BWE International Ltd v Jones
| Jurisdiction | England & Wales |
| Judge | THE PRESIDENT,LADY JUSTICE ARDEN,LORD JUSTICE THORPE |
| Judgment Date | 18 February 2003 |
| Neutral Citation | [2003] EWCA Civ 298 |
| Docket Number | A3/2002/1322 |
| Court | Court of Appeal (Civil Division) |
| Date | 18 February 2003 |
[2003] EWCA Civ 298
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
CHANCERY DIVISION
(MR KEVIN GARNETT QC, Sitting as a Deputy High Court Judge)
Royal Courts of Justice
Strand
London, WC2
The President (Dame Elizabeth Butler Sloss)
Lord Justice Thorpe
Lady Justice Arden
A3/2002/1322
MR N DOUGHERTY (instructed by Osborne Clarke, London EC4M 7JW) appeared on behalf of the Appellant
MISS T KYRIAKIDES (instructed by Blake Lapthorn, London WC2B 5DG) Appeared Respondent
Tuesday, 18 February 2003
I will ask Lady Justice Arden to give the first judgment.
This is an appeal with the permission of the judge against the order of Mr Kevin Garnett QC sitting as a Deputy Judge of the High Court of Justice, Chancery Division, dated 7 June 2002. This appeal concerns only one of the questions decided by the judge, namely, a question as to the true interpretation of the Articles of Association of BWE Ltd ("BWE"). Both the appellant, Mr Jones, and the respondent, BWE International, are shareholders of BWE. Mr Jones holds 12.5 per cent of the issued share capital of BWE, BWE International holds 87.5 per cent of its issued share capital, and it wished to transfer 27.5 per cent of BWE's share capital to a Venezuelan company called Sural CA. However, as is common in private companies, BWE's Articles, which were adopted on 29 October 1991, contains restrictions on the transfer of shares. The relevant Article was Article 14. This is a very long Article and it is not necessary for me to describe other than its essential parts.
The directors were prohibited from registering any transfer which did not comply with Article 14. There was provision whereby a number of potential transferees were persons to whom a member could transfer shares freely. They included trustees of family trusts. However, in other circumstances Article 14.2.1 provided that:
"… any member wishing to sell, transfer or otherwise dispose of any share or the beneficial interest therein ('the Transferor') shall give notice in writing ('a Transfer Notice') to the Company that he desires to transfer or dispose of the same specifying:—
14.2.1.1 the shares which he desires to sell or
transfer; and
14.2.1.1 the price at which he is willing to sell or transfer these shares; and.
14.2.1.3 whether or not the Transfer Notice is
conditional upon all and not part only of the shares comprised in it being
sold and so that in the absence of
such specification the Transfer Notice shall be deemed to be so conditional."
Accordingly, the service of transfer notice put in train the following process. The company became the agent of the member serving the notice for the sale of the shares specified in his notice to any member willing to purchase them at the price specified in the Transfer Notice. The directors had to give notice to all the members in writing. This is called an "Offer Notice". Article 14.2.2 of the Offer Notice must "state the price per share specified in the Transfer Notice". The Offer Notice must be given first to holders of shares of the same class, and they had 28 days in which to decide whether or not to accept the offer. If the capital was divided into several classes there had to be a further offer offering the shares to the remaining members. If, through this process, the company found purchasers for the shares, it had to give notice to the transferor, he then became bound "upon payment of the price specified in the Transfer Notice" to transfer the shares offered for sale in the Transfer Notice to the members who had agreed to take them (Article 14.2.5). No timetable was set by the Article for completion. Article 14 also contains provisions as to what should happen if the transferor defaulted in executing a transfer of his shares. Article 14.2.8 provided that in that circumstance:
"… the Company may receive the purchase money tendered by the Transferee(s) and the proposed Transferor shall be deemed to have appointed any one Director or the Secretary of the Company as his Agent and Attorney to execute a transfer of the share(s) to the Transferee(s) and upon the execution of such transfer the Company shall hold the purchase money in trust for the Transferor. The receipt of the Company for the purchase money shall be a good discharge to the Transferee(s)."
Again, no timetable was fixed for completion under this Article dealing with the circumstance of default by the Transferor.
Article 14 also dealt with the possibility that the company did not find purchasers for the shares. Article 14.2.9 provided that in that event:
"… the transferor shall be at liberty within a period of three months … on a bona fide sale or transfer … to sell and/or transfer all the shares offered or the beneficial interest therein to any person at any price being not less than the price specified in the Transfer Notice."
Article 14 also made provision for certain events in which a member should be deemed to have given a transfer notice, such as upon his bankruptcy, or on his ceasing to be a director or an employee of the company. For example, if a member became bankrupt he was to be deemed to have served a transfer notice to sell his shares at fair value. This value is fixed by the auditors and is clearly contemplated to be a fixed sum. Likewise, if a member is an employee and he is dismissed for negligence, he is deemed to have given the transfer notice to transfer his shares at "deemed value" which is the higher of (a) the nominal value of his shares increased by the rate of 15 per cent per annum compound for the period from allotment, and (b) three times the nominal value of such shares. Again this Article would produce a finite sum of money at the date of the Transfer Notice.
Article 14.11 provides:
"Any transfer or purported transfer of any share made otherwise than in accordance with this Article shall be void and of no effect."
Before leaving this summary of the Articles, I draw attention to the fact that the Article on several occasions uses the verb "specify". Thus, for example, in 14.2.1 it is provided that the transfer notice must be one: "specifying … the price at which the [proposing transferor] is willing to sell or transfer his shares."
It seems that the use of the word "specifying" is not accidental; it is repeated at several points in Article 14, thus in Article 15.2.2 the Offer Notice has to state "the price per share specified in the Transfer Notice", and in Article 14.2.5 the obligation to complete is "on payment of the price specified in the Transfer Notice". Again at 14.2.9 the price payable by a third party has to be not less than "the price specified in the Transfer Notice." Moreover, as appears from the summary that I have given of Article 14, the Articles legislate for what is to happen if there was a breach of Article 14, namely, the transfer is void.
On 18 October 2001 BWE International gave a Transfer Notice to BWE in the following form:
"In accordance with Article 14.2.1 of the Articles of Association of BWE Ltd ('the Company') we, BWE International Limited, hereby give you notice that we wish to sell 275,000 ordinary shares of £1 each in the Company.
The price at which BWE International are willing to sell the above shares is calculated as follows:
(i) the price will be the sum of £ 4.3625 per share plus or minus an adjustment per share ('the adjustment') calculated in accordance with the method below plus a bonus price per share (the 'Bonus Price') calculated by reference to the sales of machines for copper tube, again calculated in accordance with the method below.
(ii) the Adjustment will be a sum equivalent to one millionth of the difference (either surplus or deficit) between the net assets of the Company as at the date of completion of the sale of shares and the net asset value of the Company as at 31 March 2001 (£2,348,000). For avoidance of doubt refer to the attached method of calculating net assets and worked example based on the management accounts as at July 2001.
(iii) The Bonus Price will be calculated as one millionth of the gross margin on sales of machines for copper tube within three years immediately following completion of the sale of shares (the 'First Bonus Period') together with one two millionth of the gross margin on sales of machines for copper tube in the year immediately following the First Bonus Period. For the purposes of this calculation 'sales' means the entering into a binding contract between BWE Ltd and its customer.
The sums referred to paragraph (i) and (ii) above will be paid upon completion of the sale of shares and the Bonus Price calculated in accordance with paragraph (iii) will be paid in respect of each individual sale within 90 days of BWE Limited despatching the equipment."
Before I leave that Transfer Notice I must make a number of observations. First, it is clear that at the date of that notice the full amount which was to be paid of the shares in question was not calculated, nor could it be calculated until the expiration of four years. Second (turning to paragraph (ii) of the price calculation), it is to be noted that the adjustment could be either upwards or downwards, and that what had to be calculated was the net assets as at the date of completion. No basis is given for that; so it would appear to me that the exercise has to be carried out by finding the actual value of net assets and that would obviously entail a fresh valuation of all the assets since it is unlikely to be the same as book value. Third,...
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