Eclairs Group Ltd & Anor v JKX Oil & Gas Plc & Ors

This is the expedited hearing of two claims, which, having been caused by the same course of events, largely rely on the same grounds and can properly be dealt with together. At issue is the validity of certain restrictions on voting and transfer, imposed by the board of directors of the defendant company (the “company” or “JKX”) under its articles on shares beneficially (though not legally) held by two significant shareholders, Eclairs Group Limited (“Eclairs”) and Glengary Overseas Limited (“Glengary”, together “the claimants”). Mr Mabb QC led for Eclairs, Mr Andreas Gledhill led for Glengary and Mr Swainston QC led for the company.

The board of JKX perceived that it was being “raided” by Eclairs and Glengary who, it was feared, sought to destabilise the company by replacing senior management and obstructing necessary fund raising processes with the ultimate aim of acquiring the company at less than its proper value. The board, or the principal executive directors, served a notice under section 793 of the Companies Act 2006 (”the Act”) and article 42 of the company’s Articles of Association seeking disclosure of interests in shares. When the responses came in the board considered the responses to be materially inaccurate and served restriction notices imposing restrictions which prevented the voting and transfer of the Eclairs and Glengary shares. This occurred some 6 days before the AGM of JKX. The company’s annual general meeting was scheduled to take place on 5^th June. It was known that Eclairs and Glengary would be likely to oppose certain ordinary and special resolutions, and while it was not clear whether their votes would be crucial to the fate of the ordinary resolutions, it was clear that the special resolutions would not be passed if Eclairs and Glengary voted against them. The effect of the restrictions would have been to prevent them from voting and thus giving effect to their opposition. Immediately on receiving the notices Eclairs, and then Glengary, sought interim relief in advance of that meeting, challenging the validity of the restrictions. The result of that application was an order of David Richards J, incorporating undertakings by the company, which created a regime under which the AGM could go ahead and Eclairs and Glengary could vote their shares, but there would be no declaration as to the effect of the votes on the resolutions pending this trial, and the effectiveness of that vote would depend on the success or otherwise of the attack on the restrictions. When the meeting took place and the votes were ultimately cast, the ordinary resolutions were carried and the Eclairs/Glengary votes would have made no difference; but the special resolutions would have been affected – they would be carried if the Eclairs/Glengary votes are disallowed, but lost if they are allowed. David Richards J ordered a speedy trial of the matter, and thus it arrived before me.

The case was set down for 5 days, and expedited on the footing that that would be the time allowed to it. Getting it to trial within that timeframe has led to some shortcuts in certain areas, but not at the expense of doing justice. Conducting the trial within 5 days required some significant trimming of cross-examination. In the end one of the company’s witnesses (who would normally have been crossexamined) was not cross-examined at all, and another was not cross-examined by Mr Mabb, but the trial time limit was still not achieved, even with a degree of trimming and early and late sittings, but the evidential phase was achieved in five (longer than usual) days. The final submissions took place on one further day (plus some further written submissions). I am satisfied that such trimming as has occurred has not resulted in injustice and that the parties have had a fair chance to advance their respective cases. The subsequent need to produce this judgment within a reasonable timeframe has led to a certain amount of trimming of my own, in that I have omitted references to a significant number of authorities which appeared in the written submissions of the parties. I have, however, considered them all where relevant, whether referred to or not. This judgment has not appeared with the speed I would have wished, but that was due to other sitting commitments in the vacation and the fact that the condensed nature of final submissions led to a longer period of gestation for this judgment.

The principal objections to the restrictions fall under three heads:

The following additional points are also said to arise:

Before moving on to the factual background of the claim and the parties involved it is worth elaborating a little as to the rather complex means by which the interested individuals have opted to hold the shares in the Company. This section is not intended to give a detailed breakdown of every company that is or has been involved in such a structure but will serve to give a sufficient picture of some of the names and individuals encountered in the substantive part of this judgment.

JKX is a publicly traded company and listed on the London Stock Exchange. Its business is the development of oil and gas reserves, and the sale of the resultant products. While it has assets in Russia, the more important one for the purposes of this judgment is its Ukrainian subsidiary called PPC, which is a valuable company with interests in oil and gas. The two claimants presently have a combined beneficial interest in the company of some 39%, of which Eclairs’ interest amounts to 27.55% and Glengary’s interest to 11.45%. Those interests are held behind a wall of nominees and the ultimate individuals behind those groupings are as follows:

Eclairs only has an indirect interest in the shares through the numerous nominees and custodians it employs. The structure can be summarised as follows – the direct link to the Company is Hanover Nominees Limited (“Hanover”) which holds the shares in the Company (and is therefore registered as shareholder) as nominee for Renaissance Securities (Cyprus) Limited which, in turn, holds the rights to the shares on behalf of Renaissance Advisory Services Limited and, finally, Renaissance Advisory Services Limited holds the shares as custodian for

Glengary is the vehicle of Mr Zhukov. It is said to be a beneficiary under nominee arrangements covering its shares, passing through Lynchwood Nominees Ltd (which is registered as shareholder) and further nominees. The “ultimate beneficial owner” (the expression used by Mr Ratskevych, who gave evidence for Glengary on the point) of 95% of the shares in Glengary is Mr Zhukov. Mr Ratskevych himself is the beneficial owner of the other 5%.

One other company, namely Ralkon Commercial Ltd (“Ralkon”), needs to be mentioned at this stage. Ralkon was another vehicle of Mr Kolomoisky and was the vehicle through which he held JKX shares until March 2013 when Eclairs was substituted as that vehicle.

The claimants in these two sets of proceedings ought to be the registered shareholders whose rights have been suspended. However, it is said that those shareholders, being nominees, could not be propelled into action quickly enough; nor was it possible to get the registered ownership into the ultimate beneficiaries (Eclairs and Glengary) in time. So these proceedings were started by the beneficial owners, joining some or all of the intervening nominees as defendants. This gives rise to the locus standi point to which I have referred above.

I heard or received evidence from the following witnesses of the claimants

Mr Bakunenko is a director of Eclairs, but was only appointed recently – 16^th May 2013. He therefore joined part way through the events of this case, and has only limited personal knowledge of some of the background. Nonetheless, he was the person chosen by Eclairs to give evidence of some history (some basic facts about acquisitions and disposals of shares) and he gave some hearsay evidence (based on briefings from Mr Novikov, thought to be Mr Kolomoisky’s right hand man) about other areas of history. He explained that the timing of his appointment was so that he could canvas some of the shareholder base of JKX to glean support for Mr Kolomoisky in his

Mr Ratsksevych works for Interfinance Holdings Ltd BVI, which handles various business interests on behalf of Mr Zhukov. He has been acting for Mr Zhukov for a number of years and can be closely identified with his affairs. He has acquired a 5% stake in Glengary. He gave evidence about the circumstances in which he was proposed as a director of JKX, a conversation he had with Dr Davies and one or two other events in mid-2013. He came across as a careful witness who wanted to give clear evidence.

Mr Spitz is a partner in Locke Lord (UK) LLP, the solicitors acting for Glengary. He provided 2 witness statements (one of them correcting the other) about the circumstances in which it was suggested that Glengary might like to purchase a further parcel of shares in JKX (owned by a company called Naftogaz) in April 2013. He was not cross-examined on his witness statements.

I heard or received evidence from the following individuals for JKX (all members of the board that considered the imposition of Art 42 restrictions). On the application of Mr Mabb (and against the opposition of Mr Swainston) I directed that witnesses should be excluded from court until they had given evidence so that their evidence could not be affected by what the other directors had said. I formed the clear impression that they were all giving their evidence in a manner which was not affected by any foreknowledge of what their colleagues would say.

Dr Davies is the CEO of JKX, and has occupied that position for over 10 years. He is plainly an experienced man. He gave his evidence clearly and in a very considered fashion. As one of the executive directors, he was very active in considering what the stance of JKX should be in relation to what he considered to be a “raid” by Eclairs, and his views and acts were crucial. I considered that his evidence was reliable and I could rely on it.

Mrs Dubin has been the Finance Director of JKX since 2011, having had 28 years experience in the energy industry. Again, as an executive director she was very active in the company’s riposte to Mr Kolomoisky’s activities. Her evidence was particularly careful, considered and direct. She told me that she had had witness coaching in relation to her evidence in this case, and some of the effects were apparent in her evidence, but I do not think that it affected the truthfulness or reliability of her evidence. At the end of the day she, like Dr Davies, was an impressive witness.

He is and was at the material time the chairman and non-executive director of JKX. His involvement in the day to day management of the company’s riposte was therefore more limited, but it was still significant. He was a reliable witness, who demonstrated no propensity to exaggerate.

Lord Oxford is a former diplomat and now a non-executive director of JKX with significant experience of business in Russia and some of the CIS states, including Ukraine. His background was important to his views on the information being given and (as he would say) not given by Eclairs and Glengary in this case. He was a careful, measured and reliable witness.

Mr Ferguson is a non-executive director of JKX who joined the board in November 2011. He has spent most of his business life working abroad, and a very large part of it in Russia and the Ukraine. He also has considerable experience in oil and gas. He therefore understands the industry in which JKX works and business practices in those two countries (and others). He came over as a good clear witness, and someone who discharged his duties as a nonexecutive director conscientiously and with a good deal of thought.

He is another non-executive director with experience of sitting on a number of FTSE company boards. He has himself been a CEO. His evidential style was to very measured and thoughtful, but it was also clear and, in my view, reliable.

He is the technical director of JKX. He has never been based in the Ukraine but carried out an initial assessment of assets there. He was abroad at the time of the important board meeting in this case, and did not participate by telephone, but he left what was treated as a proxy with the chairman. Like the other directors, he gave his evidence clearly, without exaggeration and reliably.

He is another non-executive director, having joined as such in 2013. Time constraints meant that his cross-examination was short – only Mr Gledhill cross-examined him. It revealed no reasons to doubt his honesty and credibility as a witness.

He is the commercial director of JKX, and provided a witness statement. However, by the time the period allocated for the cross-examination of witnesses expired there was no time to call him, so his witness statement was not, to that extent, challenged. However, I do not treat it as unchallenged in the sense in which it would have been unchallenged had there been a positive election not to cross-examine – that would not be fair on the claimants. It is fairer to treat it as untested.

In the narrative that follows any recitation of fact should be taken as a finding by me, unless the contrary appears. I must also add one caveat. I shall from time to time refer to reputations and perceptions. Much of what matters in this case depends on reputations of people (principally Mr Kolomoisky), and it is not necessary to make positive findings about whether that reputation is deserved (substantiated by actual facts). Accordingly, when I make findings about reputations they are findings about just that - they are not findings as to whether the reputation is deserved. Similarly in terms of perceptions. Much in this case turns on what board members perceived or believed, not whether those perceptions or beliefs were accurate and reflected reality (though their reasonableness is firmly in issue). So when I make findings about perceptions and beliefs they are merely findings as to whether those perceptions and beliefs existed, not whether they were actually justified on the facts.

In the main, in this section of the judgment I shall deal with the facts as they unfolded. While from time to time I refer to what various board members were thinking about them, I shall return in a later section to deal in more detail with their respective perceptions and views, with what the state of mind of the board members was from time to time (when relevant) and with their purpose in supporting various courses of action.

Mr Kolomoisky and Mr Bogolyubov together own or control a financial organisation called Privatbank, and that organisation holds a 42% stake in the Ukrainian state oil company Ukrnafta. Mr Kolomoisky, and probably Mr Bogolyubov with him, has a reputation as a corporate raider, that is to say 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. In the case of Mr Kolomoisky it is said that he has sought to take control of one particular company “at gunpoint” in the Ukraine. While it is not part of this case to determine the extent to which that reputation is justified, Mr Bakunenko accepted that Mr Kolomoisky had that reputation. At the beginning of the process involved in this case that reputation was known to at least some of the directors of JKX, and by the end it was conveyed to all of them. Some of the directors (including Dr Davies, Mr Ferguson and Mr Miller) were aware that doing business in countries such as the Ukraine involved countering these (and other) less than conventional ways of doing business (including the enlisting of state agencies to assist the cause of the raiders), and in the past the company had had to seek diplomatic intervention to stop what it considered to be unwarranted interference in the business of PPC. Over the course of time Dr Davies had ascertained that Mr Kolomoisky had sought control in this way of an Australian company called Consolidated Minerals, and another company called Ferrexpo (the largest iron-ore producer in the Ukraine).

Mr Zhukov does not seem to have had the same reputation, but he was known, or believed by Lord Oxford, to have done business with Mr Kolomoisky in the past before their dealings in JKX.

Each of Mr Zhukov and Mr Kolomoisky had individuals who can probably be called their “right hand men” in dealings such as those that occurred in relation to JKX. Mr Zhukov’s was Mr Ratskevych. Mr Kolomoisky’s was Mr Novikov. Representatives of JKX had a reasonable relationship with both men in the period prior to March 2013.

Mr Zhukov started acquiring shares in JKX through Glengary in 2004, and by June 2006 he had acquired over 32,300,000. In around December 2006, in an off-market transaction, Mr Kolomoisky acquired about half of that stake through Ralkon, one of his vehicles. That gave him about 12.5% of the share capital in JKX.

The purchase by Ralkon took place shortly after the apparent raid on the Australian company referred to above. In the ensuing period Ralkon built up its shares in JKX until it owned approximately 28% of its share capital. By the time of the events at the heart of this case Glengary owned just under 11.5%.

Between 2010 and 2012 JKX sought to improve its position in relation to the raising of capital. It was, by and large, unable to raise capital from conventional sources (banks and the like) and the directors (particularly Mrs Dubin and Dr Davies) were given to understand that some institutions were unwilling to lend to JKX because of its links with Mr Kolomoisky. Some banks openly expressed that view; others said it off the record; others did not express it, but the directors (with good reason) perceived that the Kolomoisky association was a bar to raising significant finance through that route. It is true that a lack of appetite for the country risk associated with the Ukraine was also thought to be a reason for a lack of enthusiasm, but Mr Kolomoisky’s association was an important factor for a considerable number of institutions.

The company had limited powers to raise capital by issuing and allotting share capital, but they were not adequate, in the view of the directors. Between 2010 and 2012 they proposed resolutions to allow the allotment of new shares, the disapplication of preemption rights and the possibility of share buybacks. The resolutions proposed would have given the directors what they regarded as standard tools for a plc. However, some of the proposals would have required a special resolution, and on each occasion Mr Kolomoisky opposed, or made it known that he would oppose, the proposals (by and large), so they were never passed. It was understood that Mr Kolomoisky said that he did not want the dilution of his stake. The directors understood those concerns, so far as genuine, but considered that since the well-being of the company as a whole required the resolutions (so that capital could be raised through share issues) a reasonable shareholder who was concerned with the prosperity of the company would have agreed to a small dilution. Nonetheless, Mr Kolomoisky opposed it.

Glengary also opposed the proposals in 2010, and Mr Ratskevych said it was probable that that was after a discussion between Glengary and Ralkon. However, its proxy form was faulty, so its vote was not counted. In 2011 and 2012 Glengary did not seem to vote on the proposals.

Dr Davies’s evidence was that because of the company’s need for funds, and because it was impossible to raise funds through conventional channels, in August 2012 he went to meet Mr Kolomoisky in Monaco to ask if he would provide finance through Privatbank. Mr Kolomoisky agreed he would do so, but only if a nominee of his were given a shadow management role sitting with the general director of PPC. The general director of a Ukrainian company is a powerful role, and someone shadowing him would be able to apply influence in that role (and doubtless feed back information to his appointor). Dr Davies expressed the view that he did not think that the board of JKX, or the other shareholders, would approve that proposal, to which Mr

Mr Bakunenko sought to dispute this account. In cross-examination he claimed to have had a “briefing” from Mr Novikov, who was at the meeting (Mr Bakuneko obviously was not – he came on the scene much later), and who said that financing was not raised at the meeting, and there was no reference to Privatbank lending money to JKX. He said that Mr Novikov briefed him to the effect that Dr Davies had said at the meeting that the financing aspects had been resolved. This is, of course, hearsay evidence, and I find it to be incredible. I find that the company had been in need of sources of finance for several years, and that was the reason for the meeting. While a Credit Agricole facility had been rolled over, that institution had said it would not renew if Mr Kolomoisky acquired seats on the board, so it cannot be said to have been an assured source of finance. It is inconceivable that Dr Davies would have said that financing issues had been resolved; the very opposite was the truth. I accept Dr Davies’ version of events and find that Mr Bakunenko’s version is a contrivance put together for the purposes of this hearing.

By March 2013 Ralkon was holding over 47m shares. Glengary held over 19m. On 4^th March Ralkon (through one of its nominees) made an unforeshadowed query as to how it could requisition an extraordinary general meeting. Mrs Dubin queried this, and 3 days later the company was told to disregard the question. On the same day (7^th March) the company received notification that Ralkon had transferred its entire holding to another person, but that person was not identified. Dr Davies’s inquiries of Mr Novikov as to who that other party was were met with the statement that that information would be given in due course when it was required. He also described the process of transfer as a “formal” one. On this occasion Mr Novikov was unusually reticent. The company issued a section 793 notice requiring the identity of the purchaser but before it was answered the company was informed that the purchaser was Eclairs, whose shares were held in trust for Mr Kolomoisky. The company was therefore told to ignore the notice.

As information was given to the other directors, and as events unfolded, some of the other directors (for example Mr Ferguson and Mr Dixon) came to see this transfer to Eclairs as the first step in a raid on the company. Mr Ferguson explained to me that a raider would often start by putting his shares in the target company into a clean vehicle. That is what he came to see as happening here.

Shortly thereafter, on 15^th March 2013, the Company received what it considered to be the first step of the raid, namely a letter from Eclairs (dated 7^th March 2013) seeking to require the Company to convene an extraordinary general meeting, pursuant to section 303 of the Companies Act 2006. The purpose of the extraordinary general meeting would be to consider resolutions to remove Dr Davies and Mr Dixon from the board, and place 3 additional directors there, namely Mr Ratskevych, a Mr Yudin and a Mr Epshtein. The proposal to remove Dr Davies and Mr Dixon was viewed as very significant, and potentially very damaging, by the company. The two gentlemen were, respectively, the CEO and the commercial director, and at the heart of the company’s activities. Mr Dixon was responsible for all the commercial activities (including negotiations and contracts for development and sales) in the Ukraine. To remove them would, as the directors appreciated, remove the heart of the management.

It also came to be seen as significant that Mr Ratskevych was one of the proposed new directors. He was associated with Mr Zhukov, not Mr Kolomoisky. In due course the directors took this as a sign that arrangements had been made between Mr Kolomoisky and Mr Zhukov. They certainly saw the section 303 notice as the opening of what some of them saw as a battle. When Mr Moore saw the notice he emailed Dr Davies on the evening of 15^th March and expressed his sympathy and his intention to do:

“whatever is possible to defeat this proposition as I am certain JKX needs your leadership and knowledge more than ever at this critical time …”

to which Mr Dixon responded:

“Let battle commence!”.

Dr Davies tried to contact Mr Novikov on 18^th March to talk about the situation, but failed. He got the impression that Mr Novikov was ignoring him. Mrs Dubin had a greater degree of success in that she managed to speak to him, but he was uncommunicative.

Having sought legal advice the Company rejected the section 303 notice on the footing that it was not set out properly and the date of the notice pre-dated the date when Eclairs became a shareholder. When a formal written response was given it rejected the notice on the basis that Eclairs was not a shareholder (its holding was held by a nominee) and because the notice was non-compliant by virtue of the fact that it did not state the general nature of the business to be conducted at the meeting.

The same letter also sought details of the relevant skills of the proposed new directors. This was a genuine question. No details were given as to their suitability, and on the date they were proposed only Mr Ratskevych was known to JKX. Since he dealt with finances it was not clear what skills he had which would qualify him to be a director of an energy company. Further inquiries in due course revealed that Mr Yudin was actually wanted by the criminal authorities in the Ukraine “for abuse of authority or office with grave circumstances”, and that he was reported to have fled the Ukraine for London.

On the next day (19th March), Dr Davies spoke to Mr Ratskevych to try to find out the intentions behind the notice. He reported this conversation to Mrs Dubin, Mr Dixon and others in an email of the same date. Mr Ratskevych confirmed that Mr Kolomoisky had contacted Mr Zhukov asking for his support in changing the management of JKX and that Mr Zhukov agreed provided that his man (Mr Ratskevych) sat on the board. Glengary’s objective was apparently to get the share price above £3. Mr Ratskevych was unable to confirm quite all of this detail, but I find that Dr Davies’s account was accurate.

At about this time the Company also found out about Mr Kolomoisky’s and Mr Bogolyubov’s involvement in Ferrexpo, an Ukrainian iron ore producer, and their attempts to seize control of that company (see above).

Also on 19th March the company held a board meeting to discuss the s303 notice. It was decided to serve notices under s793, seeking details of share ownership and arrangements between shareholders. Mr Baines, the company’s financial adviser, explained that it might be argued that Eclairs, together with other shareholders, were trying to form an alliance to take control over JKX. Various of the directors had already formed views to that effect. Dr Davies, for one, thought that it was very significant that Eclairs was proposing Mr Ratskevych as a director of JKX when he was a Zhukov man. It was assumed that, having been told that its s303 notice was invalid, Eclairs would respond with a valid one, but it never did.

On 20^th March the company started to send out a series of notices under s.793 to Eclairs and others. The one directed to Eclairs requested information regarding the number of shares held by Eclairs, the beneficial ownership of the shares and whether that company, or any beneficial owner, was party to any agreement or arrangement about the shares. This notice, in the same format but addressed to other parties, was also sent to Mr Ratskevych, Mr Zhukov and Glengary, along with the other two individuals put forward for director positions in the section 303 notice. A notice was not sent to Mr Kolomoisky because the company did not have an address for him and a notice sent to Trival Ltd did not get there because the courier was refused access to the building to which it was sent.

The following day (21st March) Eclairs informed the Company that, as of 19^th March, the shares that had previously been held on trust for the sole benefit of Mr Kolomoisky were now held by Trivial Ltd on trust for Mr Kolomoisky (59.1%) and by Marigold as trustee of a discretionary trust for the benefit of Mr Bogolyubov and his family (40.9%). As a result, the Company wrote further notices, substantially in the same form as the notice sent to Eclairs, to Mr Bogolyubov and Marigold on the 22^nd of March 2013. Dr Davies viewed him as a new investor and it heightened his view that steps were being taken to take control of the company. This view was further reinforced the next day when Dr Davies was sent a copy of a Ukrainian newspaper article which suggested that Mr Kolomoisky was seeking control of PPC and its assets.

Also on the 22^nd, Mr Cardew of the Cardew Group – the Company’s communications advisers - sent an email to Dr Davies and Mrs Dubin in which he said that “we must not lose sight of what we are trying to achieve: to delay and complicate the calling of the egm. To that end, as I stated this morning, it is necessary to be very scrupulous in public about ensuring that we are not being used as a vehicle for money laundering and that the interests of all our shareholders are protected.” He made various proposals demonstrating his enthusiasm for standing up for the company, but most of them were not considered by the directors, and they were not cross-examined on them.

One of the significant blocks of shares, other than the Eclairs/Glengary shareholdings was one owned by a concern known as Naftogaz. Those shares were in fact subject to a form of charge in favour of a judgment creditor, and on 22nd March, as reported on 23rd March, Dr Davies heard that that creditor’s solicitors were apparently seeking to place the shares on their client’s behalf. Dr Davies reflected on the desirability of placing those shares with a friendly investor, because such a significant block of shares could make all the difference when it came to voting at a general meeting.

The responses to the section 793 notices started to come in and they all denied arrangements. With one exception they did not demonstrate a pattern of ownership which departed from the understanding of the company (in general terms). The exception was the response of Mr Ratskevych (dated 27th March) which revealed for the first time that he had a 5% interest in Glengary. In his evidence Dr Davies expressed surprise that this had not been disclosed earlier,

Nigel Moore, the chairman, sent an email to Dr Davies on the 28^th March communicating the main points of a meeting he had had with Mr Michael Abrahams on the previous day. The last bullet point stated that

“He thought unsurprisingly that we should use every weapon in our armoury to fight Kolomoisky. He doesn’t understand the rules of the London market, and he was described as ‘seriously short of cash.’”

The Company received the reply to the section 793 notice from Mr Bogolyubov on the 2^nd of April and he confirmed his interest in the shareholding in the Company through Marigold.

The company was due to hold an AGM, and on 23^rd April 2013, a few weeks after receiving the replies to the Notices, the Company gave notice of an AGM to be held on the 5^th June 2013, during which it proposed the consideration of a number of resolutions. There were 12 resolutions, including the following:

The issue of the Naftogaz shares again became a topic of correspondence between Dr Davies and an unknown recipient (cc’d to Lord Oxford) on the 25^th April when Dr Davies told the recipient that he had received information from Hogan Lovells, the solicitors acting for Merchant International, the judgment creditor with a charge over the Naftogaz shares. According to Hogan Lovells, Merchant had been approached by:

“a current shareholder who might be interested in purchasing the Naftogaz’s shareholding. I [Dr Davies] asked who that shareholder was, and although their solicitors do not know for sure, they did speculate that the person is connected to Oleksander Ratskevych, who I gather is one of the proposed directors nominated by Eclairs.”

Dr Davies thought it likely that the approach was made by or on behalf of Glengary, and therefore thought that Glengary was considering increasing its stake in JKX. He also assumed it had something to do with the arrangement which he considered to exist between Mr Zhukov and Mr Kolomoisky. The potential acquisition had not been mentioned by Mr Ratskevych when they had spoken on 19th March and Dr Davies considered that he had not been given the full picture. In fact it turned out at the trial that part of what Dr Davies thought was not quite the full picture. The first approach between the judgment creditor and Glengary came from the judgment creditor’s solicitors, not from Mr Ratskevych, and it occurred on 5th April (i.e. after the conversation between Dr Davies and Mr Ratskevych). However, it seems likely that it occurred as a result of a prior incident in March, when a contact of Mr Ratskevych (a Mr Olshanki) said he could put Mr Ratskevych in touch with the right people if he were interested in acquiring the shares held by Naftogaz. It looks as though that contact conveyed Glengary’s possible interest to Merchant or its solicitors, so the contact did originate from what can fairly be regarded as the Glengary side, albeit more indirectly than a direct approach from Mr Ratskevych.

The directors were concerned that the resolutions proposed (and particularly those proposing re-appointment of directors) would not be passed because of opposition from Eclairs and Glengary. They started to contemplate how to counter that possibility and what to do if it happened. Mr Baines prepared a script to be read after the EGM if the directors were not re-elected. It indicated that the board considered at least some of them (particularly Dr Davies) to be so important that the board would immediately re-appoint him or them. This script was circulated by Mr Moore to the other directors on 9th May under cover of an email which read:

“Please find attached a draft statement I am planning to read out in the hopefully unlikely event of Paul, Raymond and Richard not being reelected at the AGM.

Paul and the team are presently making huge efforts to try and ensure we carry the day, including the possibility of issuing new shares, contacting as many shareholders as possible to impress upon them the importance of voting at this AGM and looking at any possibility of the Éclair/Glengary votes not being valid.”

The first of the three tactics involved considering issuing a limited number of shares held by the company in what was described as a “cash box”. They could be placed in “friendly” hands. However, it was ultimately considered that that proposal was impractical, not least because it would not be easy to make an attractive case for the placing of the shares bearing in mind the potential disruption from Eclairs/Glengary. The second tactic (contacting shareholders) was carried out with some vigour and, it transpired, some success. The third tactic was taken by at least some directors (Lord Oxford, for example) as being a reference to possible restrictions on voting under article 42, which was beginning to swim into the consciousness of at least some directors at about this time.

On 13^th May 2013 the Company sent a further set of section 793 notices to the Claimants and others. These included notices to Mr Kolomoisky, Mr Bogolyubov, Marigold, Trival and Eclairs respectively and three further disclosure notices to Glengary, Mr Zhukov and Mr Ratskevych. These notices asked essentially the same questions of all the recipients, though some were more specificially tailored to their recipients than others. I do not need to set out all their terms. Those sent to Eclairs, Glengary, Mr Kolomoisky, Mr Bogolyubov, Mr Ratskevych and Mr Zhukov appear in Appendix 1 to this judgment, along with the responses which came in due course.

The notices included a request that the Company receive any responses as soon as possible but in any event by 17.00 on 28 May 2013. In anticipation of a need to consider the responses in a board meeting in advance of the AGM, on the 20^th of May Mrs Dubin sent an email to the other members of the board in order to set up a board meeting for the 29^th, the day after the responses were due to be received in order to “consider whether we wish to take action in relation to any possible restriction in accordance with Article 42 of our Articles of Association”. The board meeting was ultimately arranged for the 30th May.

At about the same time, on 20th May, Dr Davies received information about another corporate dispute with which Mr Kolomoisky and Mr Bogolyubov were engaged, this time with a gentleman called Mr Pinchuk. This claim involved an allegation that Mr Kolomoisky and Mr Bogolyubov had taken control of a company by force. There was litigation about this, which had not been concluded, so these were only allegations, but they coincided with misgivings that Dr Davies had already formed.

On the 23^rd of May Eclairs circulated an open letter to the shareholders of the Company. It did so by posting an advertisement in the Financial Times with a clickable link which landed at the letter. It was expressed to be an open letter to all shareholders in JKX and stated that Eclairs was "writing to seek your support in voting for changes to certain members of the management and Board of [JKX] at the forthcoming AGM ... And to invite you to join the JKX Action Group in order to restore the performance of the Company to acceptable levels." It recommended that shareholders vote against the reelection of Dr Davies, the resolution to approve the directors’ remuneration report and the 3 resolutions seeking authority to allot shares, authority to purchase shares and the dis-application of pre-emption rights. It went on to say:

“We are seeking to discuss with fellow shareholders our concerns and dissatisfaction over JKX’s performance and our desire to seek change to the management of the Company in order to maximise value for all shareholders. Glengary Overseas Ltd, a holder of 11.45% of JKX, has also expressed its concerns about the management of the company and its intention to vote against the Resolutions outlined above …

“Following the AGM and if the resolution to reappoint Dr Paul Davies is not approved, we call upon Nigel Moore, Chairman, and the Board to conduct a full and wide-ranging external search for a new CEO, and also to replace Mr Peter Dixon as Commercial Director.

“Whilst we have identified potential candidates in Mr. Borys Epshtein, Mr. Stanislav Yudin and Mr. Oleksandr Ratskevych, we are completely open to the recruitment of the best qualified candidates internationally….

“JKX’s wholly-owned subsidiary in Ukraine, Poltova Petroleum Company (PPC), has been forced to defend itself in court against action initiated by the Ukrainian tax authorities in 2010 seeking to charge PPC circa $70m of unpaid tax.” …

[After expressing dissatisfaction with the company's results] "We believe that these issues are a direct result of poor management, and in particular are the responsibility of Dr Paul Davis, CEO, and Mr Peter Dixon, Commercial Director.

“We urge our fellow shareholders to vote AGAINST Resolution 5, to re-elect Dr Paul Davies as a director of the company, at the forthcoming AGM on 5 June 2013...

“Eclairs would be fully supportive of the Board of JKX in running a process to identify the best qualified external candidates both to join the Board and to take the role of CEO.

“At the same time, we would request that the Board consider our proposed candidates on merit: namely Mr Borys Epshtein, Mr Stanislav Yudin and Mr Oleksandr Ratskevych.”

Various aspects of this letter were seen as significant by the directors. The reference to Glengary was seen as relevant to the question of whether there were voting arrangements between Eclairs and Glengary; the criticism of the board for the poor performance of the company was seen as unfair and as a contrivance, as the concerns of Eclairs (if genuine) had never before been raised with the board (or the chairman), as the directors would have expected if they were genuine; the re-appearance of Mr Ratskevych in the list of proposed directors was again thought to be indicative of arrangements between the Eclairs and Glengary camps; and the reference to tax was misplaced and inaccurate, since there was no such claim in Ukraine.

So far as this last point (the tax point) is concerned, there was cross-examination of Mr Bakunenko (who had signed the circular letter) in order to investigate how this statement came to be made. It turned out that the justification for the statement was a comparison of references to a tax claim in 2 sets of accounts. There was no clear statement in the accounts to the effect of the statement in the letter; it was a matter of inference. I find that the inference was wrongly drawn. It was not the sort of statement which should have been presented as accurate without some checking, which would have revealed the mistake. It did, however, prove to be prophetic in that on 9^th July 2013 the Ukrainian tax authorities started an audit of the 2010 accounts of PPC, a step which PPC claims to be illegal.

On 29th May the board sent a letter to shareholders addressing the points in the open

On the 22^nd May the Naftogaz shares appeared still to be in play because Mr Naidoo, a senior associate at Hogan Lovells (acting for the judgment creditor), contacted Mr Geraghty of solicitors acting for JKX to inform him that his client, Merchant International, had the benefit of an Order for Sale of the shares and that he was keen to find a buyer for the shares; and that “I have other interest from other current shareholders of JKX so I would be grateful if you could come back to me sooner rather than later.” This was seen as material reinforcing the impression that Glengary might be interested in acquiring them.

In an email entitled “Battle for Control of JKX Oil & Gas plc” sent on the 23^rd May, Mr Miller appears to follow up on a telephone conversation that had taken place previously on that same day with an unknown person. In particular it contains another passage that refers to the Naftogaz share:

“A critical voting element could be the 5.8% owned by JSC Naftogaz of Ukraine but being held by a London law firm as it was the only accessible asset held by JSC Naftogaz during a dispute. We believe that the shares are now available for sale to settle the debt. At the current share price the full holding is worth around £6m.”

The email finishes with the line “All we need is a very brave investor!!”

The board circulated a draft response to the open letter on the 24^th May and board members, such as Mrs Dubin and Dr Davies, added or amended relevant parts from their own areas of expertise.

On 27^th May Glengary, Mr Zhukov, Mr Ratskevych and Mr Bogolyubov each replied to the disclosure notices with Eclairs and Mr Kolomoisky responding the day after. All parties replied that they were not party to any agreement or arrangement (see Appendix 1). However, while the Eclairs side confined themselves to a bare denial the Glengary side acknowledged that there had been discussions with Eclairs regarding the performance of JKX.

In his reply, Mr Zhukov said that he was:

“not a party to any type of agreement or arrangement referred to in paragraphs 1(e)(i)-(iii) of the notice. I have however participated in discussions with Eclairs Group Limited regarding JKX’s recent operational and financial performance and the need to change the management team as per the open letter to JKX shareholders dated 23 May 2013”.

In his reply, Mr Ratskevych said that he was:

“not a party to any type of agreement or arrangement referred to in paragraph 1(e)(i)-(iii) of the notice. I have however participated in discussions with Eclairs Group Limited regarding JKX’s recent operational and financial performance and the need to change the management team. I have been proposed by Eclairs Group as a candidate for the JKX board as per the open letter to JKX shareholders dated 23 May 2013”.

And the response from Glengary stated that:

“Glengary has participated in discussions with Eclairs Group Limited regarding JKX’s recent operational performance and the need to change the management team. Glengary however is not party to any agreement or arrangement as mentioned in paragraph 1(d)(i), (ii) and (iii) of your notice. Glengary is simply a holding vehicle for the Shares in favour of its ultimate beneficial owners – Alexander Zhukov and Oleksandr Ratskevych and acts upon their instructions”.

Also on the 28^th May, Mrs Dubin contacted Equiniti to find out if Ralkon and Glengary had a history of voting together. She received a response later that same day and forwarded the information to Mr Baines in the following form: “Unfortunately, I am not sure we can say at the end of paragraph 3 that

The board meeting to consider the responses, and the board’s views on the matter, was due to take place on 30th May at 3pm. Before it took place, at 9.17am, Mr Baines of JKX’s financial advisers wrote to the Takeover Panel in the following terms:

“Following my email of 23 May 2013 I am enclosing material as further evidence of the existence of a concert party between Mr Kolomoisky and Mr Zhukov."

He then goes on to refer to the original acquisition by Mr Kolomoisky from Mr Zhukov, the fact that Mr Kolomoisky had contacted Mr Zhukov asking for his support in changing the management of JKX with Mr Zhukov's condition that Mr Ratskevych be made a director, Eclairs' open letter with the company's response and:

"Fifthly, the board has reasonable cause to believe that certain information provided in various responses to section 793 notices from Eclairs, Glengary and their beneficial interest holders regarding agreements and arrangements between them is either false or materially incorrect and, as such, in accordance with JKX's articles, the Board is minded to issue restriction notices to Eclairs and Glengary (and their nominees) restricting such shareholders from being able to vote or count in the quorum at JKX's AGM next week.

In the light of the above we are proposing to advise Glengary and Eclairs that we consider that they are acting in concert and that, if the Panel so determine, any purchase of shares in JKX by either of them will trigger a mandatory bid requirement under Rule 9 of the Takeover Code."

The information about what the board was minded to do was, of course, given before the meeting. It shows the extent to which various of the directors (probably Dr Davies and Mrs Dubin) had article 42 very much in mind. Although the board had not yet met, it also shows that at least some directors had apparently already formed views about the adequacy of disclosure in the section 793 notices. Nonetheless there was, I find, a full discussion of the point at the board meeting which was to come and there was no complete pre-judging of the point.

The evening before the board meeting Allen & Overy, the company’s solicitors, had circulated a briefing note. This note gave certain advice for the benefit of the directors when they came to consider the replies to the section 793 notices and the attitude of the board to those replies. It also contained a table summarising the notices and responses. This was all that some of the directors had on the point - some of them did not see the actual notices or responses and relied on this briefing note.

Some of the directors attended the meeting in person, others on the phone, and Mr Miller not at all. On the morning of the meeting he sent an email to Mr Moore in which he said:

In cross-examination this email, and the expression of the objective, was used as a sort of suggested comparator to express the attitudes of the other members of the board. Some agreed with the sense, though not the terminology.

The board meeting duly took place. It took an hour and a quarter. All directors other than Mr Miller attended in some way or another. Lord Oxford, Mr Shah, Mr Ferguson and Mr Murray attended by telephone. Mr Moore, Mrs Dubin, Dr Davies and Mr Dixon were there in person. Mr Baines also attended, as did Mr John Geraghty (a partner in Allen & Overy – he attended by phone), together with 2 assistant solicitors or trainees (it matters not which they were) from that firm. Although Dr Davies and Mr Dixon attended they decided to recuse themselves, and they did not vote or take any part in the proceedings. The vote that occurred was therefore the vote of the directors other than those two.

The formal minutes record, inter alia, as follows:

A much fuller note of what actually happened at the meeting was kept by each of the two Allen & Overy representatives, and their notes were transcribed and available at the hearing of this action. The directors gave evidence of their thinking, and there was much cross-examination on some of the detail of it. I do not set out that detail at this stage. The cross-examination, together with witness statements of the directors and the preceding correspondence, enables me to make findings as to what each of the directors considered and believed at that meeting without having to recite what the note says. I make those findings in a separate section below. For present purposes I can summarise by saying that the directors considered that inadequate disclosure had been given because they believed that further agreements or arrangements existed between the Eclairs camp and the Glengary camp which were not particularised, and that there were arrangements or agreements between Mr Kolomoisky and Mr Bogolyubov in relation to the Eclairs shares. They found it incredible that the raid could have been, and would have been, mounted without such an agreement, and pointed to various factors in support of such a conclusion. Those factors appear below in the sections dealing with reasonable cause to believe and with the directors’ beliefs, intentions and purposes at the board meeting. In those circumstances the directors considered it was right to impose the restrictions that they did.

The restriction notices were issued the next day. The Eclairs notice was directed to Eclairs, Hanover, Mr Kolomoisky and Mr Bogolyubov. Its terms are set out in Appendix 2 to this judgment. The notice issued to the Glengary side was in similar terms, and addressed to corresponding persons and companies. The only paragraph with differing terms is also set out in Appendix 2 below.

There then followed the interim injunction application referred to above, as a result of which the effect of the voting at the AGM will depend on whether or not the restriction notices are valid. If the restriction notices are invalid then the votes were such that the ordinary resolutions were passed (the campaign to convince the majority of shareholders to vote and support the board seems to have been successful) but the special resolutions would fail. If the restriction notices were valid, so that the Eclairs and Glengary shares could not be voted, then all the resolutions would pass.

The first attack on the restriction notices comes from the form of the questions asked. The claimants say that the company asked questions which were not within section 793, which ought not to have been asked, which it was not necessary for the recipients to answer, and which render the notices ineffective. It would follow from this argument that there was no power to issue the restriction notices.

The starting point in this argument is article 42, which introduces the effect of the section 793 notices. Article 42 reads:

(1) For the purposes of this Article, unless the context otherwise requires

The Board may determine that one or more of the restrictions imposed on restricted shares shall cease to apply at any time. If the company receives in accordance with the terms of the relevant disclosure notice the information required therein in respect of the restricted shares all restrictions imposed on the restricted shares shall cease to apply seven days after receipt of the information. In addition, in the event that the Company receives an executed instrument of transfer in respect of all or any restricted shares, which would otherwise be given effective, pursuant to a sale

Section 793 provides (leaving out irrelevant wording):

“(1)

A public company may give notice under this section to any person whom the company … has reasonable cause to believe – (a) to be interested in the company’s shares, ….

….

(2)

The notice may require the person –

(a)

to confirm that fact or (as the case may be) to state whether or not it is the case, and

(b)

if he holds …. any such interest, to give such further information as may be required in accordance with the following provisions of the section.

(3)

The notice may require the person to whom it is addressed to give particulars of his own present …. interest in the company’s shares ….

(4)

The notice may require the person to whom it is addressed, where –

(a)

his interest is a present interest and another interest in the shares subsists, ….

(b)

….

to give, so far as lies within his knowledge, such particulars with respect to that other interest as may be required by the notice.

(5)

The particulars referred to in subsections (3) and (4) include –

(a)

….

(b)

whether persons interested in the same shares are or were parties to –

(i)

an agreement to which section 824 applies (certain share acquisition agreements), or

(ii)

an agreement or arrangement relating to the exercise of any rights conferred by the holding of the shares.”

Section 794 permits the company to apply to the court for an order imposing restrictions if a recipient of a notice fails to give the information required, and section 795 makes a failure to comply a criminal offence. Section 797 provides for restrictions which are similar to those provided by article 42.

Sections 820 and following amplify the meaning of “interest in shares” for the purposes of section 793. The relevant provisions are:

to exercise any right conferred by the holding of the shares, or

Section 824 provides for what is now traditionally known as a concert party in relation to the acquisition of shares:

“824 (1) For the purposes of this Part an interest in shares may arise from an agreement between two or more persons that includes provision for the acquisition by any one or more of them of interests in shares of a particular public company (the “target company” for that agreement).

(2)

This section applies to such an agreement if –

(a)

the agreement includes provision imposing obligations or restrictions on any one or more of the parties to it with respect to their use, retention or disposal of their interests in the shares of the target company acquired in pursuance of the agreement (whether or not together with any other interests of theirs in the company’s shares to which the agreement relates), and

(b)

an interest in the target company’s shares is in fact acquired by any of the parties in pursuance of the agreement.

(3)

The reference in subsection (2) to the use of interests in shares in the target company is to the exercise of any rights or of any control or influence arising from those interests (including the right to enter into an agreement for the exercise, or for control of the exercise, of any of those rights by another person).”

Mr Mabb’s submissions can be illustrated by reference to the Eclairs notice, and by concentrating on the provisions of paragraph 1(d) of that notice (the preceding paragraphs do not give rise to any issues in the case because any shortcomings in responses were in relation to paragraph 1(d), or its equivalent in other notices, and not in relation to the prior questions). He submits that the questions in that paragraph go beyond what is permitted by section 793. The consideration of his arguments requires the application of many cold towels in order to understand them.

First, he takes the question raised in paragraph 1(d)(i), which is:

“(d)

whether you are party to any agreement or arrangement (whether written or unwritten, formal or informal, direct or indirect):

(i)

which includes provision for the acquisition by you and/or any other person of shares in JKX and which imposes obligations or restrictions on the use (including exercise of rights, control or influence arising from such shares) or on the retention or disposal of such shares;” (my emphasis - the words become important to the argument)

There are said to be the following flaws in this question:

Next there is paragraph (d)(ii). This asks:

“(d)

whether you are party to any agreement or arrangement (whether written or unwritten, formal or informal, direct or indirect):

(ii)

relating to the exercise of any rights conferred by the holding of shares in JKX (e.g. a shareholders’ agreement which governs (directly or indirectly) how the voting rights in the shares in Eclairs Group Limited are to be exercised);”

This is said to be a non-compliant question because it is not asked about the “shares in question” or “the same shares” (ie the Eclairs shares). It is asked about other shares, or about other people who do not (or do not necessarily) have an interest in the Eclairs shares. If it has in mind a possible agreement between Mr Bogolyubov (Marigold) and Mr Kolomoisky (Eclairs), it could only be answerable if it is the case that Mr Bogolyubov (Marigold) had an interest in the Eclairs holding.

Last, there is paragraph (d)(iii). This asks:

“whether you are party to any agreement or arrangement (whether written or unwritten, formal or informal, direct or indirect):

(iii)

with Mr. Alexander Zhukov, Mr. Oleksandr Ratskevych and/or Glengary Overseas Limited (or their respective companies or nominees), which relates to the exercise of JKX share voting rights (either directly or via yours and/or their respective companies and nominees)?”

Mr Mabb submits that this question is not within the section because while the company is entitled to ask Eclairs about interests in Eclairs shares (”the same shares”, or “the shares in question”), this question asks about rights in other shares (Zhukov/Glengary/ Ratskevych shares) which, a fortiori are not Eclairs shares. Those three people/entities are not (or have not been shown be) interested in Eclairs shares.

Accordingly, Mr Mabb submits that those three questions are not within section 793, so (in respect of those questions, which are the important ones) the notices are not valid section 793 notices and so cannot found valid disclosure notices within article 42. The arguments are said to be strengthened by the wording of article 42 which provides for questions about “specified shares”. The specified shares are (in the above example) the shares in which Eclairs is interested. Questions can be asked of Eclairs about interests in those shares, but not about interests in other shares. Saving the questions by some sort of blue pencil test (if ever permissible) is not possible in the circumstances.

Mr Mabb also submitted that there was a distinction between subsections (1) and (2) on the one hand and (3) and (4) on the other in terms of who could be asked questions. Someone whom the directors have reasonable cause to believe to have an interest can be asked the questions in subsections (1) and (2), but not questions under subsections (3) and (4). Only someone with an actual interest (and not just a suspected interest) could be asked questions under those later subsections. It is not clear to me that anything turns on that distinction in the present case, but it may be necessary to consider it in order to understand the scheme of the section.

Mr Gledhill advanced similar submissions. The focus of his submissions was to the effect that section 793 allows a company to ask the addressee A about interests in A’s shares, but cannot ask A about interests which are said to affect Z’s shares. The “interest” provisions in sections 820ff did not fix that problem. Accordingly, question (iii) in the Glengary notice was not a legitimate question because it was not a request for particulars about Glengary’s shares. It followed, too, that Glengary was not obliged to answer it, and it further followed that the board was not entitled to act on the answers that Glengary did give or act on the footing that those answers were inadequate.

Mr Swainston disputed practically the whole of this analysis. His submissions were:

Mr Mabb submitted that the rights conferred by the shares were property rights and that if they were to be removed by a mechanism such as section 793 and article 42, it must be done by language of sufficient clarity to make it clear that that was the intention. I agree with that with the modification that a section 793 notice must be sufficiently clear to make it apparent what information is being sought, and that any subsequent restriction notices must be sufficiently clear to make it apparent what the consequences of alleged non-compliance are. However, in relation to the section 793 notices one thing must be borne in mind in making judgments about clarity. As I shall have cause to say again in due course, the purpose of the notices is to get information which the company does not have and in circumstances of which the company is not entirely cognisant. The section exists in order to enable the company to obtain information in circumstances where the people have placed interests behind complex structures:

“The reason why the definition [of interest] is so extensive is to counter the limitless ingenuity of persons who prefer to conceal their interests behind trusts and corporate entities.” (Per Hoffmann J in TR Technology at p249).

It therefore has to be acknowledged that questions designed to penetrate such structures have to be asked where the company does not know the answer and the addressee does (or is reasonably thought to know). The construction of the notices has to be approached with that imbalance in mind.

Mr Swainston’s submissions on this point did not always seem to me to follow a logical course through an analysis of the statute, and so did not always meet directly Mr Mabb’s more dissective approach. It seems to me that it is necessary to be a little more dissecting of the section in order to consider Mr Mabb’s case on invalidity. Since Mr Mabb’s analysis calls for a consideration of the validity of the notices stripped of the context of the answers in this case, it is necessary to consider that first. The correct position seems to me to be as appears below, but I need to stress that that I am dealing here with Mr Mabb’s submissions that the questions asked were, as a matter of construction, not within those questions which are provided for by section 793. Their application to the facts of the case is a different point. Some of Mr Mabb’s submissions involved considering their validity in the context of the apparent facts of this case concerning the shareholdings, but that is not the first step in considering his arguments. First one needs to measure the questions to see if they are capable of being valid questions, and what they mean.

The first thing to note is the apparent breadth of the exercise which Parliament has enabled the company to conduct. The definitions of “interest” cast the net very wide. Interests can be of any kind, and in the course of broadening that concept trusts

The second thing to note is that section 793 is intended to provide the company with information which it does not already have. There is little point in asking a question which it already knows the answer to. This might seem an obvious point, but I think that some of Mr Mabb’s submissions lose sight of it.

With those points in mind the section seems to operate as follows.

I agree with Mr Swainston that there is no good reason for saying that the

“reasonable cause to believe” provision operates only for the purposes of subsections (1) and (2). It operates for the purposes of all subsections. It operates so as to describe the addressee of the notice, and that addressee is the addressee under all the sections. On the other hand, it operates only in relation to that addressee. It has no relevance to any third party about whom questions are asked. The words are, on the wording of the section, simply not directed to the description of that latter person. So far as Mr Swainston submitted otherwise, the submission fails.

So far as third party interests are concerned, the important subsection is subsection

Questions directed to A (who has or is believed to have an interest) about the interests of another must be questions about interests in A’s shares, not other shares. I accept Mr Mabb’s submissions about this. This flows from the expressions “the shares in question” and “the same shares”; and see the citation from TR Technology. Those shares are the shares in which A is interested.

So far as it matters in this case (and it is not clear that it does), I do not accept Mr Mabb’s restrictions on the questions that can be asked of A in relation to Z’s interests. One would have thought that the direct question “Does Z have an interest, and if so what is it?” (not permitted by Mr Mabb) is a slightly more useful question all round than “If Z has an interest, what is it?” (permitted). Mr Mabb submits that the effect of the latter question is that if the answer to the first part of the question would be No, then A does not have to answer the question at all. He can simply put the piece of paper in the waste paper bin, as he put it (assuming there is no other question which requires answering). He seemed to suggest that this was a beneficial state of affairs. For my part I fail to see how this is a sensible approach to the section. If the company asked the “permitted” question and got no answer it would not know if that is because A never got it, whether A got it and refused to answer, or whether A got it, considered it, realised the opening condition was not fulfilled and, being a technically minded man, put it in the bin. This approach does not do what the section is plainly trying to do, which is to create a regime in which the company is informed of interests affecting shares in circumstances in which those interests are not clear, and may even be deliberately kept from view. I do not think that the wording of the section compels that odd result.

The reasons for that are as follows. Mr Mabb seizes on the words “where … another interest in the shares subsists” in subsection (4)(a), and says that if there is no such other interest then the remainder of that subsection and subsection (5) cannot apply, so there is no need to answer questions about it. I do not think that that is the effect of those words. They do, of course, qualify the requirement to give particulars. If no interest exists then particulars cannot and need not be given. However, I do not think that they require the drafting of slightly indirect questions, the failure to answer which can lead to uncertainty. It is implicit in the scheme of the section that the direct question: “Does Z have an interest?” should be asked in order to set the logical scene for what is asked next, and if asked it should be answered. Otherwise the section does not work properly - for the reasons given above, a failure to respond at all does not produce certainty. The section is designed to produce information, and it is designed to do so in circumstances in which the company does not already know the answer to the question. That objective can only be achieved if the company is entitled to ask, and to require an answer to, the direct question.

For the sake of completeness, I do not think that that result is achieved via the route suggested by Mr Swainston. He submitted that the “reasonable cause to believe” requirement extended to the third party interests (Z) referred to in subsection (4). As I have already pointed out, the language of the section does not extend that requirement to those third parties. It applies only to expand the gateway for asking questions of the addressee. Furthermore, it would actually impose an unnecessary and inappropriate restriction on the questions. If questions about Z could only be asked if the company had reasonable cause to believe he (Z) had an interest in A’s shares, it would limit the class of people who could be asked about. It would prevent questions about people whom the company suspected might be interested, or about people whom it did not know at all. I do not think that the subsection should be so limited.

The interests that can be asked about, and the interest which A has (or is reasonably thought to have) in order to justify questions can be any of the interests identified and elaborated in sections 820 to 824. This point was developed somewhat by Mr Swainston in what was described as a “reflexive” application of section 795(5)(b). However, so far as that argument introduced additional subtleties into the point at this stage in the argument, it is not necessary to deal with it.

Other aspects of the scope of the section can be more appropriately dealt with in the context of the actual issues which arise in relation to the questions asked.

I therefore turn to those questions, and like Mr Mabb I concentrate on the questions in the Eclairs notice. In doing so I bear one over-arching point in mind. All the questions are preceded by the words “In accordance with section 793 of the Companies Act 2006…”. The recipient of the notices would therefore know that the questions are being asked against that background, and that words such as “interest” are to be construed in accordance with the Act. That is to some extent burdensome, because the recipient might have to work out quite a lot for himself/herself. However, that burden is inevitable in the circumstances in which section 793 is intended to operate, that is to say one in which the company has imperfect (or sometimes no) information, and that it is the shareholder who has to provide it. It is therefore for the shareholder to marry his “interest” with the questions asked and then answer properly. I also stress that at this point in this judgment I am dealing only with whether the questions are capable of being valid questions within section 793. I am not seeking to determine how they should have been answered.

Mr Mabb submits that this question is modelled on section 824 but fails to be a question which accords with it. Section 824 gives rise to an interest only if shares are acquired pursuant to the agreement in question, but this question is not so limited.

I agree that this question appears to be linked to section 824. There would seem at first sight to be no other way in which such a question could be a question which is about the interests of the shareholder or a third party for the purposes of section 793. It is also true that the question does not ask whether shares were acquired pursuant to a section 824 agreement. However, it must be remembered that the question is asked “In relation to any of the shares in [JKX] in which you have … an interest”. It therefore presupposes an acquisition. When viewed in that light, it can and should be taken as being a question asked about those shares and related arrangements about the rights attached to those shares. Those elements fall within section 824. The subsequent acquisition is presupposed by the fact of the Eclairs interest. The question is therefore capable of being a valid question.

Mr Mabb assumes this question is inspired by section s793(5)(b)(ii), and then says it goes beyond the scope of that subsection. In my view this is not the correct angle of approach. It does not really matter what inspired it. Nor does it matter whether the question fell within what he thinks may have inspired it. Subsection (5) is not limiting of the questions that might be asked. The required particulars can “include” those particulars. So if the question falls within the subsection there would be little scope for arguments of invalidity; but a failure to fall within it is not determinative.

In my view, taken with the opening words of the question (”in relation to any of the shares in JKX [etc]”), it is a question about Eclairs’ shares in JKX. It asks if there are any agreements or arrangements relating to the rights in those shares. Such a question is justified on two potential bases. First, it is capable of being a request for particulars of the interest held by Eclairs within s793(3). Rights (and particularly voting rights) are capable of affecting that interest and its extent and their existence seems to me to fall within the concept of the interest of the addressee for the purposes of the section, particularly bearing in mind the object of the section, which is to provide transparency. Second, if the arrangement in question is such as to give rise to an interest in a third party over the Eclairs shareholding, then question (d)(ii) is capable of relating to that as well.

This question asks, in relation to the shares in which Eclairs is interested, whether Eclairs has been a party to any agreement or arrangement with Mr Zhukov et al “which relates to the exercise of JKX voting rights”. Mr Mabb says that this question is invalid because it seeks to ask about rights in shares other than the Eclairs JKX shares (”the exercise of JKX share voting rights”). He says that that goes too far. The company’s attempts to save this question by relying on “reflexive” rights which would give Eclairs an interest in shares beyond its own do not work because it is a pre-condition to subsection (4) that an interest arising out of the reflexive argument should exist, and anyway the question is apparently not confined to section 824 concert party arrangements which would be the only way the reflexive argument might come in.

The answer to this point again lies in starting from the point that the question is asked “in relation to any of the shares in JKX in which [Eclairs has] … an interest”. That circumscribes the rest of the question. It then asks whether Eclairs is a party to an agreement/arrangement with Mr Zhukov et al (in relation to those shares) which relates to the exercise of JKX share voting rights. That seems to me to be a valid question when properly analysed. It is capable of being taken to be a question about Mr Zhukov having voting rights in the shares in which Eclairs is beneficially interested. To that extent it is a valid question about Eclairs’ interest. So far as it is a question about shares in which Eclairs has a “reflexive” interest via s824, it is similarly valid - it is a question about Eclairs’ interest. So far as it is a question about other shares, then it is hard to see how it can be a question “in relation to” shares in which Eclairs has an interest, but in my view if there is an arrangement operating in relation to those other shares which also involved JKX’s holding then particulars of that ought to be given because JKX is entitled to particulars of the whole arrangement. That arrangement covers what was agreed about those other shares, not necessarily because the addressee has an interest in those shares, but because the arrangement in relation to those other shares is part of the whole picture of the addressee’s interest in the Eclairs shares.

I have already dealt with Mr Mabb’s principled objection to direct questions about third parties and their interests, and held that such questions are permitted. That deals with the other limb of Mr Mabb’s objections.

It follows, therefore, that this too is a valid question, when properly construed. It is unnecessary to go through the other Eclairs parties’ notices. The invalidity point fails in relation to them too.

Mr Gledhill addressed submissions as to the validity of this particular question (which expressly or implicitly figured highly in the company’s attitude to the answers). That question appears from the form in the Appendix. It is in the same form, mutatis mutandis, as the question in the Eclairs party questions. As a question it is valid to the

I therefore find that the questions were capable of being valid questions falling within section 793. What, if anything, they required to be revealed on the facts of this case is a question to which I return having made findings about what the board could reasonably have believed to be the relevant facts about shareholdings and rights.

My findings on the validity of the s793 notices mean that I do not have to consider this point, and I will not lengthen this judgment by doing so.

Article 42 entitles the board to act if it knows or has reasonable cause to believe that the information given in the responses to the s793 notice is false or materially incorrect. Before going on to consider the facts in relation to this point the following general points arise.

Mr Mabb took the point that in a “reasonable cause to believe” case there has to be not merely an objectively justifiable reasonable cause to believe; the board actually has to believe the relevant fact, and he supported his point with authorities drawn from other areas of the law. Mr Swainston submitted that even if that twofold test might be relevant in other cases, on the facts of this case the point is academic because it is apparent that the board had a belief which coincided with what it said it had reasonable cause to believe, so it is not necessary to consider this particular point. I agree with Mr Swainston. I do not think that on the facts this point arises. This spares me from having to consider what might be the difference between “knows” (the first part of the article 42 test) and “belief” (inherent in Mr Mabb’s position on the second part). I find it hard to image a case where a board has reasonable cause for belief, and imposes restrictions on that basis, but does not actually believe what it is entitled to believe and what it has apparently acted on. But I do not need to go into that.

It is also necessary to consider what it meant by “arrangement”, a term used in s793 and in the restriction notices. Mr Mabb’s submission is that the expression allows for relationships which are not legally binding but says they still require a degree of mutuality. In support of this proposition he relies on authority and, by way of a parallel, section 825 of the Act.

So far as authority is concerned he first cites Upjohn J in Re Austin Motor-Car Ltd’s Agreements [1958] 1 Ch 61 at 74:

“The whole question here is whether there is or is not a mutual contract or arrangement, whether enforceable at law or not. I do not propose to attempt any definition of “arrangement” in section 6(3). But to escape the alleviation afforded to the subject by section 8(3), some arrangement binding 3 or more parties must be spelt out of the facts, it being conceded that the conditions of the subsection are otherwise satisfied. Whether enforceable at law or not, it seems to me that an arrangement must at least connote an arrangement whereby the parties to it accept mutual rights and obligations.”

This is not compelling authority so far as s793 is concerned. The case was one brought under the Restrictive Trade Practices Act 1956, which is a different legal environment. Furthermore, it is apparent that interlocking relationships were of the essence of the inquiry - see the third sentence. The last, crucial, sentence has to be read in that light. It is understandable, in the context of that case, why mutuality was required if there was to be an “arrangement”. Mr Mabb’s original citation omitted the third sentence. Once it is in place reliance on the authority is much less justifiable.

Next Mr Mabb relied on British Basic Slag Ltd v Registrar of Restrictive Trading Agreements [1963] 1 WLR 227, at page 739, in which Willmer LJ said:

“I think it is highly significant that Parliament did not see fit to include any definition of “arrangement”. I infer from this that it was intended that the word should be construed in its ordinary or popular sense. Though it may not be easy to put into words everybody knows what is meant by an arrangement between two or more parties. If the arrangement is intended to be enforceable by legal proceedings, as in the case where it is made for good consideration, it may no doubt properly be described as an agreement. But the Act of 1956 clearly contemplates that there may be arrangements which are not enforceable by legal proceedings, but which create only moral obligations or obligations binding in honour. This seems to me to be entirely consistent with the dictum of Upjohn J. to which I have already referred. Nor do I consider that there is any inconsistency between that and the view expressed by the judge in the present case. For when each of two or more parties intentionally arouses in the others an expectation that he will act in a certain way, it seems to me that he incurs at least a moral obligation to do so. An arrangement as so defined is therefore something “whereby the parties to it accept mutual rights and obligations””.

Again, care must be taking in applying this dictum (once again made in a restrictive practices environment) as though it is laying down a definition for other environments. A study of the full judgment reveals that Willmer LJ was dealing with a submission that something more than an intentional arousal of expectations was required for there to be an arrangement, and that there must be mutuality in acceptance of rights and obligations. What Willmer LJ was doing was saying that, on the facts of this case, they were the same thing, and that they fell within the citation from Upjohn J. This dictum does not necessarily justify the porting of the concept of mutuality from that legislation to the Companies Act.

It is also to be noted that in the same case Diplock LJ expressed himself differently in terms which did not necessarily import mutuality:

“No necessary or useful purpose would be served by attempting an expanded and comprehensive definition of the word "arrangement" in section 6(3) of the Act ... I think that I am only expressing the same concept in slightly different terms if I say without attempting an exhaustive definition, for there are many ways in which arrangements may be made, that it is sufficient to constitute an arrangement between A and B, if (1) A makes a representation as to his future conduct with the expectation and intention that such conduct on his part will operate as an inducement to be to act in a particular way, (2) such representation is communicated to B, who has knowledge that A so expected and intended, and (3) such representation or A's conduct in fulfilment of it operates as an inducement, whether among other inducements or not, to act in that particular way."

For these purposes the word “arrangement” in section 793(5) should certainly be construed as including non-binding arrangements. Beyond that it is right to give it its ordinary or popular sense, but I do not think that that necessarily requires mutuality in the arrangement. That would be unnecessarily confining in the search for information which Parliament intended should be a broad one. It may be that some non-mutual “arrangements” are too loose and informal to be of any signficance in relation to shares, but short of that they should be within the provision.

However, I do accept Mr Mabb’s submissions in one respect. He points out that section 824(6) has the effect that agreements (which include arrangements) for the purposes of that section, and of other sections to which section 824 is relevant, have to have the feature of mutuality. Nonetheless, I do not think that this justifies extending the requirement into section 793(5). If anything, the existence of the express provisions of section 824(6), when contrasted with the absence of a corresponding provision in section 793(5), supports the conclusion that something different is intended for the purposes of the latter section.

Next, Mr Mabb submitted that “reasonable cause to believe” required something stronger than “reasonable cause to suspect”. I accept that submission. The two states of mind are probably matters of degree, but the seriousness of the consequences on proprietary rights of exercising the power requires that the firmer state of mind be the relevant one.

The two claimants make various attacks on JKX’s case that the board had reasonable cause to believe that it had not been given accurate information. These include faults of process and faults in the assessment of whether the answers were inaccurate. In order to tackle these points it will be useful first to consider what the board’s belief was.

While some of the individual directors had a slightly different take on some of the facts, there was a very strong common theme. I find that the board considered that it had reasonable cause to believe the following, based on the factors leading up to the service of the notices (identified above), including their experience of the way raiders behaved and the experience of some of them of the way that business was sometimes done in the Ukraine, and on the responses to the notices.

Based on this, and the other factors, the directors claimed to have reasonable cause to believe that there were agreements between Mr Kolomoisky and Mr Bogolyubov in relation to Mr Bogolyubov’s acquisition of his shares and for voting in relation to them and, in particular in relation to the raid; and they claimed to have reasonable cause to believe that there were arrangements or agreements between Mr Kolomoisky (and Mr Bogolyubov) and Mr Zhukov (and Mr Ratskevych) (or, to put it another way, between the Eclairs interests and the Glengary interests) in relation to the shares that they each had and in relation to the raid (at least). They believed that denials that there were any such arrangements were incorrect. In particular:

Both Mr Mabb and Mr Gledhill take what might be called “process” points before examining the quality of the evidence. They draw attention to what they say are the following points. Mr Gledhill articulates the point in this manner: In order to have reasonable grounds to believe that the responses were inaccurate, the directors must have material which it evaluates reasonably, in a way that is proportionate to the gravity of the decision under consideration. As a result of the time constraints, and as a result of their reliance on Dr Davies’s fact gathering, they in fact proceeded in a way which was “disorganised, unreasonable, and unfair to Glengary”, and as a result arrived at a conclusion that was without adequate justification. He also takes a point about noncompliance with natural justice. Between them, Mr Mabb and Mr Gledhill drew attention to the following principal points (my brief findings on some of them also appear):

Mr Gledhill put the point in a different way.

In support of his proposition that that last duty (natural justice) arose Mr Gledhill submitted that the court has a supervisory jurisdiction to grant relief where a decisionmaker has acted contrary to fairness or natural justice, and he pointed to McInnes v Onslow-Fane [1978] 1 WLR 1520. He went on to rely on other cases where he said the courts have implied a duty to conduct exercises fairly (Wilander v Tobin [1997] 2 Lloyds Rep 293) or not arbitrarily (Paragon Finance v Nash [2002] 1 WLR 685). He also pointed to obiter dicta in Gaiman v National Association for Mental Health [1971] 1 Ch 317 to the effect that a power or expulsion of members for misconduct might attract the principles of natural justice.

It should be noted that Mr Gledhill’s invocation of the principles of natural justice seeks to apply them not to the assessment of whether restrictions should be imposed or not, but rather seeks to apply them to the prior stage of the assessment of the accuracy of the answers. His submissions on the point occur in the section of his skeleton argument which deals with “reasonable cause” and in paragraph 35.3 he submits that no rational decision maker who has to assess whether he has “reasonable cause” for concluding a party has acted with impropriety should act on inferences from fragmentary evidence without putting the material to the other side for an explanation. I mention this because in the next paragraph (paragraph 36) he refers to the proposition “that before deciding whether or not to impose restrictions on Glengary’s shareholding, the company was obliged by fairness and natural justice to give the Glengary parties prior opportunity to comment”. This might be thought to be the stage of the exercise at which the board is deciding on penalty, but the rest of his submissions make it clear that that is not the case. It is therefore necessary to consider it at the prior stage; it is a point wrapped up with the concept of “reasonable cause”.

McInnes v Onslow-Fane was a case in which a man was refused a boxers’ manager’s licence. It was neither a contract case nor a public duty case. In the course of his decision Megarry J said:

“I do not think that much help is to be obtained from discussing whether "natural justice" or "fairness" is the more appropriate term. If one accepts that "natural justice" is a flexible term which imposes different requirements in different cases, it is capable of applying appropriately to the whole range of situations indicated by terms such as "judicial", "quasi-judicial" and "administrative." Nevertheless, the further the situation is away from anything that resembles a judicial or quasijudicial situation, and the further the question is removed from what may reasonably be called a justiciable question, the more appropriate it is to reject an expression which includes the word "justice" and to use instead terms such as "fairness," or "the duty to act fairly"…” (page 1530D-D)

The last of those sentences may be of assistance in this case. The high point of Mr Gledhill's case is probably the decision in Gaiman v National Association for Mental Health [1971] Ch 317. That case concerned a company limited by guarantee and what was in effect a power of expulsion. It was averred that the principles of natural justice had to be complied with in the course of the expulsion procedure. Megarry J held that they did not. In the course of his judgment he commented on the difficulties of identifying any particular test for determining whether the principles applied or not and then said:

He then went on to deal with a line of authorities which was said to reflect on the extent to which the principles of natural justice did not apply to companies limited by shares. He declined to find that the authorities established such a bald proposition, not least because natural justice was not expressly in issue in any of them. However, he went on to observe:

Although those remarks were obiter, they nonetheless have some considerable force.

Megarry J went on to list four factors in his case which he said pointed against the application of the principles of natural justice. Mr Gledhill relied on them because he said the converse of at least some of those facts existed in the present case, so that converse situation pointed towards the application of the principles of natural justice here. They were:

And later he said:

Mr Gledhill points out that in the present case various factors are present which Megarry J seems to consider to be pointers in favour of the application of the principles of natural justice. In particular, the exercise of the article 42 power divested a shareholder of proprietary rights, and there was a potential damage to reputation. It was not a full power of expulsion or appropriation, but it had some expropriatory effects.

So far as the source of the rights is concerned, Mr Gledhill said it was not necessary to imply anything into the Articles in order to give effect to the principle; they all came in within the concept of "reasonable cause to believe".

The expropriatory effects of a board resolution under article 42 have to be conceded. The exercise of the power is capable of having significant effects, as is demonstrated by the facts of this case if the board's power was validly exercised. Special resolutions will have been passed which, absent the exercise of the power, would not have been passed. The shareholders will now (if the exercise was valid) be stuck with them. There is also a potential limited reputational effect, though I think that has been a little overstated. Mr Gledhill is certainly able to pray in aid those factors.

However, what I think determines the point against him is the wording of the article and the nature of the board's decision. The Articles do not in terms require the board to determine the accuracy of the responses in terms which pre-suppose the conducting of some sort of enquiry. The board may exercise the power if it "knows" or "has reasonable cause to believe" that a response is inaccurate. Take the first of those. Mr Gledhill cannot introduce the principles of natural justice via his line of reasoning because there is no express introduction of the concept of reasonableness. What matters is the knowledge of the board. He did not make submissions as to whether or not the principles of natural justice come into play if the board relies on what I might call full scale knowledge (to distinguish it for these purposes from "reasonable cause to believe"), but the logic of his argument would not allow him to extend it into that situation. He would somehow have to imply a term, and he did not seek to do so, at least on his main line of reasoning.

Accordingly, if Mr Gledhill is right, there must be something different about the situation in which the board has "reasonable cause to believe". In those circumstances, according to him, the board must conduct some further enquiry involving the addressee of the notice so as to give the addressee a chance to meet what the board thinks might be the case. I do not see the logic of the situation in which the board has to afford an opportunity to make representations in the one case but not the other. The articles have entrusted the board with a function, which it exercises in the interests of the company. It is, on the wording of the articles, entitled to exercise its power on the footing of

That, I think, is the logic of the article itself. Furthermore, some of the factors relied on by Mr Gledhill are not as compelling as he would say. Thus:

Mr Gledhill also put great emphasis on Australian Securities Commission v Multiple Sclerosis Society of Tasmania [1993] TASSC 36, in which it was held that a baldly stated power to exclude a member from membership of a company limited by guarantee was held to import an obligation to comply with the principles of natural justice. That was a decision on its own facts, and in relation to a power to remove membership completely. It does not lead me conclude that natural justice procedures should be imported into article 42.

Likewise RSPCA v Attorney-General [2002] 1 WLR 448 is distinguishable. In that case Lightman J had to consider a power (in effect) to reject membership of the society but only (according to its rules) “after full consideration by council”. He held that the reference of “full consideration” must imply at least that the member in question should have the opportunity to put forward his or her own case in writing - see paragraph 40. That wording is plainly distinguishable from the present case.

In the circumstances I find that the principles of natural justice did not apply in this case and that the failure to observe the principles is not a vitiating factor in relation to the decision-making of the board, and does not go to the question of whether the board had reasonable cause to believe in the inaccuracy of the responses. The board either had reasonable cause or did not. That decision does not have to involve some form of further information seeking from the addressee of the notice.

For the sake of completeness I should record that in his submissions in reply Mr Gledhill suggested that so far as necessary there should be an implication of an obligation to adhere to the principles of natural justice. He relied (again) on the potentially expropriatory, and serious, effect of the article and said that the parties cannot be taken to have agreed to run that risk without the affected party having an opportunity to make a case. I am unimpressed by that argument too. I do not think it likely that parties (who for these purposes must presumably be all the members and the company) can necessarily have intended that those sort of procedures should be introduced into a potentially fastmoving situation which might arise, and which would potentially lock the company into quite complex or elaborate inquiries in some cases. Article 42 is intended to be a temporary measure, and while it may have some permanent effect in some cases (such as the present, if the company is right in its defence to these claims) its effect is not the same as a permanent expropriation arising from a cesser of membership. I would not imply the term suggested latterly by Mr Gledhill.

It follows from the above that I find that the criticisms of the article 42 procedures based on process fail. In my view the processes involved were themselves reasonable enough to allow for there to have been reasonable cause to believe if the quality of the material itself justified it. There was not, as Mr Gledhill put it, “rushed, disorganised and one-sided decision-making”. What is required for the invocation of section 793 and article 42 will vary from case to case. One can doubtless imagine cases in which the sources of information available to the company, or obvious failures to inquire, or obvious holes in the material, would mean that the board cannot be held to have reasonable cause to believe. However, any inquiry into that matter must bear in mind that the board does not have to carry out some sort of corporate equivalent of a public (or private) inquiry; nor does it have to conduct some sort of detailed trial of the addressee. While the seriousness of the consequences of restrictions has to be acknowledged, the board is operating as a board, and in a commercial environment where it does not have the full range of powers that might be available to a more elaborate enquiry, and where there remains room for uncertainty. In any given case where there is reasonable cause to believe the falsity of the information it might be reasonable to believe otherwise, so there will always be points to be made the other way. The fact that post-event litigation, with

I have set out above how it is said that the board came to have reasonable cause to believe that it had not been given the full facts about agreements and arrangements in the responses to the s793 notices. What the board relied, and relies, on is reasonable cause to believe (and actual belief) that there were arrangements within the Eclairs camp and arrangements between the Eclairs and Glengary camps which related to the shares, how they would be voted, and to raid. Assuming for the purposes of this section that that belief would entail that the responses were inaccurate, I have to consider whether there was indeed reasonable cause for that belief.

In my view, assuming that the underlying facts relied on were accurate, I consider that the board did have that reasonable cause. Taken in the round, and especially against the known background of Mr Kolomoisky (and Mr Bogolyubov) as raiders, the board was justified in thinking that there was an attempted raid of the kind that it feared, and that the steps it was seeing were part of that raid. The board was justified in believing that the relationship between Mr Bogolyubov and Mr Kolomoisky was such that it was likely that there was an arrangement relating to the Eclairs shares and their respective interests in them even though they did not know what that arrangement was. Ostensibly, Mr Bogolyubov acquired his interest in a new vehicle (Eclairs) at the time it took its interest in the JKX shares and as it started its approaches to JKX (which apparently Ralkon had been minded to start when it inquired about how to requisition an AGM but then abandoned immediately before Eclairs acquired its interest). The board was entirely justified in considering that there was some relevant arrangement between the two principals because it was highly unlikely that there was none. I observe that the seeds of such an argument were revealed during the evidence at the trial, in which it was suggested that Mr Bogolyubov was happy to let Mr Kolomoisky deal with the voting of Eclairs shares. That suggests there was some sort of arrangement when Mr Bogolyubov acquired his shares, though as a piece of information it is irrelevant to the issues in this case because it was not apparent when the board was meeting and was not disclosed in the responses. The same applies to a piece of late disclosure in this case which seems to reveal that Mr Bogolyubov had an interest in Ralkon which ceased at about the same time as he acquired his interest in Eclairs (see below in the section about non-disclosure).

Furthermore, while the facts are less striking, the board was entitled to consider that there were arrangements crossing the Eclairs/Glengary boundary as to the voting of shares and consequences of winning the votes that Mr Zhukov was going to support. The presence of Mr Ratskevych on the Eclairs directors ticket in the EGM requisition and in the Eclairs circular letter, the conversation with Mr Ratskevych and the reference to Glengary in the circular letter were, in the circumstances known to the directors, indicia of such an arrangement. The expressed interest in the Naftogaz shares was consistent

All that assumes that all the factors relied on were matters that the board was entitled to take into account, and that the board gave them proper weight. Mr Mabb and Mr Gledhill sought to undermine the conclusion by taking various of the elements that I have identified above and seeking to demonstrate their falsity, their over-emphasis or their irrelevance. In the interests of time I shall not deal with all their points, but some of them can be met by a general point. From time to time each of them submitted that one of the factors relied on by the board did not justify the inference of an agreement between the parties against whom the point was taken. If each individual factor were taken by itself, that might, in the case of some of them, be true. However, none of the factors existed in isolation. They formed part of a mosaic, each gaining significance in the light of the others. That is the correct approach.

So far as the specific points are concerned, I deal with such of them as I need to deal with in the following manner:

All in all, I find that the directors had reasonable cause to believe that which they said they believed. The analysis and submissions of Mr Mabb and Mr Gledhill do not persuade me otherwise.

Under this head I return to consider the effect of the questions in the notices, and the answers, and measure the latter against the views of the directors to see whether they had reasonable cause to believe they were false. It is unnecessary to deal with them all. Some of them are key - principally those directed to Mr Kolomoisky and Mr Zhukov, Eclairs and Glengary. If there is believed falsity in those notices then the other notices do not matter. If there is not then there is unlikely to be falsity in the others.

It will be convenient to start with Mr Kolomoisky’s question (e)(ii) (see the Appendix) and Mr Kolomoisky’s answer. Mr Kolomoisky’s answer was:

“I am not party to any agreement or arrangement … (ii) relating to the exercise of any rights arising from the shareholding in JKX”.

His prior answers seem to accept that he had an interest in the Eclairs holding because it gave those shares as the shares in which he had a direct or indirect interest.

The answer can be viewed as being inaccurate in a basic factual sense in the light of what the directors reasonably believed to be the case in relation to a

Next there is the answer to Mr Kolomoisky’s question (e)(iii). As a factual statement it is one that the directors could reasonably have believed to be false because of what they reasonably believed about a Kolomoisky/Zhukov arrangement. To recap, the board had reasonable cause to believe that there was an arrangement between Mr Kolomoisky and Mr Zhukov which involved them voting their shares together to change the management of the company, and to block the special resolutions, in exchange for Mr Ratskevych being placed on the board, if not a wider agreement. It must have been part of any such arrangement that Mr Kolomoisky could have his nominees on the board as well. The extent to which either of them was bound was not known, but the arrangement or agreement as believed by the board must have involved at least serious degrees of expectation on each side. The arrangement or agreement therefore involved the voting rights of both blocks of shares (the Eclairs shares and the Glengary shares).

However, one still has to consider whether it is an inaccurate answer when viewed through the prism of section 793. The whole set of questions is prefaced by the words “In accordance with section 793”, so they were section 793-geared questions to which the defendant was entitled to give section 793-geared replies which would be viewed as such. I have already found that this question is capable of being a valid section 793 question. Accordingly, if the question is to be viewed as being one which is geared to section 793, and not as a general question about voting rights, then one has to consider and view the answer in the same way. This involves treating the answers as though they were carefully geared to the sort of questions as to “interest” that arise in relation to section 793. On that approach the answer would be accurate if there were no voting agreements which related to, or gave rise to, “interests” within the meaning of the section.

The matter can in my view be broken down in this way:

It follows that the board was entitled to the reasonable belief that Mr Kolomoisky had not given an accurate answer to question (e)(iii) so far as the arrangements with Mr Zhukov are concerned. It also seems to me the failure to disclose that would make the answer to (e)(ii) inaccurate as well.

All those findings turn on the interest which Mr Kolomoisky clearly has in the 47m shares. Mr Swainston had an argument which sought to cast the net of “interest” wider. He said that the company had reasonable cause to believe in an agreement falling within section 824, covering both the Eclairs and the Glengary shares. If there were such an agreement it would create an interest in all participants in all shares (section 825), which opens up the route to asking all the questions in the section 793 notices. This is his “reflexive” argument.

This line of argument requires an agreement for the acquisition of shares in JKX (the target company) and an acquisition pursuant to that agreement. On Mr Swainston’s analysis the agreement was one under which Eclairs would acquire shares (the Ralkon shares) and was one to which Mr Zhukov was a party. If that were right then it would give the Eclairs parties and the Glengary parties interests in each other shares. However, I do not think that the facts support a reasonable belief that that sort of agreement existed, in which case it cannot be used as a means of having reasonable cause to believe that all

Mr Zhukov’s questions are set out in the Appendix. His answers denied any type of agreement referred to in paragraph 1(e), while acknowledging “discussions” with the Eclairs group as to JKX’s financial performance and the need to change the management team “as per the open letter to JKX shareholders”. The analysis in relation the directors’ reasonable cause to believe about interests and falsity apply to his answers mutatis mutandis. Agreements and arrangements relating to rights arising from the shares affect his interest and are disclosable for the same reasons as appear above in relation to Mr Kolomoisky. The same is true of Mr Ratskevych and of Mr Bogolyubov.

At the trial there was no detailed dissection of all the questions and answers to work out which questions in which recipients’ notices were inaccurate (or reasonably believed to be inaccurate) and to what degree. I shall not do that either. It is sufficient for present purposes that the Kolomoisky, Bogolyubov, Zhukov and (probably) Ratskevych responses were inaccurate. Those of Eclairs and Glengary will also be rendered inaccurate. None of them revealed the arrangements or agreements that the board reasonably believed to exist, and enough of them were inaccurate to give rise to the possibility of suspending the shares under article 42. It follows that the directors had reasonable cause to believe that they had not been given proper information within article 42 and their power of restriction was capable of exercise.

Eclairs and Glengary submit that while the article 42 power of restriction could have been exercised for a legitimate purpose, it was in fact exercised for purposes that went beyond that legitimate purpose. The legitimate purpose was the acquisition of information. The further purpose or purposes of the board in deciding to impose restrictions was for the purpose of altering voting control within the company and ensuring that the resolutions at the forthcoming AGM were duly passed. The directors were obliged to exercise the power only for legitimate purposes, so the illegitimate purpose, which was a substantial purpose, means that the exercise of the power should be set aside.

The company disputes that the only legitimate purpose of the article 42 power is to extract information. Mr Swainston submitted that restrictions could be imposed to protect the company and its shareholders as whole, pending proper disclosure. In the present case it was done to “neutralise any unfair advantage obtained by parties who were not making proper disclosure”. The board had a “dual purpose”, of extracting information and protecting the company. Protecting the company against a raid was a broad purpose, and carrying the resolutions was an incident of it. If an unfair advantage had been obtained through non-disclosure (and Mr Swainston said it had) then it was right to apply restrictions to undo that advantage. He disputed that carrying through the resolutions was the purpose of all the directors, but did not shrink from saying that even if it were then that was legitimate in the context of a raid which was going to damage the company. The “pending proper disclosure” feature is probably the way in which the company seeks to link the exercise of the power back to article 42 and the notices. Its presence or absence is an important factor in the case.

Before ruling on the propriety or otherwise of the purposes of the board’s exercise, I will first need to make some findings. I turn to that in the next section.

Bearing in mind that the improper purposes claim against the company is clearly articulated as a breach of fiduciary duty on the part of the directors, and equally clearly denied, it is somewhat surprising to find that the witness statements of the directors do not really touch on the point at all. Hardly any of them refer in any significant way to the purposes for which the restrictions were imposed. Only Mr Moore formulates the reason for imposing the restrictions in the way referred to by Mr Swainston, and that is in his second witness statement which was provided for the purposes of dealing with a different point. His evidence is simply a single statement stating the bald purpose of imposing the restrictions (to protect the company pending disclosure). Even allowing for the speed with which this action was brought on to trial, I find this state of affairs surprising. Its absence suggests that the individual directors may not have had in mind Mr Swainston’s refinement.

In the absence of evidence in chief from the directors as to what their respective purposes were, the question of their motivations was made to arise in the crossexamination of each of the directors by Mr Mabb. There may be a difficulty in identifying the extent to which the distinctions which I have referred to above were put to each of the witnesses, but I have to do the best I can on the evidence before me. In the end I have concluded I can come to a decision on the point notwithstanding that the point in its most distilled form may not have been quite put to all the directors.

The events leading up to the board meeting bear the hallmarks of some of the directors having in mind the desirability of stopping the Eclairs/Glengary vote as being in itself a desirable end, not closely linked to the provision of information. That is inherent in the following emails:

The following points in the chronology leading up to the board meeting (as to which I make the following findings) are significant:

At the board meeting the directors were uncertain as to whether there would be enough votes to pass the ordinary resolutions. Mrs Dubin was more confident than the others, and Mr Shah was too. I reject Mr Mabb’s attempt to denigrate their evidence to that effect.

The formal minutes of the board meeting (see above) do not advert to the desirability of getting the missing information, or to the protection of the company pending that information being forthcoming, or anything like that. They refer in general terms to the promoting the success of the company and to directors’ duties. This does not help Mr Swainston’s analysis.

Of most significance, therefore, is the evidence of the voting directors in crossexamination. Mr Mabb asked them (apart from Mr Murray, whom he did not crossexamine for want of time) various questions about their purpose or predominant purpose. Mr Ferguson clearly viewed the purpose of voting for the restrictions as one limited to the extraction of the information. Mr Shah had a “balanced” view, but it is apparent that he regarded that as an important factor, and while he regarded protecting the company in a more divorced sense as significant, he did not put it so far in the forefront of his thinking as to make it a dominant factor separate from the extraction of information. However, the other 4 voting directors did seem to adopt a line in which they put disenfranchisement as a useful objective, to enable all the resolutions to be passed, in a way which elevated it very materially above the purpose of extracting information and gave it a life of its own. While they may (and in all probability actually did) appreciate that the restrictions would have to be lifted if the information was provided, they did not regard the ability to impose restrictions as being one designed to protect the company pending the provision of information; they regarded it as one which they could use, and did actually use, to get an advantage (the opportunity to pass the resolutions) for its own sake, not linked to the extraction of information. Putting the matter another way, they did not regard the opportunity to get special resolutions passed which would otherwise not be passed (and the increased chance of getting the ordinary ones passed too) as an incidental benefit of imposing restrictions as an incentive to provide information; they elevated it in their minds, and in their purposes, to something with its own independent merit as a way of doing down the “raiders” for the benefit of the shareholders. Once the special resolutions were passed, and the re-elected directors were in post, the company would be better equipped to resist the raid, and would have put obstacles in the way of the “raiders”.

The point can be illustrated by the evidence of Mr Miller, who said:

“Q. And this may be repetitive, but as far as you are concerned is the benefit to the members the benefit that we have been talking about during the last half hour? Perhaps let me put it the other way round. Let me ask you again: what is the benefit to the members of imposing the restriction notices?

A. The benefit to the members of imposing the restriction notices would be to prevent those two parties from voting at the annual general meeting and thereby almost certainly ensuring that the resolutions that were being put to the meeting would be passed.

Q. Yes. Rescuing the special resolutions from certain failure and rescuing the ordinary resolutions from the risk of failure? A. That is correct, my Lord.

Q. And the benefit to the company of securing the passage of those resolutions, can you elaborate on that?

A. The early resolutions were mostly to do with the reappointment of directors and these were the ones that required the majority vote. We were pleased that we would be able to maintain consistency with the board and not have to go through any changes. That was our recommendation, my Lord, to have that. The other resolutions, the special resolutions are the resolutions that provide the board, the company with the flexibility to increase its share base, or to decrease it for that matter.

Q. On the buy‐back, the authority to buy back shares?

There is nothing there about the purpose of extracting the information, and there is a clear emphasis on the disenfranchisement as being a desired, and intended, objective for the purposes of weakening the hand of Eclairs/Glengary.

Lord Oxford’s evidence was less clear on this, but overall I consider that he had the same purpose as that referred to by Mr Miller. I will not set out every relevant passage in his evidence. Two will suffice for present purposes. At Day 4 pages 83-4 he said:

That seems to leave out of account any question of the restrictions being intended to get the information out of the shareholders. On the other hand, later, at pages 95-97, he said:

“Q. So, the Chairman's evidence was that if the information is provided and the restriction lifted, then the company is back to square one. That was the Chairman's view.

A. That's what he means. I mean, it depends what you interpret as square one.

Q. Isn't it back to the same position where you have two big blocks of shares minded to vote against the board? A. Yes.

Q. Does it follow that it would have been unhelpful to the company if the information said not to have been provided had then been provided, such that the restrictions would be lifted?

A. Well, as it turned out it wasn't unhelpful to the board.

Q. Well, no. Had the information been provided and the restrictions been lifted, enabling the two blocks of shares to be voted, would that have been unhelpful to the board?

A. They would have -- I mean, it would have been unhelpful to the board in the sense that the -- as a result of it, as we know now, the special resolutions would have been defeated.

Q. Yes. So you would be back to square one, as the Chairman says?

A, Yes. I mean, square one in -- I can't put words into the Chairman's mind. In my mind, square one remains an attempt by Eclairs and Glengary to take control of the company without paying a proper premium.

Q. Well, isn't that -- you would be back to whatever you thought the earlier position was? A. Exactly.

Q. So you were not particularly thinking, "Let's get the information that we say has not yet been provided". You were not focusing on that?

A. No, I think we were. We were focusing very much on that. We were asking for the provision of information and we hadn't received it.

Q. When I asked you a few minutes ago what your purpose was in voting for the restriction notices, you accepted that your purpose was to prevent Eclairs and Glengary from voting, and you spoke about protecting the company and all its shareholders. You didn't at that stage say, "Well, actually our purpose was to elicit this information"?

A. Well, I say it now, and we had always intended to elicit the information.

Q. Looking at these different purposes, how significant was the eliciting of the information?

A. I think it is extremely significant. If we had a statement that we were -- that there was an agreement between them, well, that's a statement of fact, and it has consequences, possible consequences later on”

That elevates the extraction of information. Looking at the remainder of his evidence, I am satisfied that the extraction of information point, although of significance to Lord Oxford, was not so important as the opportunity that the situation presented of being able to pass the resolutions as a way of tackling the raid, and the extraction of the information was subsidiary.

Mr Moore’s evidence was to the same sort of effect. One passage suffices (although I have taken into account his evidence as a whole):

“Q. …. Why did you consider that the issue of the restriction notices would promote the success of the company?

A. Because I was looking at the needs of the 62 per cent of shareholders, who were in danger of suffering from the fact that the company was being destabilised by these two raiders.

Q. And just articulating that, how then would the imposition of the restriction notices be for the benefit of those members?

A. Because it would mean that they wouldn't have the voting rights. Q. And --

A. Sorry -- it meant we could get through the special resolutions, which would give us the freedom to be able to raise new capital.

Q. And the ordinary resolutions that were still in the balance for the coming AGM as well? A. Yes.

Q. Was that your purpose in voting for the imposition of the restriction notices?

A. It was one of the reasons, yes.

Q. What were the other reasons?

A. I think I have already alluded to that. I think the -- I felt that the company was under attack and had been destabilised. The share price was far too low. It didn't reflect the asset value of the company at all. I felt that the share price -- one of the reasons the share price was low was because the impact of Mr Kolomoisky and Mr Bogolyubov being significant shareholders and the fact that their reputation, as I have already said, was to destabilise companies and try to get the assets cheaply.

Q. How would the imposition of the restriction notices impact on those considerations?

A. Because it would mean they wouldn't be able to vote at the AGM and restrict our ability to increase the equity -- increase the finance.

Q. Isn't that the same point? It is the ability to get through the resolutions?

A. That's a very narrow view in my view. I think it is much wider than that. We have a company to run, and oil and gas is an inherently risky business. You know, to have the inability to have access to new funds, it makes it very, very difficult. The fact that Mr Kolomoisky and Mr Bogolyubov were shareholders has meant, as I think has already been explained, that we have been able to -- unable to raise new finance as easily as other companies in a similar situation can.” (Day 3 pages165167).

In fairness to Mr Moore, this evidence was followed by this at Day 4 pages 11-14:

“Q. Yes, yes. Can we try to work out what the focus of your objective was, or your purpose? Was the focus the one you described yesterday, that's to say to prevent Glengary and Eclairs from voting, supported by the restriction on transfer, and as you say, more widely, to protect the company in the way you have elaborated this morning? A. Uh-huh.

Q. Is that correct?

A. Yes.

Q. But when you say, "pending proper disclosure", that's a recognition that the fix is not permanent?

A. It probably wouldn't be, but -- Q. It is not necessarily permanent?

A. -- it is very difficult to predict how things would work out in the future.

Q. Do you agree that the protection you have been talking about would fall away -- well, if the restrictions lapsed, then all the protection that you have been talking about would fall away?

A. I think it probably would, but I would like to talk to my lawyers about that.

Q. Of course. I said if the restrictions lapsed. That was put in as a legal qualification. A. Yes, yes.

Q. Can I suggest to you then that your substantial or main purpose was the purpose we have talked about and you were talking about yesterday? It was prevent the voting of the shares and to protect the company and its shareholders in the way that you have elaborated?

MR JUSTICE MANN: Mr Mabb, can I just ask for clarification of this

question? Is that his purpose at the board meeting in voting for the restrictions?

MR MABB: I am so sorry, my Lord, it is. We are still back at the board meeting, as it were.

A. We are at the board meeting, as it were, as I understand it, yes. There are various bits of the jigsaw, as it were, in my mind, as to how to vote and to, if you like --

MR JUSTICE MANN: Now we have established you are talking about his purpose at the board meeting in relation to restrictions, could you put your question again?

MR MABB: Yes. Sitting at the board meeting, is it correct that your -- it doesn't matter whether you call it principal purpose or your substantial -- purpose in voting for the restrictions be was to prevent Eclairs and Glengary from being able to vote the shares issued at the AGM and, as you say, more widely, to protect the company and it shareholders in the way that you have described?

A. Yes, because the main job of a board is to try to create shareholder value.

Q. Yes, yes.

A. And I believe that that was the best way forward to achieve that.

Q. Yes, and although you recognised that provision of the information that you say had not been provided could cause the restrictions to lapse, that was not the focus or the substantial purpose?

A. It was certainly part of the jigsaw that I had in my mind as to how it made up my decision to vote in favour of the restriction notices.”

He therefore had in mind the extraction of information, but looking at the totality of his evidence I think his predominant purpose was a separate one of benefiting the company by getting the resolutions through, to the detriment of Eclairs/Glengary.

Mrs Dubin was cross-examined on the point more shortly. Her evidence was that the sending of the notices was motivated by a desire to have information, but when it came to the purposes of the restrictions she said:

“Q. All right. Paragraph 10 [of the formal board minutes]:

"The directors consider that the issue of the restriction notices would promote the success of the company for the benefit of the members as a whole, having regard to the relevant factors set out in Section 172 of the Companies Acts."

How did you consider that the issue of the restriction notices would promote the success of the company?

A. I believed that the position that Eclairs and Glengary were taking was not consistent with what the other shareholders desired, certainly not approving the remuneration report didn't have a significant impact. Certainly not revoting Dr Davies on the board, I thought it was very serious not to have a CEO and again, I believed that the restrictions in terms of the company's ability to manage its shares to raise capital were in the best interest of all the shareholders and so I didn't actually think that their position – the position they were taking was for the benefit of everybody.

Q. No. So you thought their position was not for the benefit of the members. How would the imposition of the restrictions under article 42 be for the benefit of the members? How did you consider the imposition of those restrictions would benefit the members?

A. Because I thought that they would pass and they would give us the correct authority that the majority of the shareholders were interested in and the flexibility that the company needed to go forward.

Q. So that's the capital resolutions and the buyback resolutions?

A. Uh-huh.

Q. And it would also ensure the re-appointment or re-election of Dr Davies?

A. Certainly having the CEO in place is very important.

Q. Yes, yes.”

There is nothing there about the purpose being to get the information, or the protection of the company pending the receipt of the information. It is more consistent with the restrictions being used as a useful counter to the “raiders”.

The differences between relevant states of mind can be quite subtle in this situation, but I find that the evidence demonstrates that the following purposes, beliefs and states of mind existed among the voting directors:

Underlying the debate on the “improper purposes” point is a disagreement as to the legitimate purposes of restrictions imposed under provisions such as article 42. The claimants say that the purpose is to provide an incentive to provide information; JKX disputes that.

In Re Ricardo Group plc [1989] BCLC 566 Millett J had to deal with an application to the court for relief under the predecessor section to section 793. He refused relief on the facts of the case, and in the course of his judgment said:

“…. [I]t would be idle if I were to delude myself into thinking that these applications are made in the course of ordinary litigation. In the first place, an order imposing Part XV restrictions on shares has a much wider effect than an ordinary interlocutory injunction. …. Far from preserving the status quo, they interfere with it. They are granted as a sanction to compel the provision of information to which the company is entitled. It follows, in my judgment, that once the information is supplied, any further justification for the continuance of the sanction disappears.” (page 572e-f).

He went on at p 577i:

“[I]n my judgment, these restriction orders are not to be used as weapons to gain a temporary advantage over an opponent in a contested takeover bid. Their only legitimate purpose is to coerce a recalcitrant respondent into providing the requisite information. …”

That is the foundation for Mr Mabb’s submission as to the purposes of section

Mr Swainston points out that the provision of the missing information by itself is not necessarily sufficient to lead to a discharge. The court can maintain the restrictions if and insofar as it is necessary and appropriate to do so in order to undo any unfair advantage arising from the failure to disclose. That is said to demonstrate that the purpose of the restrictions can be something beyond the extraction of the missing information, and in the present case that something is the protection of the interests of the company. Mr Mabb counters that by pointing out that that case involved the statutory regime whereas in the present case the regime is operating through the articles; and he also points out that section 800 is dealing with the discharge of restrictions and not their imposition in the first place, and in any event the additional apparent criterion in section 800 does not equate to the sort of broad additional purpose which Mr Swainston relies on.

In my view Mr Mabb is, by and large right. I do not think that Millett J’s dicta are obiter, but even if they were I would, subject to one qualification, agree with them and follow them. The vice that is aimed at is the non-disclosure of information. If proper information is disclosed in the first place then there is no basis for imposing restrictions no matter how desirable that might be thought to be from the point of view of the company and the other shareholders, and no matter how apparently aggressive the predator has been in the period leading up to the notices. The purpose of the notices is not to counter the predatory activities as such; it is to acquire information. It follows that the non-provision of information is not to be taken as a justification for opening up a new front against the predator with the benefit of a new weapon. It is, subject to one point, to provide a sanction or an incentive to remedy the default, and the only default which is relevant for these purposes is the failure to provide information. I think that Millett J is clearly right about that. The only qualification to his statements comes from section 800(3). That subsection means that the last sentence of Millett J’s statement at page 572e has to be qualified by reference to section 800(3) - even if full information is given the restrictions might be maintained if unfair advantage has been taken of the non-disclosure. However, it should be noted that the additional qualification is limited. It does not provide that the restrictions can stay in place if they are for the benefit of the company, or if they put useful obstacles in the way of an undesirable predator, or anything like that. They are to stay in place in order to prevent unfair advantage being taken of the nondisclosure - the maintenance is still closely related to the non-disclosure and not to anything else.

Mr Swainston prayed in aid the provisions of section 172 of the Act 2006, which is one of a group of sections providing for the scope of directors’ duties, and which itself provides:

“172(1) A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to [a list of factors]."

He submits that this "infuses" the obligations of the directors under article 42, and, as I understand it, seemed to submit that this displaced any argument that there might be some limitations as to the purpose for which directors could exercise the article 42 power. In doing so he misconstrues the purpose of section 172 and ignores the provisions of section 171. Section 172 is in the nature of an overarching obligation which arises when the directors are considering the exercise of their powers. It can easily and properly coexist with other limitations on powers, and does not, by itself, necessarily fill a gap if the purposes of certain powers are not actually articulated in the articles.

Section 171 reads:

Section 172 does not somehow trump the provisions of section 171. In relation to any given power, it is necessary to identify the purposes for which the power is to be exercised (so far as possible), and having identified that purpose one then has to see whether the directors have exercised it for that purpose, and also whether it was exercised so as to "promote the success of the company". The first step is a necessary step, and is not rendered unnecessary by the existence of the second obligation. Section 172, therefore, does not amount to a reason for distinguishing Ricardo.

Accordingly, looking at the statutory regime, it can still be said that the imposition of the restrictions is to compel the production of information. Even if Millett J did not precisely define the parameters of the permitted purpose, the purpose of the section does not, in my view, extend to allowing it to be used as an additional weapon to manipulate voting in a takeover battle. Furthermore, the position is even clearer under the article 42 regime. There is no equivalent in the article of the “unfair advantage” part of section 800(3), so there is no internal justification for saying that the purpose of the restrictions is any wider than to compel the production of the required information. True it is that paragraph 10 (which I have not set out in this judgment) preserves the right to apply to court for restrictions, and if an application is made to the court section 800(3) comes into play, but that still does not expand the purpose for which the restrictions can be imposed in the first place.

That conclusion forms an important part of the framework for determining whether the board imposed the restrictions for an improper purpose.

It is apparent from my findings that the majority of the board did not impose the restrictions merely in order to compel production of the missing information; it had a very firm eye on the forthcoming AGM, the likely effect of the restrictions on the voting and resolutions and the desirability of being able to pass them all. It was clearly appreciated that the special resolutions were desirable in order to free up routes to capital, that that would have the potential benefit of putting obstacles in the way of the perceived “raiders” and that it could only be achieved by imposing the restrictions. To that extent the decision was justifiable as being for the benefit of the company as a whole. However, Mr Mabb and Mr Gledhill say that that purpose was not a proper purpose for which to exercise the article 42 power to impose restrictions, and since that power was exercised for that improper purpose its exercise can and should be set aside by this court.

The first question is whether, for these purposes, the purpose of the majority should be taken to be the purpose of the board, or the company. This point was not addressed in submissions, but in my view the majority’s purpose is the important one for these purposes. In Australia it has been decided that the majority’s purpose is relevant for these purposes (assuming it can be ascertained):

“4454 To establish that a decision was infected by an improper purpose it is not necessary to show that all of the directors had that purpose. It is enough to establish that the majority of directors were acting improperly: Harlowe's Nominees. In my view the same principle applies to the duty to act in the best interests of the company. The reference to a majority indicates that the actions of an errant fiduciary have to be causative of a breach before it can be said that 'the directors' breached their duties.” Bell Group v Westpac Banking Corporation (No 9) [2008] WASC 239 at 4454.

The Harlowe’s Nominees case referred to seems to be a reference to Harlowe’s Nominees v Woodside (Lake Entrance) Oil Co[1968] HCA 37. Having looked at that case it does not seem to articulate the point which is said to flow from it, but the proposition still seems to me to be correct. It accords with both common sense and principle. The claimants are therefore entitled to point to and rely on the majority purpose.

The next question is whether the purpose which I have found to be the main purpose was one which means that the decision, and therefore the notices, cannot stand because it is outside the scope of the proper purposes of article 42. Mr Mabb submits that it does - article 42 is intended to be the means of extracting information and the directors used it for the purposes of making life more difficult for a minority perceived as raiders, and in particular to get through a special resolution that would otherwise not have been passed. Mr Swainston submits that the purpose was legitimate in the context because it was perceived properly to be in the interests of the company as a whole (and in particular the greater body of shareholders) that the raiders be not allowed to proceed by stealth and to forward their apparent plan of getting hold of a company at less than its proper premium value.

Mr Mabb took as his starting point the decision in Howard Smith Ltd v Ampol Ltd [1974] AC 821, a case in which directors allotted share capital which reduced a blocking majority of 55%. The trial judge had found that the primary purpose of the board members supporting the allotment of shares was indeed to reduce the proportionate shareholding of the majority shareholder, and not to raise capital for the company. The Privy Council upheld the decision holding the power to have been exercised for an improper purpose. In doing so Lord Wilberforce held that the power to allot was not constrained solely by reference to a need to raise capital and that it would be wrong to impose such a limitation on the directors’ powers. He went on (page 835):

“To define in advance exact limits beyond which directors must not pass is, in their Lordships' view, impossible.… No more, in their Lordships' view, can this be done by the use of a phrase – such as "bona fide in the interest of the company as a whole," or "for some corporate purpose." Such phrases, if they do anything more than restate the general principle applicable to fiduciary powers, at best serve, negatively, to exclude from the area of validity cases where the directors are acting sectionally, or partially: i.e. improperly favouring one section of the shareholders against another. ...

In their Lordships' opinion it is necessary to start with a consideration of the power whose exercise is in question, in this case a power to issue shares. Having ascertained, on a fair view, the nature of this power, and having defined as can best be done in the light of modern conditions the, or some, limits within which it may be exercised, it is then necessary for the court, if a particular exercise of it is challenged, to examine the substantial purpose for which it was exercised, and to reach a conclusion whether that purpose was proper or not. In doing so it will necessarily give credit to the bona fide opinion of the directors, if such is found to exist, and will respect their judgment as to matters of management; having done this, the ultimate conclusion has to be as to the side of a fairly broad line on which the case falls."

Those statements indicate that using the best interests of the company as a whole as a touchstone is not sufficient. They also support the notion that it is appropriate to have some enquiry as to the scope of the purpose for the exercise of the power (as is anticipated by section 171 of the 2006 Act).

He went on to cite with approval the decision in Harlowe’s Nominees (supra) in which the joint judgment said:

“The principle is that although primarily the power [to allot] is given to enable capital to be raised when required for the purposes of the company, there may be occasions when the directors may fairly and properly issue shares for other reasons, so long as those reasons related to a purpose of benefiting the company as a whole, as distinguished from a purpose, for example, of maintaining control of the company in the hands of the directors themselves or their friends. An enquiry as to whether additional capital was presently required is often most relevant to the ultimate question upon which the validity or invalidity of the issue depends; but that ultimate question must always be whether in truth the issue was made honestly in the interests of the company. Directors in whom are vested the right and the duty of deciding whether company's interests lie and how they are to be served may be concerned with a wide range of practical considerations, and their judgment, if exercised in good faith and not for irrelevant purposes, is not open to review in the courts.…"

While that paragraph might be thought to give some support for the case of Mr Swainston that the real and only question is the directors' perception of the interests of the company as a whole, it will be noted that there is still a reference to purposes ("and not for irrelevant purposes").

At p836D-H Lord Wilberforce went on:

“So far as authority goes, an issue of shares purely for the purpose of creating voting power has repeatedly been condemned: ….The constitution of a limited company normally provides for directors, with powers of management, and shareholders, with defined voting powers having power to appoint the directors, and to take, in general meeting, by majority vote, decisions on matters not reserved for management. Just as it is established that directors within their management powers, may take decisions against the wishes of the majority of shareholders, and indeed that the majority of shareholders cannot control them in the exercise of these powers while they remain in office …., so it must be unconstitutional for directors to use their fiduciary powers over the shares in the company purely for the purpose of destroying an existing majority, or creating a new majority which did not previously exist. To do so is to interfere with that element of the company’s constitution which is separate from and set against their powers. If there is added, moreover, to this immediate purpose, an ulterior purpose to enable an offer for shares to proceed which the existing majority was in a position to block, the departure from the legitimate use of the fiduciary power becomes not less, but all the greater. ….”

Mr Mabb emphasised the underlined passages. They refer to destroying an existing majority, but the same ought to be true if the object were to dilute an irritating minority. Such conduct could not be justified by the bona fide, and perhaps justifiable, view that the allotment was in the best interests of the company. The power to allot does not exist for that purpose.

Hogg v Cramphorn Ltd [1967] Ch 254 is another case of a challenged allotment. There the directors believed they were acting in the interests of the company when they allotted shares with a view to frustrating a bid by a shareholder. It was held that the allotment was bad because of its purpose, and it was no answer to say the directors honestly believed it to be in the best interests of the company. In other words, that expression did not provide a complete answer to the propriety of the exercise of the power.

Mr Swainston pointed to the Australian case of Teck Corporation Ltd v Millar

Next, and again in support of his proposition that the guiding principle, and really the only guiding principle, for determining the scope of a power and whether it was exercised for improper purposes, Mr Swainston turned to Australian Metropolitan Life Assurance Co Ltd v Ure (1923) 33 CLR 199. That case was referred to by Lord Wilberforce in Howard Smith as showing “the wide range of considerations open to directors” in relation to the power to refuse to register share transfers. Mr Swainston pointed in particular to the judgment of Isaacs J at page 217:

“The general character of such a regulation is clear, but the ambit of the purpose of the power of course varies with the circumstances of each case. The nature of the company, its constitution and the scheme of its regulations as a whole must all be taken into account in determining whether a given factor comes within its range. Solvency of a transferee is, of course, important… But his solvency is not necessarily the only consideration. The reputation of the company may be an essential element of success, and where, as in the present case, the corporation is one appealing to the public for its confidence and transfers are presented which are of such magnitude as to control the whole administration of the company, the maintenance of a board of directors against whom not even a suggestion of an approach can be made is manifestly a high business consideration, which no person charged with the beneficial administration of the corporate affairs would be likely to overlook, in the interests of the shareholders as a whole."

I do not consider that this case gets Mr Swainston where he would wish to be. The power to refuse to register a transfer is not a power of which it can be said in advance there are clear and completely determinable limits to the purpose for which it can be exercised. In those circumstances a broader view has to be taken. When a dispute arises the court has to decide whether certain purposes are or are not capable of justifying the exercise of the power. Wrongly interfering with rights of majorities is not likely to be. On the other hand, using the power to prevent the oppression of minorities may be. That is all that can be said about that sort of power. One still has to look for the purposes for which the power was deployed and justify them or impeach them (depending on which side of the argument one is on). The directors are not entitled simply to have resort to the catch-all of "best interests of the company as a whole" and the unwillingness of the courts to reconsider bona fide business decisions.

It is therefore necessary to consider the purpose for which the power to issue restriction notices is given to the directors and to consider whether it was properly exercised within that power. It is possible, in the case of this power, to identify the scope of its purpose (subject to the qualifications to which I referred when dealing with

This point is one which is not pleaded and did not arise at the trial until final speeches when I raised it myself. It occurred to me, having heard the evidence, that it might be said that even if the directors had acted for an improper purpose in the sense contended for by the claimants, so as to taint the decision-making process at the board meeting, nonetheless behind that purpose there was a legitimate purpose (which was actually the prime purpose of at least one of the directors) and it might be suggested that even if they had not taken the improper purpose into account then nonetheless they would have arrived at the same decision. It occurred to me to wonder, if it were plain enough that the same decision would have been arrived at anyway, whether there was a case for saying that the decision should not be set aside.

Having raised the point with the parties, and it not having been disclaimed by Mr Swainston, I gave the parties the opportunity to make submissions on it. In the course of those submissions Mr Swainston adopted it, and the claimants said it was a bad point. The reasons why it was said to be a bad point were that it was bad on the facts, unfair procedurally to allow it to be taken, and proceeded on a wrong basis of law. I shall therefore have to deal with all those matters.

Mr Mabb and Mr Gledhill both submit that this point should not be allowed to rise bearing in mind how the claim was pleaded, addressed in evidence and addressed at the trial. There was no opportunity to address the point in cross-examination, precisely because the point was not pleaded or foreshadowed in any other way, whether through the witness statements or otherwise. The directors’ witness statements (as I have already pointed out) do not deal with purpose, other than Mr Moore’s second statement (briefly), so the only evidence of it came from cross-examination. The cross-examination was carried out to investigate the claims and defences as pleaded, and the defences did not include anything like the point which I raised during final submissions. It was therefore not investigated in cross-examination.

There is no doubt that the procedural factual points taken by the claimants are good ones. The point was not pleaded, not taken in the directors’ evidence (which did not describe their respective purposes) and was not canvassed in cross-examination. Nor was it a matter of submission until I raised it and submissions were put in in writing. On the other hand it must be acknowledged that the trial came on very quickly, and allowances might have to be made for the development of points at the trial which might, with more time for reflection and organisation of the case, have emerged in a more conventional fashion. A greater degree of flexibility and understanding might have to be brought to bear in those circumstances.

I have considered these points anxiously. There is much to be said for the stance taken by the claimants. However, in the end the question is not a technical one of what was pleaded or what might or might not have appeared in witness statements, but fairness, and in particular whether it would be fair to draw an inference from what emerged in crossexamination about the purpose and intention of the directors when the point was not a live one at the trial. If I considered it was quite clear what the position would have been, notwithstanding the fact that it was not examined in detail in cross-examination, and if I were quite clear that cross-examination on the point would not have led to any different conclusion, then I think it would be right to make the relevant finding. However, and with the greatest reluctance, I have concluded that it would not be procedurally fair to allow the company to take and succeed on the point now. My reluctance comes from the fact that, on the evidence that I have heard, I find it very hard indeed to believe that the directors would have come to any different conclusion. I deal with this in a short section below in which I consider the facts. However, in circumstances in which the directors have not made such a case in their own evidence in chief (or in the pleadings of the company), it would, in the end, be a step too far to allow them to say my purpose was X, but if I had been told that that was an improper purpose and I had to consider a legitimate purpose Y, I would have arrived at the same decision. If that were to be their case then it should have been positively advanced at some stage during the hearing. Although on the evidence I heard I find it difficult to see that the directors would have come to a different decision, nonetheless I can see that the claimants might have wished to have advanced their case differently, perhaps devoting more attention to the earlier events leading up to the service of the notices and what happened, and what the thinking was, between then and the board meeting. Mr Mabb advanced some elaborate arguments to the effect that the directors would have taken a different course if they had been thinking along the right lines, and might have taken the view that it was not worth imposing restrictions in circumstances in which they would have found themselves. I am deeply sceptical about such conclusions. For the reasons appearing in the next section, on the evidence I heard I think that the result would have been the same. However, there is a possibility that the case would have been shaped differently, and the claimants are entitled to the benefit of the doubt on that point. Regretfully, therefore, and contrary to my initial impression on the point, I hold that the point cannot be taken.

Mr Swainston submitted that if the case as currently shaped did not allow the point to be taken, nonetheless I should allow it to be taken with a fresh hearing, coupled with fresh witness statements, dedicated to the point now that it had arisen. I do not think that that would be the right course. It would in substance be allowing an amendment to a case, to introduce a very substantial point, at the latest of late points in time. The need to bring litigation to an end is inconsistent with such a course. I therefore do not allow it.

Notwithstanding all that, and in case this case goes further, in the next section I set out my brief conclusions on the point, based on the evidence I heard. My short conclusions on the legal points do not do justice to the elaborate submissions made by Mr Mabb and Mr Gledhill. They are expressed in order to demonstrate that, had the factual situation allowed it, the facts had, in my view, some real legal significance.

In my findings above I have dealt with the basis on which the directors approached the decision to impose the restrictions. It will be apparent that there were mixed motivations as between the directors and the directors themselves individually had more than one purpose in mind. Such a state of affairs is neither uncommon, nor surprising. Within those purposes there were, in my view, legitimate purposes. Mr Ferguson, as I have pointed out, had a proper purpose in mind throughout. Mr Shah himself also gave heavy emphasis to the desirability of imposing restrictions in order to obtain the information, which he very much wanted to see. Lord Oxford also made it clear that he wished to impose restrictions in order to obtain information – see above. Mr Moore also had that "proper" purpose in mind as part of the "jigsaw". It is not so clear that Mr Murray had that view, or how close to the front of Mrs Dubin's mind the "proper" purpose was, but it is impossible to believe it was not present.

On the evidence that I heard:

Accordingly, I consider that on the basis of what I heard, and the shape of the case before me, had the directors confined themselves to the proper purpose of imposing restrictions as a sanction for non-provision of information, and with a view to providing an incentive to provide that information, I think it likely, and to be frank virtually inevitable, that the directors would have reached the same decision and imposed the same restrictions.

Having considered the submissions of the parties, and in particular the thorough submissions of Mr Gledhill and Mr Mabb, I had provisionally reached the following conclusions.

First, the facts of this case (on the hypothesis that I am right in my conclusions in the previous section of this judgment) are more striking, and different from, the facts in the two leading cases about using powers for improper purposes. Looking at the facts in Hogg and Howard Smith it seems to me to be unlikely that the directors could ever have successfully run the case that they had a fallback position based on a proper purpose. Those are cases in which the genesis of the impeached resolutions was the very improper purpose itself. If the directors had not formed that purpose at the outset, the resolutions would never have been proposed, let alone passed. The case before me seems to be very different. The imposition of restrictions based on not providing information is a standard sanction, and it is much more plausible that there would be a perfectly justifiable residual purpose even if a tainted purpose is stripped out and even if it was the more substantive purpose. I do not see why the logic of the two reported cases should necessarily be inexorably applied to the present case. Nor do I think that allowing the point in this case would somehow open the floodgates to permitting a lot of dubious decision-making by directors. The facts of this case are very striking.

Second, where directors proceed on the basis of an improper purpose the decision is voidable, not void. Whether to avoid the decision is ultimately in the discretion of the court, and although that discretion is exercised on principled grounds, and although one can expect it usually to be exercised in favour of avoiding the decision, it does not seem to me to follow that in every case it should be avoided if the justice of the case does not require it. It is to be noted that in Hogg Buckley J did not avoid the decision on the basis of his determination as to its improper underlying purpose. He gave the majority shareholders the opportunity of approving the decision of the directors at a general meeting. To my eyes that demonstrates that voidable does not equal "will automatically be avoided", even though, as has to be accepted, the facts of that case were very different.

Third, it is arguable that a “but for” test should be applicable in this situation, which would support an argument for sustaining the decision of the board - Whitehouse v Carlton House Pty Ltd [1987] 162 CLR 285.

Fourth, there may be an analogy with judicial review in which, in an exceptional case, a decision apparently vitiated by taking an irrelevant consideration into account may not be declared invalid if it is obvious that the decision-maker would reach the same answer - R(FDA) v Secretary of State for Work and Pensions [2013] 1 WLR 444.

All these seemed to me to be pointers towards the possibility of sustaining the decision even though apparently tainted by an improper purpose. It seems to me that there is a real point here, on the facts of this case. However, since the issue cannot now arise in the present case I do not consider it further.

This point does not arise in the light of the more fundamental attack on the restriction notices, but I record and decide it briefly.

The point can be shortly stated. Article 42(1)(d) defines "restriction notice" as:

The restriction notices that were served did not contain any reference to the restrictions being limited "until such time as the Board determines otherwise pursuant to paragraph (4)…". It is correct, as a matter of fact, to say that notices the did not contain any such express wording. The company's short answer is that the notices were explicitly issued under article 42. That is made clear in the heading ("Restriction Notice Issued under article 42…), the reference to article 42 in paragraph 5, the heading immediately following that paragraph ("Restriction Notice under Article 42") and the next sentence ("This is a restriction notice issued under Article 42…"). As a matter of construction the notice contains the information in the bracketed words of the definition because one is entitled and obliged to go back to article 42 to make sense of the notice.

I think that the approach of Mr Swainston is correct. The notice contains all the other information that it needs to contain – principally the extent of the restrictions, and it makes it as clear as it can be made that the notices were issued under article 42. The wording of the definition indicates clearly that there is no need to adhere to any wording in a slavish fashion. The restriction notice has to be "substantially to the effect" of what follows. In my view, as a matter of construction, there are enough references to article 42 to make it plain under what power the board is purporting to act, and when one goes back to look at that power one can see that it contains the power to remove the restriction under paragraph (4). In my view the restriction notices were plainly compliant.

The two claimants in this case are not the registered shareholders of the shares in question. They have sued in their own names, joining the actual shareholders and the acting nominees in between. In the evidence before me, in the case of Eclairs it is said that there would have been difficulties in mobilising the registered shareholder (Hanover) in time to start this action and get the urgent relief that was applied for. Therefore Eclairs was justified in suing in its own name (as ultimate beneficial owner) joining Hanover and the intermediate nominees and account holders. In the case of Glengary that particular justification is not put forward in quite the same way. It is asserted, without any particular evidential basis, that it would have been difficult for Glengary to compel the shareholder (Lynchwood) to sue, bearing in mind the indirect relationship between them (with intermediate nominees). Glengary also submits that insofar as it is claiming declaratory relief it has sufficient interest to be able to sue anyway.

The company does not challenge the evidential accounts of where the beneficial interest in the shares is (which consists of generalised assertions unsupported by documentary evidence), or of the intervening nomineeship arrangements, and except for one point it does not challenge the basis on which it is said to have been right that the claimants, rather than the shareholders, should sue in these actions. That means that I do not have to spend time in this judgment considering the locus of the beneficial owners to sue in a case like this, save for the point taken by the company.

The point taken by the company is this. Mr Swainston points to certain provisions of the relevant custodianship/nomineeship agreements provided by Eclairs (no disclosure of the Glengary custodianship agreements having been provided) which he says demonstrates that the relevant custodians/nominees reserve to themselves the discretion not to do anything that they perceive to be against local stock exchange rules and the like. Two paragraphs that he cites read as follows.

Clause 10(b) of the Investment Services Deed between Eclairs and Renaissance Advisory Services Limited:

“Instructions shall be carried out subject to the rules, operating procedures and market practice of any relevant stock exchange, clearing house, settlement system or market (“Rules”). The Nominee is entitled to refuse to carry out Instructions if in the Nominee’s opinion they are contrary to any Rules or any applicable law, or other regulatory or fiscal requirements and shall be entitled in its absolute discretion to amend instructions so that they comply with applicable Rules.”

Clause 3D of the Global Custody and Clearance Agreement between JP Morgan Chase Bank and Renaissance Securities (Cyprus) Limited says:

“JP Morgan need not act upon Instructions which it reasonably believes to be contrary to law, regulation or market practice but is under no duty to investigate whether any Instructions comply with any applicable law, regulation or market practice. JP Morgan shall be entitled (but not bound), if it deems possible to do so, to amend an Instruction in such a manner to comply with what JP Morgan reasonably believes to be applicable law, regulation or market practice. In addition, JP Morgan may decline to effect any Instruction if, in its reasonable judgment, the result would jeopardize JP Morgan’s secured position as to any of Customer’s obligations to JP Morgan under this Agreement, provided JP Morgan will promptly notify Customer of JP Morgan’s decision to decline to effect an Instruction.”

Mr Swainston goes on to make the point that where people like Mr Kolomoisky and Mr Zhukov create these extensive nomineeship arrangements they have the safeguard of the professional conscience of their professional nominees, who are best placed to establish what is locally acceptable and what is not. He says that that is why they have a discretion not to accept instructions “if they accept something untoward is going on” (to use his words). Being subjected to that conscience is part of the price paid for choosing a nominee system, and those nominees. As Mr Swainston put it, “there is no equity cutting across their discretion”.

I am afraid that I fail to see where that gets Mr Swainston on the facts of this case. If one assumes for these purposes that the nominees have the broadly framed discretion that Mr Swainston relies on (which might be thought to be broader than is referred to in the two clauses that he cites) there is no evidence that the nominees refused to act because they thought there was something untoward going on. If and insofar as they positively refused to act (which is not wholly clear) it is not apparent that that is because of their misgivings about some underlying behaviour. Furthermore, even if they had refused on such a basis, that might be thought to be a reason why the beneficiaries should actually be allowed to sue themselves in circumstances where urgency did not permit an application to court for directions to be given to the trustees/nominees, or the replacement of nominees. The rules which govern the circumstances in which beneficiaries may and may not sue in their own name, joining the trustees, do not proceed on the basis of some public policy which would leave the beneficiary saddled with the judgment of the trustee. Where that trustee is a mere nominee there is no reason why the beneficiary should be so saddled.

It follows that Mr Swainston’s single objection to this action on locus standi grounds fails. There being no other objection, there is nothing more in the point.

The company takes a point arising out non-disclosure at the interlocutory stage. At the initial interlocutory stage the claimants were denying the arrangements relied on, and denying that the company was entitled to impose the restrictions. The applications were dealt with on the footing of the company giving undertakings to the effect referred to above. On two subsequent occasions the claimants went back to court to reveal that they had not disclosed documents which their full and frank disclosure obligations had required them to reveal. There were three. One was an “Agreement on the transfer of an economic interest”, said to originate from April 2009 and under which Mr Bogolyubov acquired a 50% interest in Ralkon, and thus a shareholding in JKX. The second was a Termination Agreement purportedly dated 29th January 2013. Metadata for the latter document revealed its creation date as being 2nd February, and it was said a technical malfunction meant that the author was not revealed. No metadata was available for the first document.

The third document was from a Mr Eugeniy Usakov, who apparently wrote to Schroders on behalf of Glengary stating they were “in concert” with the position of Eclairs and were going to vote against the resolutions.

These documents would have been relevant to an action in which the actual existence or otherwise of agreements and arrangements were in issue, but not to this action in which the directors’ perception of these things was the important factor. They were disclosed because the view was taken by the claimants, and certainly shared by the company, that they ought to have been disclosed as part of the duty of full and frank disclosure.

Mr Swainston now submits that this should be treated as a non-disclosure which would have entitled the company to a discharge of its undertakings to take the disputed votes but not act on their rejection or acceptance until after the decision in this action. Had those undertakings been discharged, or not even given, the company would (he says) have been free to reject the votes of Eclairs and Glengary and the resolutions would by now all have been passed. Mr Swainston invites me to reflect the serious non-disclosure, and prevent the claimants from benefiting from it, by undoing the effects of the undertaking with the result that the resolutions can all be held to have carried.

There are a number of problems about this. First, the point was not really set up properly within these proceedings. It is one which turns on an interlocutory nondisclosure and which would normally have to be addressed by a separate application to discharge the undertakings, with proper evidence focussed on that application. That has not happened, with the result that it emerges only in skeleton arguments. The further result is that there has been very little clear material directed towards the seriousness of the non-disclosure (which is disputed), what its consequences were and what they should now be. The point was hardly dealt with by the claimants - not surprisingly, in the light

It seems to me that there is nothing in this point, in the present circumstances.

I therefore conclude that the directors were entitled to conclude that the claimants had not made proper disclosure of the arrangements that existed and which affected their shareholdings but that the power to impose restrictions under article 42 was exercised for a purpose which was not a proper one for the purposes of that power and that its exercise should therefore be set aside. So far as necessary I will hear further submissions as to the form of relief which should follow.

In relation to any of the shares in JKX Oil & Gas plc (JKX) in which you have, or during the last three years had, an interest (the Shares), please provide the following information:

Please send the information requested above in writing to Cynthia Dubin, Finance Director at JKX Oil & Gas plc, 6 Cavendish Square, London W1G 0PD and at cynthia.dubin@jkx.co.uk.

Please note that it is an offence under the Act to fail to comply with this notice (unless you can establish that the requirement to give information under this notice is frivolous or vexatious) or to knowingly or recklessly provide information which is false in a material particular.

If you fail to comply by the deadline specified above, JKX reserves the right to issue a restriction notice in respect of the Shares under Article 42 of the JKX Articles of Association. You are advised to seek legal advice if you are in any doubt as to how to comply with this notice.

We, Eclairs Group Limited, hereby acknowledge receipt of the notice issued pursuant to section 793 of the Companies Act 2006 (the Notice) and respond to the Notice as follows.

In relation to the shares in JKX Oil & Gas plc (JKX), we can confirm that we are the beneficial owners of 47,287,027 shares in JKX, as of 5 March 2013.

We are not a party to any agreement or arrangement: (i) under which the shares in JKX have been acquired and which imposes obligations or restrictions on the exercise of the rights, control or influence in respect of such shareholding or on the retention or sale of such shares; (ii) relating to the exercise of any rights arising from the shareholding in JKX; or (iii) with Mr Alexander Zhukov, Mr Oleksandr Ratskevych and/or Glengary Overseas Limited (or their respective companies or nominees), which relates to the exercise of JKX share voting rights.

In relation to any of the shares in JKX Oil & Gas plc (JKX) in which you have, or during the last three years had, an interest (the Shares), please provide the following information:

We note that you and Mr Bogolyubov (and his family) are the beneficial shareholders in Eclairs Group Limited. We understand, based on the details of a TR1 notice received by JKX on or about 21 March 2013, that a 40.9% interest in Eclairs Group Limited was transferred to a discretionary trust for the benefit of Mr Bogolyubov and his family (the Trust). Prior to this transfer we understand that 100% of the beneficial interest in the shares of Eclairs Group Limited was held by you. In relation to the arrangements which effect the transfer of the 40.9% beneficial interest in Eclairs Group Limited to the Trust, please provide full particulars of any agreement or arrangements (whether written or unwritten, formal or informal, direct or indirect) between you and Mr Bogolyubov and/or the Trust:

Please confirm whether you and Mr Bogolyubov and/or the Trust are party to any agreement or arrangement (whether written or unwritten, formal or informal, direct or indirect) relating to the exercise of any rights arising from the holding of shares in Eclairs Group Limited and its respective holding of shares in JKX.

Please send the information requested above in writing to Cynthia Dubin, Finance Director at JKX Oil & Gas plc, 6 Cavendish Square, London W1G 0PD and at cynthia.dubin@jkx.co.uk.

Please note that it is an offence under the Act to fail to comply with this notice (unless you can establish that the requirement to give information under this notice is frivolous or vexatious) or to knowingly or recklessly provide information which is false in a material particular.

If you fail to comply by the deadline specified above, JKX reserves the right to issue a restriction notice in respect of the Shares under Article 42 of the JKX Articles of Association. You are advised to seek legal advice if you are in any doubt as to how to comply with this notice.

I, Igor Kolomoisky, hereby acknowledge receipt of the notice issued pursuant to section 793 of the Companies Act 2006 (the Notice) and respond to the Notice as set out below.

In relation to the shares in JKX Oil & Gas plc (JKX), I hereby confirm that 47,287,027 shares in JKX (the “Shares”) are beneficially owned by Eclairs Group Limited (“Eclairs”) as of 5 March 2013. Trival Limited (“TL”) is the registered holder of 59.1% of the total share capital of Eclairs and I am the beneficial owner of TL by virtue of the deed of trust between the registered shareholder of TL and myself.

As far as I am aware, the registered shareholder of the Shares in Hanover Nominees Limited (“Hanover”), a holding/custodian vehicle of J.P. Morgan Chase Bank, N.A, whose registered office is at 25 Bank Street, Canary Wharf, London E14 5JP. The number of JKX shares held by Hanover in favour of Eclairs (through another custodian) is 47,287,027 shares.

I am not a party to any agreement or arrangement: (i) which includes provision for the acquisition of shares in JKX and which imposes obligations or restrictions on the exercise of the rights, control or influence in respect of such shareholding or on the retention or sale of such shares; (ii) relating to the exercise of any rights arising from the shareholding in JKX; or (iii) with Mr Alexander Zhukov, Mr Oleksandr Ratskevych and/or Glengary Overseas Limited (or their respective companies or nominees), which relates to the exercise of JKX share voting rights.

I, Mr Bogolyubov and Marigold Trust Company Limited are not party to any agreement or arrangement which (a) includes provision for the acquisition by me, Mr Bogolyubov or Marigold Trust Company Limited of shares in JKX and which imposes obligations or restrictions on the use or on the retention or disposal of such shares; or (b) relating to the exercise of any rights conferred by the holding of shares in JKX.

I am not a party to any agreement or arrangement (whether written or unwritten, formal or informal, direct or indirect) relating to the exercise of any rights arising from the holding of shares in Eclairs Group Limited and its interest in JKX shares.

Other than as set out in paragraph 2 of this letter, I confirm that I do not hold any interest in JKX shares.

In relation to any of the shares in JKX Oil & Gas plc (JKX) in which you have, or during the last three years had, an interest (the Shares), please provide the following information:

We note that you (and your family) and Mr Kolomoisky are the beneficial shareholders in Eclairs Group Limited. We understand, based on the details of a TR1 notice received by JKX on or about 21 March 2013, that a 40.9% interest in Eclairs Group Limited was transferred to a discretionary trust for the benefit of you and your family (the Trust). Prior to this transfer we understand that 100% of the beneficial interest in the shares of Eclairs Group Limited was held by Mr Kolomoisky. In relation to the arrangements which effect the transfer of the 40.9% beneficial interest in Eclairs Group Limited to the Trust, please provide full particulars of any agreement or arrangements (whether written or unwritten, formal or informal, direct or indirect) between you, the Trust and/or Mr Kolomoisky:

Please confirm whether you, the Trust and/or Mr Kolomoisky are party to any agreement or arrangement (whether written or unwritten, formal or informal, direct or indirect) relating to the exercise of any rights arising from the holding of shares in Eclairs Group Limited and its respective holding of interests in JKX shares.

Please send the information requested above in writing to Cynthia Dubin, Finance Director at JKX Oil & Gas plc, 6 Cavendish Square, London W1G 0PD and at cynthia.dubin@jkx.co.uk.

Please note that it is an offence under the Act to fail to comply with this notice (unless you can establish that the requirement to give information under this notice is frivolous or vexatious) or to knowingly or recklessly provide information which is false in a material particular.

If you fail to comply by the deadline specified above, JKX reserves the right to issue a restriction notice in respect of the Shares under Article 42 of the JKX Articles of Association. You are advised to seek legal advice if you are in any doubt as to how to comply with this notice.

I, Gennadiy Bogolyubov, hereby acknowledge receipt of the notice issued pursuant to section 793 of the Companies Act 2006 (the Notice) and respond to the Notice as follows.

In relation to the shares in JKX Oil & Gas plc (JKX), I hereby confirm that 47,287,027 shares in JKX (the “Shares”) are beneficially owned by Eclairs Group Limited (Eclairs) of which Marigold Trust Company Limited (MTCL) is the registered holder of 40.9% of the total share capital. MTCL is the trustee of a discretionary trust for the benefit of myself and the member of my family. MTCL was registered as a 40.9% shareholder of Eclairs on 19 March 2013.

As far as I am aware, the registered shareholder of the Shares in Hanover Nominees Limited (Hanover), is a holding/custodian vehicle of J.P. Morgan Chase Bank, N.A, whose registered office is at 25 Bank Street, Canary Wharf, London E14 5JP. The number of JKX shares held by Hanover in favour of Eclairs (through another custodian) is 47,287,027 shares.

I am not a party to any agreement or arrangement: (i) which includes provision for the acquisition of shares in JKX and which imposes obligations or restrictions on the exercise of the rights, control or influence in respect of such shareholding or on the retention or sale of such shares; (ii) relating to the exercise of any rights arising from the shareholding in JKX; or (iii) with Mr Alexander Zhukov, Mr Oleksandr Ratskevych and/or Glengary Overseas Limited (or their respective companies or nominees), which relates to the exercise of JKX share voting rights.

I, MTCL and Mr Kolomoisky are not party to any agreement or arrangement which (a) includes provision for the acquisition by me, MTCL and Mr Kolomoisky of shares in JKX and which imposes obligations or restrictions on the use or on the retention or disposal of such shares; or (b) relating to the exercise of any rights conferred by the holding of shares in JKX.

I am not a party to any agreement or arrangement (whether written or unwritten, formal or informal, direct or indirect) relating to the exercise of any rights arising from the holding of shares in Eclairs Group Limited and its interest in JKX shares.

Other than as set out in paragraph 2 of this letter, I confirm that I do not hold any interest in JKX shares.

In relation to any of the shares in JKX Oil & Gas (JKX) in which you have, or during the last three years had, an interest (the Shares), please provide the following information:

We note that you have previously advised that you and Mr Zhukov are the beneficial shareholders in Glengary Overseas Limited. Please provide full particulars of any agreement or arrangement (whether written or unwritten, formal or informal, direct or indirect) between you and Mr Zhukov:

Please confirm whether you and Mr Zhukov are party to any agreement or arrangement (whether written or unwritten, formal or informal, direct or indirect) relating to the exercise of any rights arising from the holding of shares in Glengary Overseas Limited and its respective holding of shares in JKX.

Please send the information requested above in writing to Cynthia Dubin, Finance Director at JKX Oil & Gas plc, 6 Cavendish Square, London W1G 0PD and at [email address provided].

Please note that it is an offence under the Act to fail to comply with this notice (unless you can establish that the requirement to give information under this notice is frivolous or vexatious) or to knowingly or recklessly provide information which is false in a material particular.

If you fail to comply by the deadline specified above, JKX reserves the right to issue a restriction notice in respect of the Shares under Article 42 of the JKX Articles of Association. You are advised to seek legal advice if you are in any doubt as to how to comply with this notice.

In relation to the shares in JKX Oil & Gas (“Shares”) I have, and during the last three years had, the interest as stated below:

I hold an interest in 19 656 344 Shares;

I hold an indirect interest in the Shares by holding a beneficial ownership interest of 5% in Glengary Overseas Limited of 3^rd Floor, Geneva Place, Waterfront Drive, Road Town, Tortola, BVI (“Glengary”);

On 8March 2007 I acquired a 5% beneficial ownership interest in Glengary which I still hold. At the time I acquired my beneficial interest in Glengary, Glengary had an interest in 39 312 688 Shares. On 27 December 2007 Glengary disposed of 19 656 344 Shares leaving Glengary with an interest in 19 656 344 Shares.

As far as I am aware, the registered holder of the Shares in question is Lynchwood

I am not a party to any type of agreement or arrangement referred to in paragraphs 1(e)(i)-(iii) of the notice. I have however participated in discussions with Eclairs Group Limited regarding JKX’s recent operational and financial performance and the need to change the management team. I have been proposed by Eclairs Group as a candidate for the JKX board as per the open letter to JKX shareholders dated 23 May 2013.

There are no agreements or arrangements between us regarding the acquisition of Shares or their use, as referred to in paragraph 2(a) of the notice. There are also no agreements or arrangements between us relating to the exercise of rights conferred by holding the Shares, as referred to in paragraph 2(b) of the notice.

In relation to the shares in JKX Oil & Gas Plc (“Shares”) I have, and during the last three years had, the interest as stated below;

I hold an interest in 19 656 344 Shares

I hold an indirect interest in the Shares by holding a beneficial ownership interest of 95% in Glengary Overseas Limited of 3^rd Floor, Geneva Place, Waterfront Drive, Road Town, Tortola, BVI (“Glengary”);

Glengary was incorporated on 28 May 2004 and I was the sole beneficial owner of the entire issued share capital in Glengary. Glengary acquired 23,810,862 Shares on 27 October 2004. On 1 December 2004 Glengary acquired a further 750,000 Shares resulting in a total interest in 24,560,862 Shares. On 15 June 2006 Glengary acquired 14 751 826 Shares increasing its total holding to 39,312,688 Shares. On 27 December 2007 Glengary disposed of 19,656,344 Shares leaving Glengary with an interest in 19 656 344 Shares. On 08 March 2007 I transferred 5% of my beneficial ownership interest in Glengary to Oleksandr

as far as I am aware, the registered holder of the Shares in question is Lynchwood

I am not a party to any type of agreement or arrangement referred to in paragraphs 1(e)(i)-(iii) of the notice. I have however participated in discussions with Eclairs Group Limited regarding JKX’s recent operational and financial performance and the need to change the management team as per the open letter to JKX shareholders dated 23 May 2013.

There are no agreements or arrangements between us regarding the acquisition of Shares or their use, as referred to in paragraph 2(a) of the notice. There are also no agreements or arrangements between us relating to the exercise of rights conferred by holding the Shares, as referred to in paragraph 2(b) of the notice.

Neither myself nor Mr Ratskevych are party to any agreement or arrangement relating to the exercise of rights arising from the holding of shares in Glengary and its holding of Shares. As I have a 95% beneficial interest in Glengary, I ultimately control Glengary and I decide how Glengary exercises its rights in the Shares. ___________________________________________

In relation to any of the shares in JKX Oil & Gas (JKX) in which you have, or during the last three years had, an interest (the Shares), please provide the following information:

Please send the information requested above in writing to Cynthia Dubin, Finance Director at JKX Oil & Gas plc, 6 Cavendish Square, London W1G 0PD and at [email address provided].

Please note that it is an offence under the Act to fail to comply with this notice (unless you can establish that the requirement to give information under this notice is frivolous or vexatious) or to knowingly or recklessly provide information which is false in a material particular.

If you fail to comply by the deadline specified above, JKX reserves the right to issue a restriction notice in respect of the Shares under Article 42 of the JKX Articles of Association. You are advised to seek legal advice if you are in any doubt as to how to comply with this notice.

Glengary currently has an interest in 19,656,344 Shares. During the last three years Glengary’s shareholding in JKX has not changed.

Glengary is the beneficial owner of the Shares.

Glengary acquired 23,810,862 Shares on 27^th of October 2004. On 1 December 2004 Glengarry acquired a further 750,000 Shares resulting in a total interest in 24,560,862 Shares. On 15 June 2006 Glengary acquired 14,751,826 Shares increasing its total holding to 39,312,688 Shares. On 27 December 2007 Glengary disposed of 19,656,344 Shares leading Glengarry with an interest in 19,656,344 Shares.

Glengary has participated in discussions with Eclairs Group Limited regarding JKX’s recent operational and financial performance and the need to change the management team. Glengary however is not a party to any agreement or arrangement as mentioned in paragraph 1. (d)(i), (ii), and (iii) of your notice. Glengary is simply a holding vehicle for the Shares in favor of its ultimate beneficial owners – Alexander Zhukov and Oleksandr Ratskevych and acts upon their instructions.

Having reviewed public statements made by, and correspondence and other communications from, you and Eclairs Group Ltd (Eclairs), Mr Igor Mr Kolomoisky and Mr Gennadiy Bogolyubov, the board of directors of JKX (the Board) has reasonable cause to believe that information provided in the Section 793 Responses that none of Mr Zhukov, Mr Ratskevych or Glengary (or their respective companies or nominees) are party to any Arrangements with Mr Kolomoisky, Mr Bogolyubov (or his family) and/or Eclairs (or their respective companies or nominees) which relates to the exercise of JKX share voting rights (either directly or via such persons' respective companies and nominees) is false or materially incorrect."