Patrick Gerard Mckillen v Misland (Cyprus) Investments Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Lady Justice Arden,Lord Justice Moore-Bick,Lord Justice Rimer |
| Judgment Date | 03 July 2013 |
| Neutral Citation | [2013] EWCA Civ 781 |
| Docket Number | Case No: A3/2012/2515 |
| Court | Court of Appeal (Civil Division) |
| Date | 03 July 2013 |
In the Matter of Coroin Limited
And In the Matter of the Companies Act 2006
[2013] EWCA Civ 781
Lady Justice Arden
Lord Justice Moore-Bick
and
Lord Justice Rimer
Case No: A3/2012/2515
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(CHANCERY DIVISION) (COMPANIES COURT)
MR JUSTICE DAVID RICHARDS
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Goldsmith QC, Mr Philip MarshallQC, Mr Richard HillQC & Mr Gregory Denton-Cox (instructed by Herbert Smith Freehills LLP) for the Appellant
Mr Kenneth MacLean QC, Mr Edmund Nourse, Mr Sa'ad Hossain & Miss Emma Jones(instructed by Weil, Gotshal & Manges) for the1st, 3rd & 4th Respondents
Mr Stephen Auld QC, Mr Michael Fealy & Mr Michael d'Arcy(instructed by Quinn Emanuel Urquhart & Sullivan LLP) for the 2nd Respondent
The 5th, 6th & 7th Respondents — interested parties — not represented
OUTLINE OF THIS APPEAL
Mr Patrick McKillen holds 36.2% of the issued share capital of Coroin Limited ("Coroin"). He seeks through this litigation to acquire more shares in Coroin so that he becomes the majority shareholder. He contends that he should have been offered more shares for purchase, and that the failure to make that offer was a wrong to him as a minority shareholder. He was unsuccessful in these contentions at trial but he now seeks to establish his rights in this court.
Accordingly, Mr McKillen appeals from the order of David Richards J dated 11 September 2012 dismissing his petition under section 994 of the Companies Act 2006 ("CA 2006") for relief against unfairly prejudicial conduct. The appeal is opposed by the first four respondents, who are present or former shareholders in Coroin, namely Mr Derek Quinlan and three companies controlled by the trustees of the Sir David and Sir Frederick Barclay family settlements (together "the Barclay interests").
Under a shareholders' agreement dated 14 May 2004 ("the shareholders' agreement") and Coroin's articles, Mr McKillen had "pre-emption" rights, that is, rights or opportunities to purchase shares of other shareholders in particular circumstances. The essence of Mr McKillen's complaints in these proceedings is that the appropriate offer was not made when it should have been made and instead Mr Quinlan's 35.4% shareholding has found its way into the control of the Barclay interests without going through the "pre-emption" provisions. The relief he seeks is an order of the court entitling him to purchase the Quinlan shareholding or exercise his pre-emption rights.
The fundamental legal issue on this appeal is whether Mr McKillen has satisfied the requirement for relief in section 994(1) of the CA 2006 that there should have been unfairly prejudicial conduct by Coroin.
In my judgment, for the reasons given below, the circumstances that occurred in this case were not circumstances in which pre-emption rights might become exercisable save in one respect. Even in that one respect there was no unfairly prejudicial conduct by Coroin as required by section 994(1) of the CA 2006.
I have divided the remainder of this judgment into the following sections:
How the Barclay interests acquired control of Coroin (paras 7 to 10)
What Mr McKillen has to demonstrate in order to succeed on this appeal (paras 11 to 22)
(1) Practical effect argument
(paras 23 to 35)
(2) Proprietary interest argument
(paras 36 to 40)
(3) Good faith argument
(paras 41 to 56)
(4) Security becoming enforceable argument
(paras 57 to 58)
Threshold issue: (a) the 2004 charge and (b) the 2005 charge (para 59)
(a) the 2004 charge
(paras 60 to 69)
(b) the 2005 charge
(paras 70 to 78)
Substantive issue (2005 charge only): no unfair prejudice to Mr McKillen(para 79)
(a) No implied term requiring notification of event within clause 6.6 (paras 80 to 92)
(b) Pre-emption rights not triggered by breach of clause 6.17 (paras 93 to 99)
(c) No implied term extending the one month period in clause 6.6 (paras 100 to 102)
(d) Standstill arrangements and power of Mr McKillen to convene a board meeting (paras 103 to 112)
(e) Conclusion on security becoming enforceable argument (para 113)
No remaining issues need to be decided
(paras 114 to 116)
Handling complex appeals
(paras 117 to 127)
Conclusions
(paras 128 to 131)
Appendix 1 Extracts from shareholders' agreement: pre-emption provisions (clause 6) and good faith provision (clause 8.5)
Appendix 2 Relevant provisions of the 2004 and 2005 charges and BOSI's general conditions
HOW THE BARCLAY INTERESTS ACQUIRED CONTROL OF COROIN
In a meticulous and clear judgment, the judge set out the facts. I will refer simply to the facts which are essential for the purposes of this judgment. The judge's factual findings are not challenged.
Coroin is a substantial company. It indirectly owns three major London hotels, The Connaught, The Berkeley and Claridge's.
The essential facts relating to the acquisition by the Barclay interests of control over the Quinlan shareholding are as follows:
(1) Mr Quinlan was from at least 2009 in severe financial difficulties. His shares were charged to secure borrowings. He wished to sell his shares. He had discussions for this purpose with the Barclay brothers. Mr Quinlan originally thought that he could simply elect not to offer his shares under clause 6 of the shareholders' agreement.
(2) At the end of October 2010, the Barclay brothers lent Mr Quinlan the sum of €500,000. In November 2010, Mr Quinlan informally agreed to inform the Barclay brothers of any proposal to dispose of his shares.
(3) In January 2011, the fourth respondent, B Overseas Limited ("B Overseas"), acquired the share capital of the first respondent, Misland (Cyprus) Investments Ltd ("Misland"), a company controlled by another group of investors, namely the Green family. Misland held a 25% stake in Coroin. Mr McKillen subsequently unsuccessfully challenged this transaction as a breach of his pre-emption rights: see McKillen v Misland Investments Ltd and ors [2012] EWCA Civ 179, now reported as Re Coroin Ltd [2012] 2 BCLC 611 (" Re Coroin (No 1)").
(4) On 14 January 2011, Mr Quinlan and the Barclay brothers reached a non-binding agreement in principle that the Barclay brothers would buy Mr Quinlan's shares on the basis of a valuation of the entire share capital at £900m.
(5) On 15 January 2011, Mr Quinlan entered into a written "exclusivity" agreement with the fourth respondent, B Overseas, a vehicle of the Barclay brothers, under which he agreed not to speak to any other party about selling his Coroin shares for four weeks. The judge found that there was also a non-binding agreement between Mr Quinlan and the Barclay brothers to co-operate.
(6) On about 15 January 2011, the Barclay brothers made a commitment to provide financial support to Mr Quinlan. However, the judge found that this commitment was not binding. In particular he did not find that the Barclay interests agreed to provide financial support in return for Mr Quinlan's co-operation in relation to Coroin. On the contrary, Mr McKillen accepts that the Barclay interests provided substantial support to Mr and Mrs Quinlan by way of gift.
(7) On 29 January 2011, Ellerman Corporation Limited ("Ellerman"), the third respondent, acquired for €71 million borrowings of Mr Quinlan secured on part of his shareholding. Ellerman was registered as holder of the shares pursuant to clause 6.18 of the shareholders' agreement. Mr Quinlan and Ellerman gave a written confirmation to Coroin that there was no agreement between Mr Quinlan and the Barclay interests for the acquisition of any interest in Mr Quinlan's shares.
(8) On 17 February 2011, Mr Quinlan entered into a binding written agreement ("the February agreement") with Ellerman Hotels Group Limited ("EHGL") for the sale of his Coroin shares. This is a key document. This agreement provided that the sale was subject to (1) compliance with the terms of the shareholders' agreement and Coroin's articles, and (2) consent from any chargee holding security over Mr Quinlan's shares.
(9) EHGL has not called for Mr Quinlan to complete the sale as that would on any view require Mr Quinlan first to offer his shares around at the agreed price of £80 million pursuant to clause 6.
(10) On 16 May 2011 Mr Quinlan resigned as a director of Coroin at the request of the Barclay interests. Mr Quinlan said that he did so voluntarily to concentrate on his other business interests. His shares carried the right to the appointment of a director and at their request he appointed a nominee of the Barclay interests as a director.
(11) Also on 16 May 2011, Mr Quinlan executed a power of attorney for one year in favour of a nominee of the Barclay interests. This gave the attorney wide power to perform acts in relation to the company on behalf of Mr Quinlan.
(12) Mr McKillen only learnt about the power of attorney after commencing these proceedings.
(13) By September 2011 the Barclay interests had acquired all the other security over Mr Quinlan's shares, or secured its release.
(14) The judge held that, in consequence of what had happened, the Barclay interests had achieved practical control over Mr Quinlan's shareholding (judgment, paragraph 349).
(15) However, the judge held that there was no breach of clause...
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