed as provided to Ferrier Hodgson (C/298). Nor is the consent order, to which no reference is made. Ferrier Hodgson state that they have not seen "the list dated 23 July 2011" (C/300, plainly a reference to Schedule 2) and yet state (ibid) that the obligation was to issue 1,395,000 shares to OFSB, which is the figure in the disputed Sch2. That too is inaccurate; the SSA requires that shares be issued to the persons to be named in Sch 2, not necessarily OFSB. Without sight of that document, or some other evidence of its contents (and no such evidence is referred to) it is hard to see how Ferrier Hodgson concluded that the agreement had not been performed. vi) These statements cannot, it seems to me, be reconciled with Mr. Shailen's evidence that Ferrier Hodgson not only had the disputed Sch 2 but gave it to him. vii) There is no reference to any discussions with Mr. Shailen, or anyone else. The report states that it is "primarily comprised of examination of the documents stated in section 2.2…" which they say they have assumed to be accurate and complete (C/303). viii) Ferrier Hodgson were plainly aware of the possibility that undocumented arrangements might have been made with OFSB for issue of shares to persons nominated by or agreed with them. They obtained a letter from OFSB denying that any such arrangements had been made (C/326). This approach does not suggest that Ferrier Hodgson were concerned to establish on behalf of Zavarco plc whether OFSB's claim was justified. Nor is there any reference to any other enquiries made or documents sought to explain the SSA transaction. Mr. Shailen would, for instance, have been able to provide relevant information and documents, including his own email traffic some (but evidently not all) of which is exhibited in this case. That email traffic suggests that shares were issued at OFSB's direction to Mr. Sidhu and Mr. Nasir, and later directed to be transferred by them to others, in which case it may well be that OFSB did receive some or all of its consideration entitlement. ix) Although Mr. Shailen said he spoke to Ferrier Hodgson he has not said what about, and as stated above the report contains no record of any such discussions. The documents listed do not include any emails or other background documents contemporary to the SSA and flotation. There is no indication in the report whether Ferrier Hodgson asked for any such documents, or were either content, or instructed, to base their report only on the list of documents provided to them. x) The principal use to which the report has in fact been put appears to be by reliance on its conclusion that the 1.2Bn shares issued on incorporation to Mr. Sidhu and Mr Nasir were "uncalled capital" (C/300). This was repeated in a letter of 3 March 2015 (C/217; the letter now refers to the report as a "final report"). It was explained further in a letter of 21 May 2015 (C/265) that "as no payment was received by [Zavarco plc] for the same [uncalled capital] shall also mean unpaid capital."[54]Returning to the chronology; on 16 March 2015 Mr Blomqvist issued his notice calling a meeting under Companies Act 2006 s 305. On 30 March 2015 Needle Partners, English solicitors acting for Zavarco plc wrote to Mr Blomqvist's solicitor (C/230) enclosing a copy of the letter from Ferrier Hodgson of 3 March 2015 (but not the earlier report) repeating the allegation that shares issued to Mr. Sidhu were not paid up, stating that Mr Blomqvist's holding could be traced back to those shares and informing him that his shareholding was now only 1.17%. A copy share register was attached, but no explanation given for the issue of the 7Bn shares that effected the dilution. There was no reference to the claim by OFSB or the consent order.[55]There followed correspondence in which Mr Blomqvist's solicitor: i) stated he had "conclusive evidence" that his shares were paid up, but did not respond to requests to say what the evidence was, and ii) asserted that no return of allotments had been made for the 7Bn shares and the issue was unauthorised since there was no authority for it in the Articles complying with Companies Act 2006 s 551, no shareholder's resolution had been passed authorising it and it did not comply with the statutory rights of pre-emption given by s 561. His repeated pressing of these points was brushed off or ignored. He was not told about the claim by OFSB or the consent order settling it. Unsurprisingly since no explanation had been given, Mr Blomqvist's solicitor took the stance that the issue of the 7Bn shares was an unlawful attempt by the Board to thwart his request for a general meeting.[56]On 9 April 2015 Mr. Teoh requested the FSX to delist its shares, referring to the Board's belief that 1.2Bn shares were unpaid and litigation alleging defaults by previous management. On 14 April Mr Blomqvist commenced these proceedings. On 19 April VTel under a new name, Aries Telecom, announced its intention to seek a flotation on the AIM in London (C/253). No reference was made to the previous history of ownership and listing on the FSX, though Mr Blomqvist has since taken steps to notify the brokers concerned of the disputes arising from it. Presumably as a result, the intended flotation is not now proceeding (C/297.1).[57]The existence of the consent order was disclosed, Ms O'Sullivan suggests inadvertently, by counsel then acting for Zavarco plc at a directions hearing before Arnold J on 15 April 2015. Mr Blomqvist's solicitors asked for a copy but it was not provided and he had to obtain it by search at the High Court in Malaysia.[58]At no time has any disclosure been made to shareholders or to the FSX of: i) The claim made by OFSB ii) The terms of settlement agreed and embodied in the consent order iii) The obligation to transfer away the group's principal trading asset iv) The liability accepted for RM 150m and likely further share issue. Mr. Teoh accepted that all of these were material matters that required to be disclosed under the terms of listing on the FSX.[59]Although Mr. Teoh claimed to be familiar with his obligations as director of a listed company and the regulations of the FSX, in my view his performance as a witness was lamentable and showed in fact that either he was almost entirely unfamiliar with those obligations or had shown a wholesale disregard for them. His stated reason for non disclosure was initially that he had received legal advice against it, but he eventually accepted that there was no such advice. His other principal reason, frequently repeated, was that since there were 1.2Bn unpaid shares circulating in the market, no valid general meeting could be held because the unpaid shares could not vote (which is disputed) and there would have been chaos and possible litigation from shareholders affected if this had been revealed.[60]Whether Mr. Teoh was right or wrong about the effect on shareholders' ability to vote, this was no reason whatever for holding back from the market material information affecting the value of the company's shares. The essential purpose of the disclosure obligations imposed by listing regulations is to ensure that the market is promptly informed of such information, good or bad, so that no false market can develop in the shares. As Mr Blomqvist said, since the date of the consent order he had bought 50m shares in ignorance of it. There will presumably have been other trades, on and off market, by shareholders similarly kept out of that relevant information.[61]The allegation that shares were unpaid is also, it seems to me, information that should have been disclosed to the market so that shareholders did not inadvertently buy shares that might have exposed them to a call. It was one at least of the principal reasons for seeking a delisting of the shares in April 2015, but if the directors believed it to have been the case in or about August the previous year, there is no explanation why they did not take such action then.[62]I will not set out the procedural history of these proceedings in any detail. I mention only that Mr. David Donaldson QC in a judgment dated 2 July 2015 dismissed applications by Zavarco plc to stay the English proceedings on grounds of forum; an application for permission to appeal against his order was refused by Sales LJ as totally without merit (A/136).

The pleaded issues

[63]Many of the submissions to me were devoted to the limits on Mr Blomqvist's pleaded case in the two actions before me, and the extent to which as a result he could legitimately take points or cross examine witnesses. The pleadings are limited, and it is evident that this is deliberate. Ms O'Sullivan was not responsible for those pleadings and made no application to amend them, though she argued that the limits were not as tight as the other parties submitted.[64]The two actions are separate. They have been ordered to be tried together but are not consolidated, and each has separate statements of case.[65]In the petition under Companies Act 2006 s994 Mr Blomqvist pleads that: i) In breach of their duties as directors, the directors failed to convene a meeting in accordance with his s303 notice, and wrongly contended that his shares were not fully paid up (Petition, para 18). ii) Without notice to Mr Blomqvist or other shareholders and without authority under the constitution of the company, the directors "purported to increase its capital by issuing in excess of 7Bn new shares" so diluting Mr Blomqvist's holding from 6.667% to 1.17% (Petition, para 21). iii) By reason of these matters the affairs of Zavarco plc have been conducted in a way unfairly prejudicial to him as a member (Petition paras 24-5). The relief sought in the prayer is limited to an order declaring that his own notice convening a meeting under s 305 is valid and directing that the meeting be held (the date is long since past but the effect of interim orders is that if the notice is found valid the date may be postponed until after judgment).[66]There is no pleading that the directors acted for an improper purpose in either of the specific alleged failings, or in any other respect. There is no allegation of breach of duty in any other respect, for instance in entering into the consent order or failing to notify shareholders about it. The issuing of the 7Bn shares is challenged, but only on the basis of lack of prior notice to shareholders and want of constitutional authority.[67]At the time the petition was issued, of course, Mr Blomqvist was not aware of the consent order or the transactions that led up to it. He could not be expected to have pleaded any case based on those matters at the time. But he has not sought to do so since these matters have emerged, though he plainly has had the opportunity if he wished. He has, as is clear from the correspondence referred to below, made a decision on advice not to do so.[68]In the Part 8 claim, Points of Claim have been served pursuant to the order of Norris J on 13 November 2015. As Mr. Latimer points out, these were ordered, and are expressed to be, in relation to that claim only. In this pleading Mr Blomqvist: i) Avers that his shares are paid up, pleads that he purchased them without notice to the contrary, that this accords with the company's audited accounts and the share certificates issued to him and that he relies on those certificates as evidence that the shares are fully paid (paras 3,4 and 24). I held at the opening of the trial that this was sufficient to raise a plea of estoppel against the company. ii) Pleads that the directors acted in breach of duty by failing to convene a meeting on his request under s303 (para 36). iii) Pleads that the issue of the 7Bn shares was made without authorisation under s 551 or by shareholders resolution, and without disapplication of pre-emption rights (paras 44 and 45) and that the issue was "unlawful" (para 47). It is said in para 48 that the directors knew or ought to have known that they should have done various other things, including notifying shareholders and the FSX. The issue is pleaded to be in breach of fiduciary duty (para 54). iv) Pleads that "…the inference arises that the [7Bn shares] were issued for an improper and collateral purpose, that is to say to dilute the voting power of the Claimant and of the other shareholders in the Company and to cede voting control of the Company to [OFSB]…" (para 53; the allegation of improper purpose is repeated at para 54). v) Avers that the entry of OFSB in the register of members in respect of the 7Bn shares was made "without sufficient cause" (the basis of the jurisdiction to rectify in Companies Act 2006 s125). vi) Seeks relief (only) by way of an order for rectification of the register of members.[69]There is no plea that the directors acted improperly in dealing with the claim by OFSB or entering into the consent order or the settlement it embodies. The plea as to improper purpose is based solely on the inference it is said should be drawn from what the directors did or did not do subsequent to the making of that order, such as failing to notify the FSX or obtain shareholders' authorisation for the issue of shares. It is only the issue of shares that is said to have been done for an improper purpose.[70]Further, there is no allegation that OFSB had knowledge, actual or constructive, of any of the alleged breaches of duty by the directors or of the pleaded improper purpose.[71]Ms O'Sullivan submitted in closing that I should allow Mr Blomqvist to rely in the petition on the breaches of duty alleged in the Part 8 claim. In my judgment it would be wrong to do so. The actions have been pleaded separately and a presumably deliberate decision has been made to restrict the basis on which the petition is pleaded. It is simply too late at this stage to allow the importation of a different set of allegations, pleaded for a different purpose. Further, in view of the very limited form of relief sought in the petition, I do not think the suggestion would assist her. Mr Blomqvist's entitlement to request a meeting does not depend on establishing any of these breaches, to the extent they go beyond what is in the petition itself.[72]Ms O'Sullivan also accepted that the relief sought in the petition is effectively contingent on success in rectifying the register. By the time Mr Blomqvist sent out his notice of meeting under s305 on 16 March 2015 the board had resolved to issue the 7Bn shares (though it appears OFSB may not have been entered on the Register until 20 March). If the register is not rectified, at best Mr Blomqvist's meeting would proceed but OFSB would vastly outvote him and any other shareholders supporting him.[73]In a letter of 7 January to OFSB's solicitors (C/316), in response to correspondence seeking to identify the issues for trial, Mr Blomqvist's solicitor said:
“As you are aware [Mr Blomqvist] is not a party to the proceedings in Malaysia with regards to the validity of the Consent Order… [Mr Blomqvist] has no knowledge of the background to and/or the substantive progress of the proceedings that led to the making of the Consent Order. He has quite deliberately not put the validity of the Consent Order in issue in these proceedings… …[Mr Blomqvist] is content to proceed in these proceedings on the basis that the Consent Order is valid… Accordingly the two issues you define… are indeed the only two issues which fall to be determined in these proceedings.”
[74]Those two issues were (C/313): i) Are Mr Blomqvist's shares paid up? ii) Was there a lawful allotment of shares in Zavarco plc to OFSB?[75]Reading this letter in the context of the pleadings and surrounding correspondence, it is in my view clear that it is not intending to take a restricted or technical approach to "the validity" of the Consent Order (eg as to the pure formalities of its being issued by the Malaysian High Court). Mr Blomqvist is acknowledging that he is not putting in issue the circumstances in which it came to be made, matters of which he has no knowledge though they are in issue in the Malaysian proceedings to which he is not party. This explains why he has (as noted above) not made any allegations about those circumstances, and is not therefore (for instance) alleging that the directors acted in breach of duty in settling the OFSB claim by entering into the Consent Order.[76]As counsel for both Zavarco plc and OFSB emphasised, had those matters been in issue their clients would have had to prepare evidence about them, which would likely have been much more extensive than was before me. I accepted those submissions, with the consequence that I limited questions Ms O'Sullivan sought to ask which could have gone only to the unpleaded issues.[77]His submission that the background to the Consent Order was not in issue, and that therefore I could not make any finding adverse to the company or its directors about it, did not stop Mr. Latimer from arguing, almost in the next breath, that I could however having heard his clients' explanation of those circumstances find in their favour that they had acted entirely properly in treating the OFSB claim as genuine and had reached a sensible commercial settlement of it. The alternative scenario was, he said, that the whole sequence of letters, complaints, legal proceedings, establishment of an independent audit committee, mediation and settlement of the claim was an elaborate charade entered into by the directors in collusion with OFSB. This he said was so completely implausible that it could and should be dismissed.[78]Since the propriety of the Consent Order and the arrangements leading up to it are not in issue before me and I have not received evidence about them other than that which Zavarco plc and OFSB chose to put before me, I can make no findings about those matters, either against or in favour of the company and its directors. The very scenario Mr. Latimer refers to is, as I understand it, directly in issue in the proceedings in Malaysia. On the basis of the material before me, I do not agree that it is implausible. Whether it is true or not will be for the Malaysian court to decide.[79]I turn then to the issues that are before me. Are the shares held by Mr Blomqvist paid up or to be treated as paid up?[80]The company's case in this respect is, in summary: i) The 1.2Bn shares issued on incorporation to Mr. Sidhu and Mr Nasir were not paid up in cash or kind. In particular they were not issued as part of the consideration under the SSA. ii) The shares now held by Mr Blomqvist can be shown, by analysis of transfers since that issue, to be derived from those issued to Mr. Sidhu. On this point, while it would no doubt in most cases be impossible to trace the devolution of listed shares, there appear to have been relatively few transfers of shares originally issued and a diagram was produced showing a sequence by which shares moved from Mr. Sidhu through various holdings to Mr Blomqvist. He did not dispute its accuracy, and I therefore accept that this step is established. iii) Insofar as knowledge is relevant, Mr Blomqvist is acting in collusion with and as the alter ego of Mr. Sidhu, and should be taken to have actual knowledge that Mr. Sidhu had not paid for the shares.[81]In response, Ms O'Sullivan submits that the company is estopped from asserting that the shares are unpaid. It has represented to the world that all its shares are fully paid in numerous ways: i) The incorporation documents (Form IN01(ef) at D/201) state that 1.2Bn shares have been issued and the amount unpaid on each is nil. ii) A return of allotments (Form SH01 at D/238) for the 300m shares subsequently issued states that the whole capital is 1.5Bn shares, the amount unpaid on each is nil. iii) In its audited accounts for each financial year since incorporation. iv) By applying for listing on the FSX. It is a condition of listing that all listed shares be fully paid. v) By applying for the shares to be traded on the Crest system, for which there is a similar requirement. vi) On all the share certificates it has issued.[82]In addition Mr Blomqvist's evidence is that before purchasing shares himself or recommending his trusts to do so he researched the company, and saw and relied on: i) The form SH01 referred to. ii) A pro forma document provided to him by Mr. Sidhu but prepared by the company's auditors stating that its capital was 1.5Bn shares, all fully paid. iii) The company's published financial information, including statements on Bloomberg and Reuters tallying with the pro forma document as to issued capital. iv) Information published by the FSX to the same effect. He knew that it was a listing requirement that shares be fully paid. v) Information on the company's own website, to the same effect.[83]Mr Blomqvist bought his first block of 50m shares through Crest. He knew and relied on the fact that Crest requires that shares traded through it must be fully paid. His second block of 50m shares was bought off market, initially by a nominee but later transferred to him. He saw a share certificate, which describes the shares as fully paid, though only it appears at the latter stage.[84]Ms O'Sullivan referred to the well known line of authority that a company is taken to represent that shares are fully paid by issuing a share certificate that says so. The same principle should apply, she submits, in relation to any of the other forms of representation put forward in this case. She refers in particular to the opinion of Lord Cairns LC in Burkinshaw v Nicolls (1878) 3 App.Cas. 1004. He said at p 1017:
“My Lords, as the Master of the Rolls said in the Court below, it would paralyze the whole of the dealings with shares in public companies if, a share being dealt with in the ordinary course of business, dealt with in the market with the representation upon it, by the company, that the whole amount of the share was paid, the person who so took it was to be obliged to disregard the assertion of the company, and, before he could obtain a title, must go and satisfy himself that the assertion was true, and that the money had been actually paid. In the first place, as a matter of business, we know that the affairs of mankind could not be conducted if that were necessary; but in the next place, even if such a person were minded to make the investigation, he would be absolutely without the means of making it - it would be impossible for him to obtain accurate information as to whether this state of things was true or not. Now, my Lords, a good deal was said as to the person on whom the burthen was to be thrown of proving that a person in the condition of Bennett had, or had not, notice that the shares were fully paid up when he took them accompanied with the certificate which I have mentioned. My Lords, it appears to me that if a share were taken in the course of business for valuable consideration, as I assume was the case with the shares taken by Bennett here, it is for those who say that the person so taking the share had notice that the share had not actually been paid up, to prove that he had this notice; it is for those who assert it, and not for the person who denies it, to discharge that onus of proof. Therefore I repeat that the only matter of evidence as to which I think there can be any doubt would be the simple fact of whether the certificates were in the hands of Bennett.”
[85]This passage proceeds on the footing that a representation is made in the certificate, and is taken to be relied on when a transferee acquires the shares for value and receives the certificate. Thus, evidence that the certificate was received is treated as necessary to found the estoppel relied on. One may wonder whether even in 1878 a certificate would have been received by a buyer at or before the time when he committed to his purchase. If it were not, perhaps because market practice did not involve the seller's certificate being sent to the buyer until afterwards, and a strict analysis of estoppel was being followed, that would be too late to be relied on when detriment was incurred by committing to buy.[86]In modern markets, share transactions are likely to be uncertificated. The reality of the market is that is assumed by participants that all listed shares are fully paid. Some will know that it is a condition of listing that shares must be fully paid. Others will give no thought to the point, because the concept of the unpaid share is wholly alien to the system of public share markets.[87]The policy considerations underlying the operation of the market were very much in the minds of their Lordships, as is clear from the passage above. Lord Selborne recognised that there might be other sources of information relied on by purchasers. He said at p 1022:
“My Lords, in the certificates issued by the company, in the register, and in the company's returns, these shares are uniformly and consistently represented as having been in fact paid up. The manner in which they were paid up is not of course mentioned in any of these documents, nor is there anything in any of them to shew or suggest that they were paid up in the sense of being agreed to be taken as paid up, without a cash payment, in virtue of a contract which ought to have been, but was not, registered. Any one, therefore, looking at the certificate in good faith - looking at the register or looking at the returns - would receive from them, at all events, no information that any question arose under the statute… If Mr. Bennett, at the time of the transaction by reason of which he acquired his interests, saw the certificates, or the register, or saw the returns, he obtained that information; if he did not, then, of course, it may well be that he can get no benefit from the representations upon them, and there is no doubt that, upon the question whether he did or did not see them, the burden of proof was strictly upon the Respondent.”
[88]Lord Selborne later referred to a presumption of delivery of the certificates which it would be for the person claiming otherwise to displace.[89]It is in my view wholly necessary that market participants should be able to assume that shares are fully paid unless specifically informed otherwise. Given the way in which market transactions are now conducted, it is in my judgment unsatisfactory to provide this assurance by a legal mechanism (estoppel by representation) that derives from the conduct of individual transactions between identified persons. That mechanism was already strained in order to secure the purchaser against unexpected claims by a third party (ie the company). In the absence of statutory protection however, the available legal mechanism must be interpreted and adapted to modern conditions.[90]In my judgment, a company that applies to have its shares or other securities listed on an exchange, or traded through a system such as Crest, which in either case requires that the securities be fully paid, is to be taken as thereby representing to potential acquirers of its shares that they are fully paid. That representation should be taken as relied upon, unless the company proves the contrary, by any purchaser or transferee who buys or acquires the securities with knowledge that the shares are so listed or traded. An acquisition through the market would clearly demonstrate such knowledge. But an off-market purchaser is very likely also to have the requisite knowledge.[91]A purchaser for value evidently relies on the representation, unless he is shown to know it is untrue. But so too in my view would any other transferee, if by acquiring the securities they would become potentially liable for a call.[92]In the present case, I accept Mr Blomqvist's evidence, which was not seriously challenged, that he saw and relied on other information provided by the company; in particular the SH01 return of allotments and the pro-forma document given to him by Mr. Sidhu, before he acquired any shares. Further, I accept his evidence that he has directly or indirectly provided consideration for these purchases; he put the amount at over EUR 3m.[93]He is thus entitled to rely on an estoppel, unless it is shown that(a) the shares are in fact not fully paid and(b) he was aware of that when he acquired the shares. In both respects the company has the onus of proof.[94]If I am wrong on the question of estoppel, then it seems to me that Mr Blomqvist is entitled to rely on the various statements that the company has made to the effect that the shares are fully paid as evidence that this is in fact the case. This is sufficient to satisfy any initial evidential burden on him, and it is for the company seeking to resile from those statements to prove that they were not true.[95]In my judgment, the company has failed to show that the shares were not fully paid. The evidence it has given as to the circumstances of the SSA is limited and incomplete. It appears from the contemporary documents that there was an arrangement of some sort that consideration shares would be issued otherwise than directly to the vendor shareholders of Zavarco Bhd, and that the shares issued on incorporation were regarded as part of this arrangement, being issued with the intention that in due course they would be transferred to those vendors or persons nominated by them. These arrangements appear to have been made by or with the participation of Mr. Shailen. If he was acting on behalf of Zavarco plc, he appears to have been implementing what he considered on behalf of the company to be the arrangement with the vendors including OFSB. If he was acting for OFSB (or both companies, as Mr. Sidhu apparently contends) he must be taken to be approving those arrangements on OFSB's behalf.[96]Neither the company nor OFSB has led any evidence to explain those documents. It appears to be OFSB's position that it expected to receive 1,395,000,000 shares in its own name, but it has not explained why it failed to object to non receipt for over two years. Nor has it explained why Mr. Shailen appears to have agreed that 1.2Bn shares be issued to Mr. Sidhu and Mr. Nasir, or why the transfers in its favour that Mr. Shailen requested and obtained (for part of this amount) were not registered. If Mr. Sidhu's witness statement is correct, shares may have been transferred at OFSB's direction to another company under the control of Mr. Shailen.[97]If the shares were issued as part of such an arrangement, Zavarco plc did receive consideration in the form of the Zavarco Bhd shares. On its own case, that consideration would have been sufficient to pay the shares up in full. I do not have to find that the shares were so issued; the onus is on the company to prove that they were not, and I am not satisfied that the evidence it has placed before me can be relied on to discharge that burden.[98]I observe that if the shares were in fact issued as part of such an arrangement, and even more so if shares in Zavarco plc were transferred to OFSB or third parties at its direction as Mr. Shailen instructed, it would seem to undermine fatally the claim by OFSB that it did not receive the consideration due to it which was the foundation of the Consent Order. That is an issue that I assume is likely to be explored in the Malaysian proceedings.[99]In the circumstances, the question of knowledge on Mr Blomqvist's part of non-payment does not arise. If it had, it would have been for the company to prove such knowledge, which it sought to do by alleging that Mr Blomqvist was the puppet of Mr. Sidhu and knew the circumstances in which Mr. Sidhu acquired his shares. I am not persuaded on either point. Mr Blomqvist clearly knows Mr. Sidhu, but I accept his evidence that he was introduced to the company by Mr. Sidhu and thereafter acted on his own behalf in building up his own direct and indirect stake in the company. No doubt he was acting in co-operation with others, who may have included Mr. Sidhu, in seeking to replace the board, but that does not make him a front or puppet for Mr. Sidhu.[100]I accept Mr Blomqvist's evidence that he was told by Mr. Sidhu that he had acquired his shares as part of the share swap that led to the listing. He would have had no reason to enquire into the extent of Mr. Sidhu's ownership of Zavarco Bhd before that, or the arrangements made with OFSB. He would have no way of knowing, unless directly told, that Mr. Sidhu had secured the issue to himself of shares that should have gone to OFSB as is now contended. There is no evidence that Mr Blomqvist was told any such thing.[101]I find therefore that Mr Blomqvist is entitled to rely on estoppel against Zavarco plc, which is not defeated by any knowledge on his part that the shares were unpaid. Alternatively, on the evidence and given the onus of proof as I hold it to be, I find that the shares were fully paid.

Has there been a legally valid issue of the 7Bn shares to OFSB?

[102]On the facts set out above, the board of Zavarco plc has resolved to issue the 7Bn shares to OFSB and it has been entered on the register of members as holder of those shares. The decision of the board was made to comply with the obligation of Zavarco plc embodied in the Malaysian consent order. That obligation is to be treated as a contractual obligation, since it was incurred by way of consensual settlement of the claim brought by OFSB in the Malaysian court, and not as an obligation imposed on the company by decision of that court.[103]By reason of the limitations in the pleaded claims, the only basis of challenge to the validity of the issue is that it was not authorised by the Articles or by shareholders. In particular i) there is no challenge to the procedural validity of the resolution of the board to issue those shares, ii) there is no challenge to the contractually binding effect on Zavarco plc of the agreement embodied in the consent order, and iii) there is no allegation that the directors acted in breach of their fiduciary or other duties to the company in entering into the consent order, save as to a) the absence of authority to allot under the Articles or from shareholders, and b) the inference of improper or collateral purpose referred to above.[104]There is no doubt that the directors of Zavarco plc had the general power under the Articles to allot and issue shares in the company. Art 56 provides, in conventional terms, that "Subject to the provisions of the Companies Acts and to any relevant authority of the Company in general meeting required by the Companies Acts, unissued shares shall be disposal of the directors, who may allot…them…as the directors may decide…". Mr. Latimer submitted that Art 57.1 provided an authority for the directors to allot shares free from the restrictions set out in the Companies Acts. It reads as follows:
“Subject to these Articles… the Company may issue shares with such rights or restrictions as may be determined by ordinary resolution, or if no such resolution has been passed or so far as the resolution does not make specific provision, as the directors may determine.”
[105]Art 57.1, in my judgment, is plainly not a freestanding power to the directors to issue shares without the authority of members required by the Companies Acts. It is headed "Power to issue shares of different classes". It sets out the power of the Company (not the directors) to issue shares with restricted or class rights, and how the terms of any such rights or restrictions are fixed. The language is in my judgment clear on this point; it is not as Mr. Latimer argued a power "to issue shares…as the directors may determine" but "to issue shares with such rights or restrictions… as the directors may determine". The issue of such classes of shares is "subject to these Articles" and the mechanism by which the Company issues those shares, as with any others, is provided by Art 56, by which power is given to the directors "subject to the provisions of the Companies Acts".[106]Companies Act 2006 s 549 provides as follows: “549 Exercise by directors of power to allot shares etc (1) The directors of a company must not exercise any power of the company (a) to allot shares in the company, … except in accordance with … section 551 (authorisation by company)… (4) A director who knowingly contravenes, or permits or authorises a contravention of, this section commits an offence… (6) Nothing in this section affects the validity of an allotment or other transaction.”

except in accordance with … section 551 (authorisation by company)…

[107]Section 551 provides:
“551 Power of directors to allot shares etc: authorisation by company (1) The directors of a company may exercise a power of the company (a) to allot shares in the company, … if they are authorised to do so by the company's articles or by resolution of the company. (2) Authorisation may be given for a particular exercise of the power or for its exercise generally, and may be unconditional or subject to conditions. (3) Authorisation must (a) state the maximum amount of shares that may be allotted under it, and (b) specify the date on which it will expire, which must be not more than five years from (i) in the case of authorisation contained in the company's articles at the time of its original incorporation, the date of that incorporation; (ii) in any other case, the date on which the resolution is passed by virtue of which the authorisation is given…” (a) to allot shares in the company, … (a) state the maximum amount of shares that may be allotted under it, and (b) specify the date on which it will expire, which must be not more than five years from (i) in the case of authorisation contained in the company's articles at the time of its original incorporation, the date of that incorporation; (ii) in any other case, the date on which the resolution is passed by virtue of which the authorisation is given…”
[108]Thus the power to allot shares given to directors by Art 56 is expressly subject to the provisions of the Companies Acts requiring authority for its exercise, and may only properly be exercised in accordance with a separate authority given to them, being an authority either set out in the Articles themselves or granted by resolution of the shareholders. Mr. Latimer's only argument that Zavarco's Articles give such authority was based on Art 57.1, which I reject for the reasons above. Even if he had been right as to the construction of Art 57.1 and it purported to provide an unlimited authority to the directors to allot shares as they saw fit it would not have been effective since it would not have complied with the limitations set out in s 551(3). It is not suggested that there has been any shareholders' resolution conferring authority to allot.[109]The directors therefore acted in breach of s 549 in issuing shares to OFSB. The section provides for a criminal penalty, but that is not in issue in these proceedings. Ms O'Sullivan accepts that prima facie s 549(6) provides that an issue without authority is nonetheless valid, but argues that this does not assist OFSB where the issue was made for an improper purpose. In this case, she says, it was for the improper purpose of altering the voting control of the company.[110]That argument however in my judgment cannot succeed on the pleaded case. It is not enough that the effect of the issue of shares is to constitute OFSB the majority shareholder able to outvote all others by a considerable margin, it must be shown that the directors acted improperly for the purpose of procuring that position. It is said that this can be inferred, in particular from the directors' failure to disclose the claim by OFSB, its settlement and the issue of shares in breach of their obligations under, inter alia, the terms of listing on the FSX. But the essential point Mr. Latimer makes is that the company was obliged to issue the 7Bn shares by virtue of having entered into the consent order, and in the absence of any attack on the validity or propriety of that obligation, it cannot be said that the directors acted for an improper purpose in causing the company to comply with it.[111]There is no such attack in the pleaded case, because as set out above Mr Blomqvist has deliberately held back from disputing the validity of the consent order. He has not alleged that the directors acted improperly in causing the company to enter into that order, so that whatever misgivings one might have about the circumstances of their having done so, it is not open to me to make any finding of impropriety in that respect. Those misgivings are amplified by the directors' conduct after entering into the consent order in delaying its implementation and concealing its existence from shareholders, but still the position must be that if, by virtue of the pleadings, it must be accepted in these proceedings that the consent order established an obligation of the company that was binding on it and not liable to be set aside by reason of impropriety, it must also be accepted that the company had no option but to comply with it and that the purpose of doing so was proper. This conclusion, I emphasise, is made in these proceedings and as between these parties. The position may or may not be the same in the Malaysian proceedings, which are between different parties and (I assume) on different pleadings.[112]There would also be the further difficulty, even if a finding of improper purpose on the part of the directors of Zavarco plc were open to me and made out, that there is no pleading that OFSB acted otherwise than in good faith, or that it had knowledge of any breach of duty on the part of the directors. The issue of shares in breach of duty by the directors would be at worst voidable and not void ab initio, by virtue of s 549(6), such that it would not be capable of being set aside as against OFSB in the absence of such knowledge or bad faith - see Rolled Steel Products Ltd v British Steel [1986] Ch 246.[113]For the purposes of these proceedings, therefore, I conclude that the issue of shares to OFSB was valid and Mr Blomqvist has not shown that it is liable to be set aside by the company. It follows that Mr Blomqvist has not established that the shares were registered in OFSB's name "without sufficient cause" (Companies Act 2006 s 125) and so has not made out the ground for rectification of the Register of Members.[114]In her oral opening submissions Ms O'Sullivan made a new point, not part of the pleaded case in either set of proceedings. It is that on the terms of the consent order, the shares issued to OFSB were issued at a discount contrary to Companies Act 2006 s 580, in that their par value is 10 Euro cents but the value at which they were issued was Eur 0.0052, or just over half a Euro cent. In consequence, by Companies Act 2006 s580, "the allottee [ie OFSB] is liable to pay to the company an amount equal to the value of the discount, with interest at the appropriate rate". OFSB would therefore appear to be under an obligation to pay Zavarco plc something over EUR 665 million plus interest, an obligation which, on the face of it, it would be the duty of the directors of Zavarco plc to enforce.[115]Since that was not part of the pleaded case, it is not a matter on which it would be proper to grant Mr Blomqvist any relief. It does not, in any event, go to the form of relief he seeks in either set of proceedings. All I say about it for present purposes therefore is that it appears to be a point with considerable force, and Mr. Norbury's "on the hoof" response that there is no discount where the issue price is the market value of the shares is not a defence. The "discount" referred to in s580 is in relation to par value, not the market value of the shares issued. Where that leads is a matter that will have to be explored after these proceedings conclude.[116]I invite the parties to seek to agree the order required to give effect to these findings. I will list a hearing at which this judgment will be handed down. There need be no attendance if the order is agreed. If there are matters arising however and they can be dealt with conveniently to the parties in not more than 30 minutes I will take them at that hearing. In any other event, parties should provide an agreed time estimate and dates of availability and I will list a later hearing.

Cited in 1 later judgment