Eclairs Group Ltd v JKX Oil and Gas Plc
| Jurisdiction | England & Wales |
| Judge | Lord Justice Briggs,Sir Robin Jacob,Lord Justice Longmore |
| Judgment Date | 13 May 2014 |
| Neutral Citation | [2014] EWCA Civ 640 |
| Docket Number | Case No: A3/2013/3005, 3006, 3024 |
| Court | Court of Appeal (Civil Division) |
[2014] EWCA Civ 640
Lord Justice Longmore
Lord Justice Briggs
and
Sir Robin Jacob
Case No: A3/2013/3005, 3006, 3024
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT, CHANCERY DIVISION
Mr. Justice Mann
HC13F02147 and HC13D02145
Royal Courts of Justice
Strand, London, WC2A 2LL
Michael Swainston QC and Tony Singla (instructed by ALLEN & OVERY LLP) for JKX OIL & GAS PLC
David Mabb QC and Nigel Dougherty (instructed by FRESHFIELDS BRUCKHAUS DERINGER LLP) for ECLAIRS GROUP LTD
Paul Sinclair (instructed by LOCKE LORD (UK) LLP) for GLENGARY OVERSEAS LTD
Hearing dates: Wednesday 2 nd April 2014 to Friday 4 th April 2014
Introduction
These appeals, against orders of Mann J on 1 st October 2013 in two conjoined claims, raise important issues as to the validity and constitutionality of restrictions imposed by the directors of JKX Oil & Gas PLC ("JKX") pursuant to Part 22 of the Companies Act 2006 ("the 2006 Act") and the company's Articles of Association ("the Restrictions"). The Restrictions included the purported disenfranchisement of two of JKX's shareholders, registered as the holders of 27.55% and 11.45% of the company's ordinary shares, for the purposes of voting at JKX's Annual General Meeting on 5 th June 2013. I say 'purported' because, at the expedited trial of the conjoined claims by the beneficial owners of those shareholdings, Mann J declared that the Restrictions had been ineffective because the directors had, in imposing them, been motivated by an improper purpose.
Part 22, headed "Information about Interests in a Company's Shares" contains, at sections 793 to 802, provisions enabling a public company to obtain information about interests in its shares, from anyone whom the company knows or has reasonable cause to believe to be, or to have been within a specified period, interested in those shares. Non-compliance with a notice requiring the provision of such information is a criminal offence. Further, the company may seek court orders imposing restrictions on transfer, voting and the payment of dividends in respect of shares in which the defaulter is interested.
Many public companies, including JKX, supplement that statutory regime by bespoke provisions in their articles of association. In the present case, JKX's Article 42 contains provisions enabling the company by its directors to impose one or more of a set of restrictions upon defaulters similar to those in Part 22, but without having to go to court. In addition, Article 42 enables the company to treat information requested as not having been provided in circumstances where its Board knows or has reasonable cause to believe that the information actually provided is false or materially incorrect. It was pursuant to the powers conferred on the directors by Article 42 that the Restrictions were purportedly imposed in the present case.
The two registered shareholders immediately affected by the Restrictions were nominee companies. The claimants in the conjoined claims were the beneficial owners of the shares, namely Eclairs Group Limited ("Eclairs") and Glengary Overseas Limited ("Glengary").
Each of Eclairs' and Glengary's claims challenged the imposition of the Restrictions by JKX on a number of grounds. Those which have survived so as to raise issues on these appeals are:
i) That the disclosure notices by which the information was sought were invalid, because they sought information not permitted to be requested by Part 22 or Article 42;
ii) That the directors were not entitled to impose restrictions for non-compliance because they did not have reasonable cause to believe that the responses by then received were incorrect;
iii) That the directors imposed the Restrictions for an improper purpose, namely to secure the passage of resolutions at the AGM which they feared that Eclairs and Glengary would or might be able to impede, rather than for the purpose of enforcing the company's demand for the specified information.
JKX defended all those allegations, and counter-attacked on the ground that, having chosen to hold their shareholdings in the company through nominees, Eclairs and Glengary lacked standing to pursue their claims.
After hearing five days of evidence (including cross-examination of a number of JKX's directors) with a further two days of oral submissions, the judge ruled against the claimants in relation to the validity of the requests and the directors' reasonable belief as to the inadequacy of the responses. But he ruled in their favour on standing and, critically, on improper purpose. The result was that the claimants' challenges succeeded, and the purported disenfranchisement of their shareholdings failed. Since, in the meantime, an interim regime established by David Richards J had enabled those shares to be voted at the AGM, but without prejudice as to the validity of those votes, no lasting harm was occasioned to the claimants by their purported disenfranchisement.
JKX has, by appeals in both claims, challenged the judge's conclusions as to standing and proper purpose. Eclairs has, by an appeal in its claim, sought to resurrect its assertion that the company's disclosure notices were invalid and that the directors had no reasonable cause to believe that they had been inadequately answered.
The Facts
Paragraphs 6–11 and 26–83 of the judgment of Mann J contain an admirably clear and sufficiently detailed account of the relevant primary facts, none of which are in dispute on this appeal. For present purposes I need only summarise the background, and set out those facts necessary to make sense of the reasoning for my conclusions on the issues which I have described.
JKX is a publicly traded company, listed on the London Stock Exchange. Its business is the development of oil and gas reserves, and the sale of the resulting products. Its most important asset (at least for present purposes) is a Ukrainian oil and gas subsidiary called PPC.
The 27.55% of JKX's shares of which Eclairs is the beneficial owner were registered in the name of Hanover Nominees Limited ("Hanover"), which held them for Eclairs through two intermediate nominees. 59.1% of Eclairs' shares were held by Trival Limited, a company owned by a Mr. Kolomoisky. The balance were held by Marigold Trust Fund Limited ("Marigold"), itself owned by a trust, the beneficiaries of which were a Mr. Bogolyubov and his family.
The 11.45% of JKX's shares of which Glengary was the beneficial owner were registered in the name of Lynchwood Nominees Limited ("Lynchwood"). Glengary was owned as to 95% by a Mr. Zhukov and as to 5% by a Mr. Ratskevych, a close business associate of Mr. Zhukov.
JKX had nine directors at the material time. The executive directors were Dr. Davies (CEO), Mrs. Dubin (Finance), Mr. Miller (Technical) and Mr. Dixon (Commercial). The non-executive directors were Mr. Moore (Chairman), Lord Oxford, Mr. Ferguson, Mr. Shah and Mr. Murray. All of them gave evidence, and all except Mr. Dixon were cross-examined (the omission in his case due only to exigencies of time).
Mr. Kolomoisky and Mr. Bogolyubov together owned or controlled a financial organisation called Privatbank, which held a 42% stake in the Ukrainian state oil company Ukrnafta. Both Mr. Kolomoisky and Mr. Bogolyubov had a reputation as corporate raiders, by which the judge meant:
"a person who acquires shares (less than a majority) and then exploits that shareholding to lever his way to managerial or actual voting control by using methods such as inserting his own staff, pressurising or destabilising the current management and frustrating conventional methods of raising capital, all with the object of getting control without paying what the other shareholders would regard as a proper premium for their shares."
Like the judge, I shall use the words "raid" and "raider" as shorthand for that description of corporate high-handedness. It was common ground before the judge that Messrs Kolomoisky and Bogolyubov had that reputation, but the judge made clear (correctly in my view) that it was no part of his task to ascertain whether that reputation was well-deserved, by either of them. It was sufficient that the reputation existed, and that it was known about by a number of JKX's directors, and by all of them when the decision was taken to impose the Restrictions. Mr. Zhukov had no similar reputation, but was believed by Lord Oxford to have done business in the past with Mr. Kolomoisky. Mr. Ratskevych was known within JKX to be Mr. Zhukov's right-hand man, at least in relation to Mr. Zhukov's dealings with JKX.
Mr. Zhukov started acquiring shares in JKX through Glengary in 2004, and by June 2006 had acquired about 25%. In December 2006 Mr. Kolomoisky acquired about half of Mr. Zhukov's stake through Ralkon, one of his corporate vehicles. By 2013, Ralkon had increased its holding to 27.55%, while Glengary's holding had declined slightly to 11.45%.
By 2013 JKX had been trying, but without success, to raise further capital. Its lack of success was attributed by Mrs. Dubin and Dr. Davies in part to Mr. Kolomoisky's reputation and his links with the company as the ultimate beneficial owner of more than 25% of its shares. An attempt by Dr. Davies to negotiate with Mr. Kolomoisky for lending by Privatbank had been met with a demand that one of his nominees be given a shadow...
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