Contracts Law in UK Law

In my judgment, the only way to give business efficacy, and integrity, to the articles as a whole is to construe article 9.2 (a) as being subject to the comprehensive protection of special class rights contained in article 10.1, which must also be complied with in order to effect any abrogation of the special rights attached to the preferred shares.

Considering the relationship between the two articles, the inconsistency between them, and the absurdity of treating article 9.2 (a) as a stand-alone provision, unaffected by article 10.1, I accept Mr Collingwood's submission that something has clearly gone wrong with the drafting because the two articles do not work together.

Read literally and in isolation, the wording of article 9.2 (a) is clear and unambiguous: the preferred shares automatically convert into ordinary shares upon notice in writing from an ‘Investor Majority’. This is not a case where a provision in a contract is unclear because a word has two different meanings. Nor is this a case where the language of the articles, either read on their own, or, at any rate, when read in context, could be seen to give rise to possible rival interpretations.

For the reasons I have given, I am satisfied that the conversion of the preferred shares into ordinary shares constitutes either a ‘variation’ or an ‘abrogation’ of the special rights attached to those shares.

On that basis, there is a clear tension between articles 9.2 (a) and 10.1 so it becomes apparent, on examination, that the drafter cannot have meant clause 9.2 (a) to be read literally as it makes no rational sense, when construed in light of the protection afforded to the special rights of the preferred shareholders by article 10.1.

I also agree with Mr Collingwood that the court's finding that there is a variation, or abrogation, of the special rights attached to the preferred shares involves no inconsistency with the conclusion reached by Buckley J in Re Saltdean Estate Co Ltd, as later approved and applied by the House of Lords in the House of Fraser case and later applied by Patten J in Re Hunting Plc.

The proper approach to parallel proceedings was outlined by O'Farrell J in Structure Consulting Limited v Maroush Food Production Limited [2017] EWHC 962 (TCC). The judge should usually give judgment on the claim based on the adjudicator's decision and then – to the extent possible – endeavour to sort out the Part 8 proceedings.