Rose v Lynx Express Ltd and another
| Jurisdiction | England & Wales |
| Judge | Peter Gibson L.J. |
| Judgment Date | 07 April 2004 |
| Neutral Citation | [2004] EWCA Civ 447 |
| Docket Number | Case No: A3/2003/1869 |
| Court | Court of Appeal (Civil Division) |
| Date | 07 April 2004 |
[2004] EWCA Civ 447
Lord Justice Peter Gibson
Lord Justice Mance and
Lord Justice Keene
Case No: A3/2003/1869
HC03C00215
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr. John Powell Q.C. (Sitting as a Deputy High Court Judge)
Royal Courts of Justice
Strand,
London, WC2A 2LL
Mr. David Mabb Q.C. and Mr. Nigel Dougherty (instructed by Messrs Harvey Ingram Owston of Leicester) for the Appellant
Mr. Robin Knowles Q.C. and Miss Lucy Frazer (instructed by Messrs Travers Smith Braithwaite of London) for the Respondents
This is the judgment of the court in relation to an application by the Claimant, Philip Rose, for permission to appeal from the order made on 6 August 2003 by Mr. John Powell Q.C., sitting as a Deputy High Court Judge in the Chancery Division, the appeal having been ordered to follow immediately upon permission being granted. By his order the judge dismissed an application by Mr. Rose pursuant to CPR 31.16 for disclosure before proceedings commenced. Mr. Rose contends that the disclosure was desirable in order to assess the merits of a claim which he wanted to bring against the Defendants, Lynx Express Ltd. ("Lynx") and Bridgepoint Capital (Nominees) Ltd. ("Bridgepoint"). He alleges that there have been breaches by Bridgepoint of a requirement in the pre-emption provisions in Lynx's Articles of Association to give notice of a transfer of shares in Lynx. Lynx and Bridgepoint deny any such breach. That issue turns on the true construction of the Articles and was called by the judge "the notice issue".
CPR r. 31.16 (3) contains the conditions which must be satisfied if the court is to accede to an application for pre-action disclosure. It provides:
"The court may make an order under this rule only where –
(a) the respondent is likely to be a party to subsequent proceedings;
(b) the applicant is also likely to be a party to those proceedings;
(c) if proceedings had started, the respondent's duty by way of standard disclosure, set out in rule 31.6, would extend to the documents or classes of documents of which the applicant seeks disclosure; and
(d) disclosure before proceedings have started is desirable in order to –
(i) dispose fairly of the anticipated proceedings;
(ii) assist the dispute to be resolved without proceedings; or
(iii) save costs."
The judge concluded that the notice issue was so central to the question whether there should be pre-action disclosure as to be suitable for determination as a preliminary issue. He invited the parties to agree to this. Mr Rose declined any such invitation. The judge nevertheless embarked on the resolution of the issue, but only "insofar as it is relevant to [Mr Rose's] application for pre-action disclosure with a view to putative proceedings in which the notice issue will, as the parties recognise, arise for determination". Proceeding on this basis, the judge decided the issue against Mr. Rose, and held accordingly that paras. (c) and (d) of r. 31.16 were not satisfied. He therefore dismissed Mr. Rose's application.
We have reservations about the approach adopted by the judge. We are concerned whether it is possible, and it is in our view certainly unsatisfactory, to have a situation in which what is described as a straightforward issue of construction is decided one way for one purpose, but may later be re-argued and possibly decided differently during the course of subsequent proceedings. Further, whether or not the determination would be binding at the trial of the substantive claim, there are practical dangers about considering any substantive issue, and particularly the core issue in the action, in the context of an application for pre-action disclosure. At the pre-action stage, the parties may not have thought through or seen all the implications of the issue in the same way as they will have done by the time when it comes to be tried. Any pre-action determination will have to take place in the light of assumptions about the factual circumstances, which may prove incomplete or incorrect. The actual factual circumstances, when known, may throw up problems about a particular construction of the articles which may not have been apparent at the pre-action stage. We think therefore that courts should be hesitant, in the context of an application for pre-action disclosure, about embarking upon any determination of substantive issues in the case. In our view it will normally be sufficient to found an application under CPR 31.16(3) for the substantive claim pursued in the proceedings to be properly arguable and to have a real prospect of success, and it will normally be appropriate to approach the conditions in CPR 31.16(3) on that basis.
Permission to appeal against his decision was refused by the judge. On application by Mr. Rose to this court, permission was refused on paper by Carnwath L.J. However, on a renewed application this court (Waller and Carnwath L.JJ.) on 27 October 2003 directed that the application be adjourned to a with notice hearing, with the appeal to follow immediately if the application were allowed. On the adjourned hearing, we have had the benefit of helpful argument from Mr. David Mabb Q.C., who did not appear below, and who appears with Mr. Nigel Dougherty (who did appear below) for Mr. Rose, and from Mr. Robin Knowles Q.C. who did appear below and Miss Lucy Frazer (who did not) for Lynx and Bridgepoint.
The facts
The facts can be summarised shortly. Lynx was incorporated on 27 November 1996 as a vehicle for a management buyout from NFC Holdings Ltd. with Mr. Rose and other individuals being the original shareholders. The capital of Lynx was reorganised the following year when new Articles were adopted on 3 June 1997. Table A was thereby applied with extensive exclusions and modifications running to 42 pages. It is plain that the Articles were professionally drawn.
Article 2.1 is a detailed interpretation provision. It includes the following definition of "Investor":
'[Bridgepoint] and/or (as the context shall admit) any person to whom any A Ordinary Shares or B Preference Shares are transferred and/or allotted and issued and, where any such shares are held by a bare nominee for a person, in respect of those shares, that person shall be the "Investor" for these purposes."
Art. 2 contains more interpretation provisions. Thus in Art. 2.7 the term "Investor Consent" is defined as meaning consent given or required to be given by or on behalf of the Investor. Art. 2.6 is an important provision for the purposes of this appeal. It provides:
"A reference in these Articles to any transfer of any share in the Company shall mean the transfer of either or both of the legal and beneficial ownership in such share and/or the grant of an option to acquire either or both of the legal and beneficial ownership in such share and the following shall be deemed (but without limitation) to be a transfer of a share in the Company:-
2.6.1 any direction (by way of renunciation or otherwise) by a member entitled to an allotment or issue of any share that such share be allotted or issued to some person other than himself;
2.6.2 any sale or other disposition of any legal or equitable interest in a share (including any voting right attached thereto) and whether or not by the registered holder thereof and whether or not for consideration or otherwise and whether or not effected by an instrument in writing; and
2.6.3 any grant of a legal or equitable mortgage or charge over any share (other than A Preference Shares or A Ordinary Shares held by Philip Rose or his Related Persons)."
It is to be noted that while Art. 2.6 commences by defining any transfer of any share as including "the transfer of …. the …. beneficial ownership in such share,"the disposition of "any …. equitable interest in a share" is deemed by Art. 2.6.2 to be a transfer of a share.
Art. 3 sets out the 6 classes of shares into which Lynx's authorised share capital is divided: 3 classes of Preference shares, viz. A, B and C, and 3 classes of Ordinary shares, viz. Ordinary and A and B Ordinary.
Art. 10 deals with prohibited transfers. It provides (so far as material):
'10.1 Notwithstanding any other provisions of these Articles, a holder of one or more Ordinary Shares shall not without prior Investor Consent (i) serve a Transfer Notice in respect of any such shares under Article 11 or (ii) effect a transfer (except a transfer in accordance with Articles 12. 1 or 13 or 14) of such shares.
10.2 Notwithstanding any other provisions of these Articles, no transfer (other than a transfer of A Preference Shares or A Ordinary Shares held by an Investor or an Investor Associate) shall be made, without prior Investor Consent, by any member holding more than one class of shares in the Company unless such member also transfers a proportionate number of shares of all other classes held by such member…."
Art. 11 contains the pre-emption provisions. Art. 11.1 is in the following form:
'11.1 Except in the case of a transfer pursuant to Articles 12, 13 or 14, a member who wishes to transfer any shares ("Vendor") shall give notice in writing of such wish to the Company ("Transfer Notice"). Each Transfer Notice shall:-
11.1.1 relate to one class of shares only;
11.1.2 specify the number and class of shares which the Vendor wishes to transfer ("the Sale Shares");
11.1.3 specify the identity of the person to whom the Vendor wishes to transfer the Sale Shares ("the Proposed Transferee");
11.1.4 specify the...
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