Cosmetic Warriors Ltd & Anor v Gerrie & Anor

This is the trial of a claim brought under CPR Part 8 for the determination of a number of agreed issues concerning the construction of Article 5 of the Articles of Association of the Claimant companies. There is no material difference between the Articles of Association of the two companies, and it is therefore convenient to make reference only to Article 5 of the Articles of the First Claimant (“Article 5”). The rights of shareholders to sell their shares are restricted by Article 5, which confers pre-emption rights on other shareholders.

The First Claimant is the owner of the intellectual property rights associated with the “Lush” brand of cosmetics. The Second Claimant is the holding company for a number of subsidiary companies which manufacture and sell the Lush range of cosmetics, and which have more than 100 outlets in the UK and approximately 800 outlets overseas. It operates under the terms of a licence granted by the First Claimant to one of its subsidiaries.

The First Defendant (“Mr Gerrie”) and the Second Defendant (“Ms Hawskley”) are husband and wife and shareholders in each of the Claimants. Mr Gerrie owns 995 (or 11.62%) of the shares in each of the Claimants. Mr Gerrie and Ms Hawksley jointly own a further 853 (or 10.38%) of the shares in each of the Claimants. They wish to sell their shares and have given transfer notices, and this has triggered the provisions of Article 5.

The Claimants were represented by Michael Bloch QC and the Defendants by Simon Salzedo QC. I am grateful to both of them for their clear and helpful submissions.

Because the parties’ submissions referred to much of this wording, and in order to place those parts of the wording which seem to me to be of greatest importance in context, I consider that it is helpful to set out Article 5 in full. It provides as follows:

“A.

No share in the Company shall be transferred except in accordance with the provisions of this clause which:

(a)

shall apply to renunciations or nominations of shares as it applies to transfers thereof and

(b)

may be waived with the written agreement of all members of the Company (in relation to either proposed transfers on sale or proposed transfers of any other kind whatsoever).

B.

(a) any member who desires to sell, transfer or otherwise part with any share or shares or shares or any interest therein (the vendor) shall give to the Company notice in writing of such desire (a Transfer Notice) which shall constitute the Company the Vendor’s agent for the sale of the share or shares specified therein (the Transfer Shares) in one or more lots at the discretion of the Directors at the prescribed price (as hereafter defined) and which may, (except in the case of a Transfer Notice given or deemed to have been given under Articles 5B(b) below) contain a provision that unless all the Transfer Shares are sold pursuant to this Article none shall be so sold and any such provision shall be binding upon the Vendor and any applicant for Transfer Shares.

(b)

If any member shall die or become bankrupt or go into liquidation or being an employee of the Company shall cease to be so employed for any reason the Board of Directors will have an option, exercisable at their discretion, to give notice that on the happening of that event the member shall be deemed to have given a Transfer Notice in respect of the whole of his or its shares in the Company to which the provisions of this clause shall apply and be deemed the Vendor in respect thereof.

C.

The “prescribed price” shall be such sum per share as shall be agreed between the Vendor and the Company failing which it shall be the median price of the prices as determined and certified in writing by two independent chartered accountants as being in their opinion the fair value thereof as between a willing buyer and a willing seller valuing the Company on a going concern basis such accountants to be nominated by agreement between the Vendor and the Company or in default of such agreement by the President for the time being of the institute of Chartered Accountants in England and Wales and if so nominated the said chartered accountant when determining and certifying the fair value of the Transfer Shares as aforesaid shall act as an expert and not as arbitrator but without incurring liability to the Vendor or any Member and his certificate shall be final and binding on the Vendor and other Members.

D.

Upon the prescribed price being either agreed upon or determined in accordance with Article 5C above (as the case may be) the Company shall forthwith upon receipt of written notice inform the Vendor and other Members of the number of the Transfer Shares as specified in the Transfer Notice and the prescribed price thereof and invite each such Member to apply in writing to the Company within 180 days of the date of that notice (the Application Period) for such maximum number of the Transfer Shares (being all or any thereof) as he shall specify in such application.

E.

With[in] the Application Period the Vendor may by written notice to the Company (save where the prescribed price has been agreed by the Vendor or a Transfer Notice has been given or is deemed to have been given under Article 5B(b) above) withdraw the Transfer Notice.

F.

Immediately after the Application Period the Company shall allocate the Transfer Shares (or so many of them as shall be applied for as aforesaid) to and amongst those Members who have made applications as aforesaid and in the case of competition pro rata between them according to the number of shares of which they are registered as holders save that no applicant shall be obliged to take more than the maximum number of shares applied for by him as aforesaid and the Company shall within five working days after the Application Period give notice of such allocations (the Allocation Notice) to the Vendor and to those Members to whom the shares have been allocated and shall specify in such notice the place and time (being not earlier than five working days and not later than fifteen working days after the date of the notice) at which the sale of the shares allocated shall be completed.

G.

The Company shall also be entitled to sell to any person or Company of whom or which in its absolute discretion it shall approve within the said period of five working days after the Application Period at the prescribed price any of the Transfer Shares for which Members shall not have applied as aforesaid and any shares so sold shall for the purposes of this Article be deemed to have been included in an Allocation Notice.

H.

The Vendor shall be bound to transfer the shares comprised in the Allocation Notice to the purchasers named therein at the time and place therein specified and if he shall fail to do so the Chairman of the Company or some other person appointed by the Directors shall be deemed to have been appointed attorney of the Vendor with full power to execute complete and deliver in the name and on behalf of the Vendor transfers of the shares to the purchasers thereof against payment of the prescribed price to the Company and on payment of the prescribed price to the Company and execution and delivery of the transfer the purchaser shall be entitled to require that his name be entered in the register of members as the holder by transfer of the same and the prescribed price shall be paid forthwith into a separate bank account in the Company’s name and held in trust for the Vendor but without any obligation to invest the same.

L. During a period of ninety days after the expiry of the time for service of an Allocation Notice the Vendor shall be at liberty to transfer to any person at any price (not being less than the prescribed price) any of the Transfer Shares which he has not become obliged to sell under the foregoing provisions.”

These were substantially not in issue, and the following summary is derived from the arguments of both sides.

The articles of association are a statutory contract between the members and between each member and the company. They must be construed in accordance with the ordinary principles that apply to the interpretation of any contract: Folkes Group Plc v Alexander[2002] 2 BCLC 252. The correct approach was summarised in Arnold v Britton [2015] UKSC 36, [2015] 2 WLR 1593 by Lord Neuberger PSC at [15] (omitting citation):

“When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to ‘what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean’ … And it does so by focussing on the meaning of the relevant words … in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of [the contract], (iii) the overall purpose of the clause and [the contract], (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions.”

Mr Salzedo made reference to a number of other well known cases which state uncontroversial general principles concerning the construction of contracts, including Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191, Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896, and Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900. However, I consider that it is unnecessary to quote anything more than Lord Neuberger’s summary in this judgment.

Because articles of association are business documents, they should be construed in a manner tending to business efficacy and, if necessary, terms will be implied in the articles in order to make them work: Tett v Phoenix Property and Investment Co Ltd[1986] BCLC 149. As stated in Palmer’s Company Law (“Palmer”) at para 2.1112:

“Articles of association are commercial documents. They should not be interpreted as meticulously as, e.g. conveyances. In interpreting them, the maxim ut res magis valeat quam pereat should be applied which, in the words of Vaisey J, “directs us to validate if possible.” Thus, Jenkins LJ said in Holmes v Keyes [1959] Ch. 199:

“I think that the articles of association of the company should be regarded as a business document and should be construed so as to give them reasonable business efficacy, where a construction tending to that result is admissible on the language of the articles, in preference to a result which would or might prove unworkable. …””

Further, because the articles of association are public documents which can affect third parties, the observations of Lewison LJ in Cherry Tree Investments Ltd v Landmain Ltd [2012] EWCA Civ 736; [2013] Ch 305 at [99], made in relation to a registered charge, are in point:

“Whatever it means, it has always meant what it means. A contract cannot mean one thing when it is made and another thing following court proceedings. Nor, in my judgment, can it mean one thing to some people (e.g. the parties to it) and another thing to others who might be affected by it. … We are not, in my judgment, seeking to ascertain “what the parties intended to agree” but what the instrument means.”

So far as concerns the implication of terms, in Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988 Lord Hoffmann explained:

“21.

It follows that in every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean. It will be noticed from Lord Pearson’s speech [i.e. in Trollope & Colls Ltd v North West Metropolitan Regional Hospital Board [1973] 1 WLR 601, at 609] that this question can be reformulated in various ways which a court may find helpful in providing an answer – the implied term must "go without saying", it must be "necessary to give business efficacy to the contract" and so on – but these are not in the Board's opinion to be treated as different or additional tests. There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?...

26.

In BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 282-283 Lord Simon of Glaisdale, giving the advice of the majority of the Board, said that it was "not … necessary to review exhaustively the authorities on the implication of a term in a contract" but that the following conditions ("which may overlap") must be satisfied: "(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying' (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract".

27.

The Board considers that this list is best regarded, not as series of independent tests which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means, or in which they have explained why they did not think that it did so. The Board has already discussed the significance of "necessary to give business efficacy" and "goes without saying". As for the other formulations, the fact that the proposed implied term would be inequitable or unreasonable, or contradict what the parties have expressly said, or is incapable of clear expression, are all good reasons for saying that a reasonable man would not have understood that to be what the instrument meant.”

Following the hearing in the present case, on 2 December 2015 the Supreme Court handed down judgment in Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited & Anr [2015] UKSC 72, [2015] 3 WLR 1843. Lord Neuberger PSC, speaking for the majority, reviewed the cases concerning implied terms, including BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings (1977) 52 ALJR 20, [1977] UKPC 13, Philips Electronique Grand Public SA v British Sky Broadcasting Ltd [1995] EMLR 472, and The APJ Priti [1987] 2 Lloyd’s Rep 37. Lord Neuberger then said at [21]:

“In my judgment, the judicial observations so far considered represent a clear, consistent and principled approach. It could be dangerous to reformulate the principles, but I would add six comments on the summary given by Lord Simon in BP Refinery as extended by Sir Thomas Bingham in Philips and exemplified in The APJ Priti. First, in Equitable Life Assurance Society v Hyman [2002] 1 AC 408, 459, Lord Steyn rightly observed that the implication of a term was "not critically dependent on proof of an actual intention of the parties" when negotiating the contract. If one approaches the question by reference to what the parties would have agreed, one is not strictly concerned with the hypothetical answer of the actual parties, but with that of notional reasonable people in the position of the parties at the time at which they were contracting. Secondly, a term should not be implied into a detailed commercial contract merely because it appears fair or merely because one considers that the parties would have agreed it if it had been suggested to them. Those are necessary but not sufficient grounds for including a term. However, and thirdly, it is questionable whether Lord Simon's first requirement, reasonableness and equitableness, will usually, if ever, add anything: if a term satisfies the other requirements, it is hard to think that it would not be reasonable and equitable. Fourthly, as Lord Hoffmann I think suggested in Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988, para 27, although Lord Simon's requirements are otherwise cumulative, I would accept that business necessity and obviousness, his second and third requirements, can be alternatives in the sense that only one of them needs to be satisfied, although I suspect that in practice it would be a rare case where only one of those two requirements would be satisfied. Fifthly, if one approaches the issue by reference to the officious bystander, it is "vital to formulate the question to be posed by [him] with the utmost care", to quote from Lewison, The Interpretation of Contracts 5th ed (2011), para 6.09. Sixthly, necessity for business efficacy involves a value judgment. It is rightly common ground on this appeal that the test is not one of "absolute necessity", not least because the necessity is judged by reference to business efficacy. It may well be that a more helpful way of putting Lord Simon's second requirement is, as suggested by Lord Sumption in argument, that a term can only be implied if, without the term, the contract would lack commercial or practical coherence.”

Lord Neuberger then went on to discuss the exposition of Lord Hoffmann in Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988. Lord Neuberger made the following points at [23]-[31]:

“23 First, the notion that a term will be implied if a reasonable reader of the contract, knowing all its provisions and the surrounding circumstances, would understand it to be implied is quite acceptable, provided that (i) the reasonable reader is treated as reading the contract at the time it was made and (ii) he would consider the term to be so obvious as to go without saying or to be necessary for business efficacy. (The difference between what the reasonable reader would understand and what the parties, acting reasonably, would agree, appears to me to be a notional distinction without a practical difference.) The first proviso emphasises that the question whether a term is implied is to be judged at the date the contract is made. The second proviso is important because otherwise Lord Hoffmann's formulation may be interpreted as suggesting that reasonableness is a sufficient ground for implying a term …

24

It is necessary to emphasise that there has been no dilution of the requirements which have to be satisfied before a term will be implied, because it is apparent that Belize Telecom has been interpreted by both academic lawyers and judges as having changed the law …

25

The second point to be made about what was said in Belize Telecom concerns the suggestion that the process of implying a term is part of the exercise of interpretation … Whether or not one agrees with that approach as a matter of principle must depend on what precisely one understands by the word "construction".

26

I accept that both (i) construing the words which the parties have used in their contract and (ii) implying terms into the contract, involve determining the scope and meaning of the contract. However, Lord Hoffmann's analysis in Belize Telecom could obscure the fact that construing the words used and implying additional words are different processes governed by different rules.

27

Of course, it is fair to say that the factors to be taken into account on an issue of construction, namely the words used in the contract, the surrounding circumstances known to both parties at the time of the contract, commercial common sense, and the reasonable reader or reasonable parties, are also taken into account on an issue of implication. However, that does not mean that the exercise of implication should be properly classified as part of the exercise of interpretation, let alone that it should be carried out at the same time as interpretation. When one is implying a term or a phrase, one is not construing words, as the words to be implied are ex hypothesi not there to be construed; and to speak of construing the contract as a whole, including the implied terms, is not helpful, not least because it begs the question as to what construction actually means in this context.

28

In most, possibly all, disputes about whether a term should be implied into a contract, it is only after the process of construing the express words is complete that the issue of an implied term falls to be considered. Until one has decided what the parties have expressly agreed, it is difficult to see how one can set about deciding whether a term should be implied and if so what term. This appeal is just such a case. Further, given that it is a cardinal rule that no term can be implied into a contract if it contradicts an express term, it would seem logically to follow that, until the express terms of a contract have been construed, it is, at least normally, not sensibly possible to decide whether a further term should be implied. Having said that, I accept Lord Carnwath's point in para 71 to the extent that in some cases it could conceivably be appropriate to reconsider the interpretation of the express terms of a contract once one has decided whether to imply a term, but, even if that is right, it does not alter the fact that the express terms of a contract must be interpreted before one can consider any question of implication.

29

In any event, the process of implication involves a rather different exercise from that of construction. As Sir Thomas Bingham trenchantly explained in Philips at p 481:

"The courts' usual role in contractual interpretation is, by resolving ambiguities or reconciling apparent inconsistencies, to attribute the true meaning to the language in which the parties themselves have expressed their contract. The implication of contract terms involves a different and altogether more ambitious undertaking: the interpolation of terms to deal with matters for which, ex hypothesi, the parties themselves have made no provision. It is because the implication of terms is so potentially intrusive that the law imposes strict constraints on the exercise of this extraordinary power." …

31

It is true that Belize Telecom was a unanimous decision of the Judicial Committee of the Privy Council and that the judgment was given by Lord Hoffmann, whose contributions in so many areas of law have been outstanding. However, it is apparent that Lord Hoffmann's observations in Belize Telecom, paras 17-27 are open to more than one interpretation on the two points identified in paras 23-24 and 25-30 above, and that some of those interpretations are wrong in law. In those circumstances, the right course for us to take is to say that those observations should henceforth be treated as a characteristically inspired discussion rather than authoritative guidance on the law of implied terms.”

The point on which the parties were divided arises as follows.

In Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896, Lord Hoffmann at 912-913 summarised the principles by which contractual documents are construed in terms which included the following:

“(1)

Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2)

…Subject to the requirement that it should have been reasonably available to the parties and to the exception [that the law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent], it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.”

Founding on these statements, Mr Salzedo set out in his Skeleton Argument a summary of the factual background, and submitted (among other things) as follows:

“In 2001, there was a restructuring of the Lush Group of Companies and this resulted in the formation of Cosmetic Warriors and Lush Cosmetics. The Claimants were incorporated on 22 February 2001 and 16 February 2001 respectively. Both sets of relevant Articles are dated 18 May 2001. Despite its expansion, the Lush business has always been run along the lines of a “tight knit family owned enterprise” and it continues to aim to have to the feel of a small business. At all material times, the business has been managed by a small number of individuals, who were also the shareholders.

In 2001, the pre-existing shareholdings in Lush Limited [i.e. the subsidiary of the Second Claimant to which the First Claimant had granted a licence] were exchanged for equivalent holdings in the Second Claimant. At that time, Mark Constantine held 30% of the shares and Margaret Constantine held 20%.Six other shareholders (including Mr Gerrie) held the other 50% in total between them. Accordingly, control of the company was tightly balanced and could be altered by any transaction, especially any transaction by which the Constantines either sold or acquired shares.

The 2001 Articles incorporated Table A as it stood in 1985 and did not vary Article 70 thereof which gives the members power to override the directors by special resolution, requiring a 75% majority …

In the present case, the admissible background includes the matters set out above as at 18 May 2001. In particular, it may be relevant to bear in mind that the Claimants were run as tightly knit enterprises by their shareholders. More specifically, when the Articles were agreed, substantially all the shareholders of each Claimant were involved in its management and control was tightly balanced with the two Constantines between them holding exactly 50%. The precise constellation of other shareholders could be critical on any given issue given the requirement of a 75% majority to pass a special resolution.”

Mr Bloch accepted that in Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988 the Privy Council admitted extrinsic evidence to imply a term into articles of association in circumstances where (per Lord Hoffmann at [37]):

“The implication [was] not based upon extrinsic evidence of which only a limited number of people would have known but upon the scheme of the articles themselves and, to a very limited extent, such background as was apparent from the memorandum of association and everyone in Belize would have known, namely that telecommunications had been a state monopoly and that the company was part of a scheme of privatisation.”

However, he submitted that the facts of that case were “self-evidently” exceptional. Mr Bloch submitted that a correct statement of the law is to be derived from the following.

First, Palmer at para 2.1115:

“Although the courts’ approach to the construction of the words used in the articles of association may be a liberal one, that liberality does not extend to the implication of terms into the articles, where such implication is not derived purely from a consideration of the language used in the articles. On the contrary, an implication based on a consideration of extrinsic evidence, in order to give the articles business efficacy, is not permissible. This is because the articles are a statutory contract which is registered and upon which potential shareholders are entitled to rely in its registered form. For the same reason it is not possible to have the articles rectified. It is, however, permissible for a court to imply a term into articles of association in order to give business efficacy to those articles.”

Second, Bratton Seymour Service Co Ltd v Oxborough [1992] BCC 471, especially per Steyn LJ at 475 (approved in HSBC Bank Middle East v Clarke [2006] UKPC 31 at [4]):

“…I will readily accept that the law should not adopt a black-letter approach. It is possible to imply a term purely from the language of the document itself: a purely constructional implication is not precluded. But it is quite another matter to seek to imply a term into articles of association from extrinsic circumstances.

Here, the company puts forward an implication to be derived not from the language of the articles of association but purely from extrinsic circumstances. That, in my judgment, is a type of implication which, as a matter of law, can never succeed in the case of articles of association. After all, if it were permitted, it would involve the position that the different implications would notionally be possible between the company and different subscribers. Just as the company or an individual member cannot seek to defeat the statutory contract by reason of special circumstances such as misrepresentation, mistake, undue influence and duress and is furthermore not permitted to seek a rectification, neither the company nor any member can seek to add to or to subtract from the terms of the articles by implying a term derived from the extrinsic surrounding circumstances. If it were permitted in this case, it would be equally permissible over the spectrum of company law cases. The consequence would be prejudicial to third parties, namely potential shareholders who are entitled to look to and rely on the articles of association as registered.”

Third, with specific reference to pre-emption clauses, Palmer states at paragraph 6.449:

“If the articles provide for a pre-emption right but fail to provide a complete procedure to effect that process the courts can imply a term to ease such difficulties. This happened in Tett v Phoenix Property & Investment Co Ltd (1986) 2 BCC 99140.

In that case, the Court of Appeal implied a term that before transferring the shares to a non-member, a transferor should first take all reasonable steps to give the other members a reasonable opportunity to make an offer to buy. That offer had to be at a fair value, to be determined by the auditors in default of agreement. Reasonable steps meant giving notice of the intention to transfer to the other members so as to give them the opportunity to make the offer to buy.

In general, however, the courts will only imply terms which are necessary for the process to work rather than to establish the fairness of the procedure. [Re Benfield Greig Group Plc, [2000] 2 BCLC 488; Re Coroin Ltd (No2) [2013] EWCA Civ 781 at [87], per Arden LJ]”

Fourth, the following passages from the dissenting judgment of Arden LJ and the judgment of Lewison L.J. (who, together with Longmore LJ, formed the majority) in Cherry Tree Investments Ltd v Landmain Ltd [2012] EWCA Civ 736; [2013] Ch 305.

In that case, Arden LJ said at [39]-[41]:

“39.

… while there is no authority on the use of extrinsic material to interpret a registered charge, there is authority that supports the proposition that the mere fact that a document is registered on a public register does not mean that extrinsic evidence should not be used as an aid to interpretation. In particular, Lord Hoffmann at paragraph 40 of his judgment in Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 WLR 1101 addressed the argument that it was in some cases unfair to third parties to refer to the background material as an aid to interpretation … he recognised that, where a document was addressed to third parties it could be unfair if extrinsic evidence was taken into account in the interpretation of a document. He gave the examples of a company's articles of association and a bill of lading. Chartbrook represents the latest authority on the subject of the admission of extrinsic evidence as an aid to interpretation. It must therefore be taken to have superseded earlier inconsistent statements on this topic, and to represent the state of the law in this jurisdiction.

40.

Lord Hoffmann held:

“The law sometimes deals with the problem by restricting the admissible background to that which would be available not merely to the contracting parties but also to others to whom the document is treated as having been addressed. Thus in Bratton Seymour Service Co Ltd v Oxborough [1992] BCLC 693 the Court of Appeal decided that in construing the articles of association of the management company of a building divided into flats, background facts which would have been known to all the signatories were inadmissible because the articles should be regarded as addressed to anyone who read the register of companies, including persons who would have known nothing of the facts in question. In Homburg Houtimport BV v Agrosin Private Ltd, The Starsin [2004] 1 AC 715 the House of Lords construed words which identified the carrier on the front of a bill of lading without reference to what it said on the back, on the ground that the bankers to whom the bill would be tendered could not be expected to read the small print. Ordinarily, however, a contract is treated as addressed to the parties alone and an assignee must either inquire as to any relevant background or take his chance on how that might affect the meaning a court will give to the document. The law has sometimes to compromise between protecting the interests of the contracting parties and those of third parties. But an extension of the admissible background will, at any rate in theory, increase the risk that a third party will find that the contract does not mean what he thought. How often this is likely to be a practical problem is hard to say. In the present case, the construction of the agreement does not involve reliance upon any background which would not have been equally available to any prospective assignee or lender."

41.

The test for the exclusion of extrinsic material is thus whether the document is to be treated as addressed to third parties. Lord Hoffmann did not, for instance, suggest that the fact that the document had to be registered at a public registry was sufficient to exclude extrinsic evidence about the background. The test was satisfied in the case of a company's articles of association, a point also made by Lord Hoffmann in his speech in Attorney General of Belize v Belize Telecom Ltd [2009] 2 All ER 1127. In determining persons to whom a document is to be treated as addressed the court has to consider whether account has to be taken of their interests. Lord Hoffmann does not exclude the possibility of dealing with the problem of fairness to third parties in ways other than excluding extrinsic evidence altogether.”

Lewison LJ said at [129]-[130]:

“129.

In Attorney General of Belize v Belize Telecom Ltd Lord Hoffmann himself said of an earlier decision of the Court of Appeal discussing a company's articles of association:

"Because the articles are required to be registered, addressed to anyone who wishes to inspect them, the admissible background for the purposes of construction must be limited to what any reader would reasonably be supposed to know. It cannot include extrinsic facts which were known only to some of the people involved in the formation of the company."

130.

In my judgment this is the key to the present case. The reasonable reader's background knowledge would, of course, include the knowledge that the charge would be registered in a publicly accessible register upon which third parties might be expected to rely. In other words a publicly registered document is addressed to anyone who wishes to inspect it. His knowledge would include the knowledge that in so far as documents or copy documents were retained by the registrar they were to be taken as containing all material terms, and that a person inspecting the register could not call for originals. The reasonable reader would also understand that the parties had a choice about what they put into the public domain and what they kept private. He would conclude that matters which the parties chose to keep private should not influence the parts of the bargain that they chose to make public. There is, in my judgment, a real difference between allowing the physical features of the land in question to influence the interpretation of a transfer or conveyance (which we do) and allowing the terms of collateral documents to do the same (which we should not). Land is (almost) invariably registered with general boundaries only, so the register is not conclusive about the precise boundaries of what is transferred. Moreover, physical features are, after all, capable of being seen by anyone contemplating dealing with the land and who takes the trouble to inspect. But a third party contemplating dealing with the land has no access to collateral documents.”

Mr Bloch submitted that (a) the Articles of Association of the Claimant companies must mean what they have always meant, (b) the Articles are capable of affecting third parties who might not know the history, (c) the objects of the Claimant companies are broad, and (d) for these reasons the factual details of the development of the business, and the role in that of Mr Gerrie and Ms Hawksley are of limited, if any, relevance. He submitted that this is so regardless of whether the facts are in dispute. He also submitted that to the extent that there are disputes of fact in the present case they are not material in any event.

In the course of oral argument Mr Salzedo explained that he accepted that only extrinsic facts that were public knowledge were admissible as part of the factual matrix on the issue of construction of the articles of association, and that he was only relying on a small number of facts in this regard. As to what would be public knowledge, Mr Salzedo relied on the provisions of ss363-365 of the Companies Act 1985 concerning annual returns. Mr Salzedo submitted that the matters which were admissible as part of the factual matrix on this basis comprised or included with regard to each of the Claimant companies (a) that it is, essentially, a small company; (b) that it has had only ever had one class of share; (c) the number and identity of the shareholders when the Articles were created and indeed at all times since; and (d) accordingly, that there has only ever been a small number of shareholders. In support of this argument, Mr Salzedo relied, in particular, on the second part of [40] of the speech of Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 WLR 1101 and on [130] of the judgment of Lewison LJ in Cherry Tree Investments Ltd v Landmain Ltd [2012] EWCA Civ 736; [2013] Ch 305.

In my judgment, the cases establish that (a) there is no absolute prohibition on considering extrinsic material for the purpose of interpreting the articles of association of a company; (b) however, the admissible background for the purposes of construction is limited to what any reader of the articles would reasonably be supposed to know; and (c) in contrast, an implication based on extrinsic evidence of which only a limited number of people would have known is impermissible. Accordingly, I consider that Mr Salzedo’s submissions, as clarified or modified in oral argument, are correct.

That said, I do not consider that in the final analysis the point is of significance in the present case. This is because I have decided to approach the determination of the issues before me on the basis that, in accordance with what I understand to be the high water mark of Mr Bloch’s submissions, Article 5 should be interpreted purely from a consideration of the language used in it. Unsurprisingly, in light of the fact that Mr Bloch contested Mr Salzedo’s approach, I consider that, if that approach was to be followed, the extrinsic facts to which Mr Salzedo submits I could properly have regard would weigh in favour of Mr Gerrie and Ms Hawksley in carrying out that exercise.

I was referred by Mr Bloch to Re Castleburn Ltd [1989] 5 BCC 652 and Howie v Crawford [1990] BCC 332 and by Mr Salzedo to Pennington v Crampton [2004] BCC 611.

In Re Castleburn Ltd [1989] 5 BCC 652, the court was concerned with an application to strike out a petition for relief under s459 of the Companies Act 1985. HH Judge Paul Baker QC rejected the complaint of the petitioner, who had been removed as a director and required to give a sale notice in respect of all his shares, which was that the auditors should not have applied a discount to the value of his shares for a minority holding, but should instead have valued them pro rata and without any discount.

Article 9.2 of the articles of association in that case provided:

“The price at which the share shall be sold (hereinafter called the fair value) shall be such sum as shall have been nominated by the retiring member in the sale notice and agreed to by the directors, or, in the event of no such nomination or of disagreement, as shall be certified in writing by the auditors for the time being of the company upon the application of the retiring members or the directors to be the fair value thereof at the date of such certificate on a sale by a willing vendor to a willing purchaser.”

Mr Bloch relied on the fact that, although this wording referred to the fair value of a “share”, the judge concluded that“it is the block [of shares] … which has to be valued” and that “… the auditors are required to certify the fair value on a sale ‘by a willing vendor to a willing purchaser’. Thus one has to look at what a vendor would accept and a purchaser offer for the shares being valued, and one would expect this to include an uplift if the shares carried control, or a discount if they were a minority holding. Moreover, the discount would vary according to the size of the parcel…”.

I consider that it is necessary to look more closely both at the facts of that case and at other provisions in article 9 of those articles of association in order to see whether Mr Bloch’s reliance on this decision is well founded.

Having set out article 9.2, His Honour Judge Paul Baker QC set out what he described as the following “crucial provision” in article 9.10:

“Notwithstanding the foregoing provisions of this regulation, any member who is a director or employee of the company or any of its subsidiaries … shall upon such director or employee … ceasing to hold office as a director of or to be employed by the company or any of its subsidiaries, and if required by the holders of the majority in nominal value of the issued shares for the time being in the company, give a sale notice in respect of all the shares then registered in his or their respective names and, notwithstanding anything to the contrary contained in this regulation, the fair value in respect of such shares shall be that value certified by the auditors in accordance with cl. 9.2 hereof.”

The judge then recorded that, in reliance on article 9.10, the holders of the majority of the issued shares had required the petitioner to give a sale notice in respect of all his shares, and that the company had subsequently instructed the auditors of the company to value the petitioner’s shares as at a particular date which was accepted as the correct date for the purposes of valuation.

Later in his judgment, the judge explained his reasoning as follows:

“Accordingly, I return to the articles and specifically art. 9.10. I notice that it starts off with the words “notwithstanding the foregoing provisions of this regulation”, hence the terms of it are to prevail in the event of any conflicts with other parts of art. 9. A director who is required to give a sale notice – as is the petitioner – is required to give it in respect of all his shares. Then again, notwithstanding anything to the contrary, which is repeated later in the article, it states that the fair value in respect of such shares – all the petitioner's shares – is to be the value certified by the auditors in accordance with cl. 9.2. Thus we see that the property to be valued is the entire block of shares held by the petitioner.

Referring, therefore, to art. 9.2, as we are required to do, we see that it declares that the price at which “the share” (in the singular) is to be sold is, in the event of disagreement, to be “the fair value thereof … on a sale by a willing vendor to a willing purchaser”. The use of the singular “the share” is dictated by the terms of art. 9.1, which provides that if a sale notice includes several shares it is to operate as if it were a separate notice in respect of each such share.”

Finally, so far as material for present purposes, the judge said:

“It is true that there may be an issue as to the precise mode of valuation where each share is to be regarded singly, but in a case where the sale notice covers all the relevant shares and it is all such shares which are to be valued, it is the block, in my judgment, which has to be valued.”

In my judgment, the reason why His Honour Judge Paul Baker QC concluded that, although the wording of article 9.2 in that case began by referring to the fair value of a “share”, nevertheless what had to be valued was the entire block of shares that was being offered for sale by the departing director was not because of the way in which he interpreted article 9.2. Instead, it was because of the overriding provisions of article 9.10. The latter article had the effect that in the event that the sale notice covered all the relevant shares what the auditors had to ascertain was “the fair value in respect of such shares”. In my view, that is clear when wider regard is had to the text of the judgment than the limited and partial quotations upon which Mr Bloch relied. However, there is no equivalent in the present case of article 9.10. Accordingly, in my view this reasoning does not assist as to the correct interpretation of Article 5.

Moreover, it was on the basis that what was required to be valued was a block of shares that the judge held that the valuation would be expected “to include an uplift if the shares carried control, or a discount if they were a minority holding”. Accordingly, I consider that this decision does not assist if the valuation exercise involves ascertaining not the value of a block of shares but instead the value of each individual share.

In Howie v Crawford [1990] BCC 332, the managing director of a company held 40% of the shares. When he ceased to work full time for the company, this activated Clause 7.1 of his service agreement whereby he agreed that in that event his shares“will be offered to the existing members of the company in the proportions of their shareholdings who would then have to pay for such shares a fair market price and in the event of the parties not being able to agree a fair market price the determination of what is a fair market price shall be referred to the decision of a single arbitrator …”. On an appeal against the award of the arbitrator, Vinelott J held that the arbitrator had erred in law in holding that on the true construction of the agreement the expression “the fair market price” meant 40 per cent of the fair value as between the parties of the net assets of the company.

Vinelott J explained his reasoning as follows at 332-333:

“The market price of an asset is the price which that asset will fetch in the open market between a willing vendor and a willing purchaser. If the asset is a holding of shares in a private company the market price will normally, if not invariably, depend upon the proportion of the shares of the company comprised in the holding and on any special rights or restrictions contained in the articles of association of the company as well as on the value of the net assets of the company and its profit and dividend record. The addition of the word “fair” adds nothing except to remind the valuer that the market value must be ascertained on the assumption that there is a willing vendor and a willing purchaser, that there is a fair market and that no one would be excluded from bidding in it.”

It appears that the arbitrator had been referred to the decision of Nourse J inRe Bird Precision Bellows Ltd [1984] Ch 419 at 431, (1984) 1 BCC 98,992 at 98,997 in support of the proposition that “an apportionment of the net asset value of shares without any discount for a minority holding represented the fair basis of valuation in a quasi-partnership case”. Vinelott J observed“that case concerned a very different situation: the amount to be paid for the shares of a minority shareholder who claimed that the affairs of the company had been conducted by the majority in a way which was unfairly prejudicial to him”. Vinelott J also referred to the judgment of the Court of Appeal in the same case ([1986] Ch 658, (1985) 1 BCC 99,467).At 334, Vinelott referred “for completeness” to some observations of Oliver LJ in the Court of Appeal in that case, and drew a contrast between those observations and the facts of the case before him, in the following terms:

“In Bird Precision Bellows the articles provided for the service of a transfer notice by a member who was minded to dispose of his shares and for the auditors to fix the fair value of the shares. That value was to be fixed as if there had been a separate transfer notice in respect of each of the members' shares. AsOliver LJpointed out, that might also have had the consequence that the fair value would have to be ascertained without regard to the size of the member's holding by an arithmetical apportionment between each share of the fair value of all the shares. That principle has no possible application in the instant case where what has to be ascertained is the fair market price of Mr Crawford's 40 per cent holding.”

The relevant part of the judgment of Oliver LJ in Re Bird Precision Bellows Ltd [1986] Ch 658, (1985) 1 BCC 99,467is not cited by Vinelott J, but would appear to be as follows. Oliver LJ referred to passages in Dean v Prince & Ors [1954] Ch 409, including a passage in the judgment of Wynn-Parry J (who formed part of the Court of Appeal in that case) in which Wynn-Parry J drew attention to the express terms of an article which required the auditors to value the whole of the company’s share capital. Having referred to that matter, Oliver LJ noted that there was no such provision in the articles in Re Bird Precision Bellows Ltd. Oliver LJ then continued (at 675; 99,476):

“As I have said, one does not have an express provision to value the company's shares as a whole, but one has an express provision that if a transfer notice is given in respect of more than one share, it is to be treated as a separate notice in respect of each. So the valuer has, theoretically, to go through the process of ascertaining the value separately in relation to each share concerned, and I am bound to say that it is difficult to see then how there could be any room for any account to be taken of whether the shares comprised in a transfer notice as a whole formed a minority or a majority holding. Without expressing any concluded view on the matter, I am very much inclined to the view that the valuation of a share under the pre-emption articles in this case ought to be on the same basis as that held by this court to be appropriate in Dean v Prince, and that if the valuer were unwise enough to give his reasons for valuation, and to indicate that in those reasons he had taken into account the fact that all the shares which were being offered by all the deemed separate transfer notices together constituted a majority or minority holding, I think his valuation could be upset. But as I say, it is unnecessary to express any concluded view on the matter, because in a sense this is a make weight submission.”

In my judgment, the decision of Vinelott J turned on the fact that the departing director was required to offer to the other existing members his entire shareholding. Accordingly, the “asset” which fell to be valued in that case was the director’s 40% shareholding. In this regard, the facts of the case were similar to those of Re Castleburn Ltd [1989] 5 BCC 652. Whether the decision is of assistance in the present case depends on what is required to be valued in accordance with Article 5: if that is the “Transfer Shares” as a block, the decision provides helpful guidance; but if that is each individual share, it does not do so.

In Pennington v Crampton [2004] BCC 611, Lloyd J (as he then was) addressed a number of issues arising from the terms of the articles of association of a company which restricted the transfer of shares in the company. Lloyd J set out the relevant parts of article 8 of those articles at [18]:

“(A)

Subject as in these Articles provided, any share may be transferred to any member of the company and any share may be transferred by a member to his or her father or mother, or to any lineal descendant of his or her father or mother, or to his or her wife or husband, and any share of a deceased member may be transferred to the widow or widower, or any other such relative as aforesaid of such deceased member, or may be transferred to, or placed in the names of, his or her executors or trustees; and in any such circumstances (but subject as aforesaid) regulation 3 of Table A, Part II, shall not apply, save to ensure that the number of members shall not exceed the prescribed limit, or to prevent a transfer of shares on which the company has a lien.

(B)

A share shall not be transferred otherwise than as provided in Paragraph (A) of this Article unless it first be offered to the members at a fair value, to be fixed by the company's auditors. Any member desiring to sell a share (hereinafter referred to as a “retiring member”) shall give notice thereof in writing to the company (hereinafter referred to as a “sale notice”) constituting the company his agent for the purpose of such sale. No sale notice shall be withdrawn without the directors' sanction. The directors shall offer any share comprised in a sale notice to the existing members, and if within 28 days after the sale notice has been given a purchasing member is found, such purchasing member shall be bound to complete the purchase within seven days. Notice of the finding of the purchasing member shall be given to the retiring member, who shall be bound, on payment of the fair value, to transfer the share to the purchasing member. If the retiring member fails to complete the transfer, the directors may authorise some person to transfer the share to the purchasing member and may receive the purchase money and register the purchasing member as holder of the share, issuing him a certificate therefor. The retiring member shall deliver up his certificate and shall thereupon be paid the purchase money. If within 28 days after the sale notice has been given the directors shall not find a purchasing member for the share, and shall give notice accordingly; or, if through no default of the retiring member the purchase is not duly completed, the retiring member may at any time within six months after the sale notice was given, but subject to regulation 3 of Table A Part II, sell such share to any person and at any price.”

Lloyd J alluded to the various points he had to decide and said at [93]-[94]:

“93.

The next is what is meant by ‘fair value’ and a related point is whether the offer which will include all of the 400 shares must be accepted in respect of all, or may be accepted as regards all or any one or more, of the shares, ignoring for this purpose multiple acceptances.

94.

The article uses the singular throughout: a share or the share. It speaks once of any share as regards the directors’ obligation to make an offer. In that sentence, ‘any’ does not mean ‘one, some or several’, it means ‘all’ or ‘every’.”

Lloyd J then considered a number of authorities to which he had been referred, and said at [112]-[113]:

“112

… Accordingly, I find nothing in these authorities to support a rule requiring a pro rata valuation under the articles.

113

In any event, unless such a valuation is a consequence of the article and its reference to ‘a share’, it seems inherently unlikely that any one basis of valuation would be required as the fair value in relation to any block of shares, however large or small, and at whatever stage of the history and business of the company it arises.”

Having rehearsed the arguments in front of him, Lloyd J set out his core reasoning and conclusions concerning the issue of the method of valuation at [125]-[134]:

“125 But I am still left with the question whether what he must fix, as art.8(B) seems to say, is a value per share, or whether it is to be a value for the entire block of shares to be offered. The problem to which I have alluded, of fixing a price for a block of shares, not knowing by whom, if at all, it will be taken up, or, if the article permits, in respect of how many shares it will be taken up, is referred to by Robert Walker J in Macro v Thompson (No. 3) [1997] 2 BCLC 36 at p.70a–d. That problem would be avoided if the auditor's task is to fix a price per share, which Mr Hurst submits results from the use of the singular in the article. The value would then have to be taken by reference to the value of the company as a whole, divided by 2000 to get a value per share. It would eliminate what might be seen as unfairness or inconsistency as regards valuation of different blocks of shares, of differing interest to different shareholders, but at the expense of depriving the majority shareholder of what might be thought to be the added value of control. It would also go naturally with an ability for members to choose the number of shares offered which they wished to take up. …

127

Either construction can be regarded as achieving one of the purposes of a pre-emption clause, which is to give existing shareholders the opportunity, within limits, to control who becomes a new member. The singular construction, allowing acceptance of all or any part of the block of shares on offer, may produce an unsatisfactory result in some cases for the member seeking to dispose of shares, who may find that he has disposed of some of them but is left with a block of smaller size and lesser value proportionately that he is free to dispose of otherwise. But there may always be an incentive for existing members to accept in respect of all the shares offered if they can, because otherwise they may find that a stranger comes in as a member and even if with only a limited shareholding the presence of such a person may widen very considerably the privileged class.

128

It seems to me that it would be possible to construe art.8(B) as requiring acceptance in respect of the whole block of shares, and also requiring a fair value for the whole block, but such a reading would have to depend on reading the singular references as including the plural, under the Interpretation Act . It seems to me that this is not the natural reading of the article and despite it opening the way to some anomalies and possible unsatisfactory outcomes (for some of those concerned) I should hold that, although all shares referred to in any sale notice to the company must be offered to the existing members, any such existing member may accept in respect of all or any one or more of the shares, leaving the others, if not taken up, at the free disposal of the shareholder seeking to dispose of them, under the last words of art.8(B).

129

I also hold that the fair value to be fixed by the auditors is a value per single share, from which it follows, as it seems to me and I so hold, that the auditors must take a fair value for the whole company and divide it between the 2,000 issued shares, thereby producing a figure which applies consistently, whether the block offered is over 50 per cent, is between 25 and 50 per cent, or is less than 25 per cent of the issued share capital, whatever may be the size of holding of any likely buyer and whatever may be the number of shares that the buyer chooses to take up.

130

In reaching this conclusion, I am influenced above all by the consistent and apparently careful use of the singular throughout art.8(B) and the contrast with art.5, with its use of the plural in relation to a subject matter which, though different, has some analogy to that of art.8(B). …

133

The fair value, under art.8(B) is a value per individual share and is to be derived from the auditors' assessment of the net value of the entire issued share capital; therefore, on a pro rata basis without regard to the size of the block of shares to be offered.

134

In assessing the fair value of the company on this basis, it is for the auditors to consider all relevant circumstances known to them, as to which what I have said in my judgment probably amounts to no more than platitudes but might be of some assistance, but the only material point on which I have ruled of relevance is that they should not take into account litigation between the shareholders or between a shareholder (as such) and the company.”

The agreed wording of this issue is as follows:

“Whether the accountants referred to in Article 5(c) (“the Accountants”) are required to conduct their valuations on the basis (a) of a pro rata proportion of the value of the whole equity of each company; or (b) on the basis of the price that might be achieved for the Transfer Shares as between a willing buyer and a willing seller of that block of shares (having regard to, among other things, its status as a minority shareholding, if and insofar as the Accountants consider that a willing buyer and willing seller of that block of shares would consider the same to be material); or (c) on some other, and if so what, basis; or whether (d) the Accountants are entitled to use whichever basis of valuation they consider to be appropriate.”

The Claimants contend that the correct answer is (b); Mr Gerrie and Ms Hawksley contend that it is (a).

Mr Bloch’s main submissions were as follows.

First, so far as concerns the expression “fair value”:

Second, so far as concerns the expression “as between a willing buyer and a willing seller”:

Third, assistance as to the proper interpretation of Article 5(C) is to be derived from a consideration of Article 5(L):

Mr Salzedo’s central contention was that Article 5(C) requires the Accountants to value “the Company” and so arrive at a price “per share”. It follows that the valuation of the Transfer Shares will be pro rata. The Accountants are not required to value the Transfer Shares as such and are therefore not to value, for example, by reference to the size of the particular block of shares being transferred. The Accountants are not to apply any premium in respect of the sale of a majority shareholding; nor are they to apply any discount in respect of the sale of a minority shareholding.

In support of that contention, Mr Salzedo relied on the following principal arguments.

First, Article 5(C) uses the singular “share” (as opposed to “shares” or “block of shares”), and the Prescribed Price is defined as being such sum “per share” as shall either be agreed between the Vendor and the Company or determined and certified in writing by the Accountants. This strongly suggests that the Prescribed Price is to be ascertained based on a pro rata valuation (i.e. by dividing the total equity of the Company by the number of issue shares in order to arrive at a price “per share”).

Second, the matter is put beyond doubt by the requirement that the Accountants approach their task by “valuing the Company on a going concern basis”. The task is therefore set out in two clear stages: (i) value the Company; and (ii) arrive at a price per share. That single price per share is then applied to the Transfer Shares in whatever various tranches they may actually end up being transferred, either to existing shareholders pursuant to the provisions of Article 5(D) and 5(F) or to other persons or the Company itself under Article 5(G) or 5(L).

Third, the Accountants cannot be required to value the Transfer Shares by reference to the size of the particular block of shares being sold because, at the time at which they are required to calculate the Prescribed Price in accordance with Article 5(C), they will not know the size(s) of the block(s) that will ultimately be transferred or whether in the hands of the transferee some or all of them will constitute a majority or a minority shareholding. This is the result of the following provisions of Article 5 (emphasis added):

Third, Article 5(L) does not assist in the proper interpretation of Article 5(C) for the following reasons:

In the course of oral submissions, Mr Bloch added an argument that the reference to a price per share in Article 5(C) cannot be a reference to the totality of the shares in the Company, since (a) in light of the incorporation of Table A in the articles of association in the present case, it was open to each of the Claimants by ordinary resolution to create shares with any preference or advantage, and (b) accordingly, different shares in the Claimants might have different preferences and advantages.

Mr Salzedo responded that the Companies had not, in fact, ever made any such resolution, and he suggested that the emergence of this point explained why Mr Bloch had pursued with such vigour the argument concerning the extent to which it would be permissible to have regard to extrinsic evidence when construing the articles of association of a company.

In my view, the wording of Article 5(C) addresses four matters, in the following order: (i) the basis upon which the Accountants are to determine and certify the valuation that they are tasked with carrying out; (ii) the mechanism by which they are to be nominated; (iii) the capacity in which the Accountants are to act; and (iv) the status of their certificate.

The first part provides that:“The ‘prescribed price’ shall be such sum per share as shall be agreed between the Vendor and the Company failing which it shall be the median price of the prices as determined and certified in writing by two independent chartered accountants as being in their opinion the fair value thereof as between a willing buyer and a willing seller valuing the Company on a going concern basis”. This part of Article 5(C) is concerned with fixing a price per share, on the basis that, in default of agreement between the Vendor and the Company, that price is to be set by reference to “the fair value thereof” as determined and certified by the Accountants.

In my judgment, it is clear that the subject matter of the “thereof” in this wording is an individual “share” and not “the Transfer Shares”. The words “the fair value per share” could be substituted for “the fair value thereof” without any significant alteration of meaning. The same does not apply to the substitution of the words “the fair value of the Transfer Shares”. In my view, that would bring about a significant change of meaning.

I do not consider that there is necessarily any tension between this interpretation of these words and the wording of the third part of Article 5(C), which provides that when “determining and certifying the fair value of the Transfer Shares as aforesaid” the Accountants are to act as experts, because it seems to me that the exercise of determining and certifying the fair value of each share will produce a result which can sensibly be described (compendiously) as “the fair value of the Transfer Shares”. It is true that (i) this “fair value of the Transfer Shares” will be the product of the approach that, on my analysis, is set out in the first part of Article 5(C), and (ii) other approaches could reasonably be adopted if what was sought to be arrived at was “the fair value of the Transfer Shares”. However, that provides no reason to reject the construction that what the third part of Article 5(C) is contemplating is that the “fair value of the Transfer Shares” can be derived by adding up the fair value of each individual share.

If, contrary to that view, there is an inconsistency between the first and third parts of Article 5(C), I do not consider that the tail can be allowed to wag the dog, and precedence must be accorded to the first part (which I regard as substantive) in comparison to the third part (which I regard as ancillary or subordinate).

In my judgment, the requirements that the “fair value” should be (i) that which applies “as between a willing buyer and a willing seller” and (ii) derived from “valuing the Company on a going concern basis” do not assist in deciding whether what is to be valued is each individual share or the Transfer Shares as a block. It seems to me that these expressions could equally be given effect on either approach. I consider that the purpose of these requirements is to make clear that, in conducting the valuing exercise, the notional sale should not be approached on the basis that it is a forced sale, or on the basis that what is being sold is a shareholding in a company that is being broken up.

In any event, I am wholly unpersuaded by the argument put forward on behalf of the Claimants that the subject matter of the hypothetical transaction between a willing buyer and a willing seller “can only be the Transfer Shares” and that, for this reason, the task of the Accountants in accordance with Article 5 must be to determine the value which would be paid for a block of shares. I see no reason why the subject of that hypothetical transaction should not be one or more individual shares.

In my opinion, however, there is a further reason why, on a proper interpretation of Article 5, the Accountants’ task is to fix a price per share, as opposed to fixing a price for “the Transfer Shares” as a block. This is, in short, that the Accountants will be unable to fix the value of the Transfer Shares by reference to the size of the particular block of shares being sold because, at the time at which they are required to calculate the Prescribed Price in accordance with Article 5(C), they will not know the size(s) of the block(s) that will ultimately be transferred or what significance they will or may have in the hands of the transferee (e.g. by creating a majority shareholding). I accept Mr Salzedo’s submission to this effect, and that this result follows from the wider provisions of Article 5 to which he referred, namely Articles 5(B)(a), 5(D), 5(F), 5(G) and 5(L).

In this regard, it is important to bear in mind that Article 5(C) must be interpreted in such a way that it can be applied to the range of circumstances which are contemplated by those provisions. In the event that the Accountants are called upon to perform a task, it must be one that they can sensibly be expected to carry out. One possibility is that the Vendor does not choose to specify in the Transfer Notice that unless all the Transfer Shares are sold none shall be sold. Another possibility is that the Directors of the Company decide that the Transfer Shares should be sold in a number of lots.

It seems to me that it would be difficult, if not impossible, to require the Accountants to fix a price for “the Transfer Shares”, when, in circumstances such as these, they would not know how many shares are ultimately going to be transferred, or in what lots, or in respect of how many shares the offer of sale may be taken up, or when, or by whom.

In my view, Mr Bloch’s argument concerning the ability of the Company to resolve to create shares with any preference or advantage does not assist the Claimants. I accept that, if this power is exercised, there may be different classes of shares with different values. However, I do not consider that, in that event, this should give rise to any difficulty in determining and certifying a fair value per share, or, in Mr Bloch’s words, that “it would make no sense simply to value the company and then endeavour to distribute that value between not simply the classes of shares, but individual shares within those classes”. Although, in these circumstances, the task would require a different value per share to be determined in respect of each class of share, the exercise of distributing the value of the Company between different individual shares could still be done. The job would be more complicated than if there was only one class of shares, but, in such circumstances, the job of valuing a block of shares would also be, or at the very least might also be, more complicated. To that extent it does not appear to me that this additional argument is of any significant help to either side.

However, I consider that the possible existence of different classes of shares would involve adding to the uncertainties concerning “the Transfer Shares” that are discussed above an additional uncertainty as to how many shares in each class are ultimately going to be transferred, or in what lots, or in respect of how many shares in each class the offer of sale may be taken up, or when, or by whom. To that extent, it seems to me that the existence of this possibility weighs against the Claimants’ case on construction.

I do not consider that the contents of Article 5(L) either assist in determining the correct interpretation of Article 5(C), or afford any basis for tempering the above views.

I accept that, at least in some circumstances, the Prescribed Price may well be different depending upon whether it is calculated (a) on the basis of a pro rata proportion of the value of the whole equity of the Company (“the pro rata basis”) or (b) on the basis of the price that might be achieved for all the Transfer Shares as between a willing buyer and a willing seller of a block of shares (“the block basis”). For example, if the Transfer Shares comprise a minority shareholding, a Prescribed Price calculated on the pro rata basis may well be higher than a Prescribed Price calculated on the block basis. That may explain the rival positions of the parties before me. If the Transfer Shares comprise a majority shareholding, it seems to me that the converse may well be true.

Moreover, I accept that, if the result of using the pro rata basis is to produce a Prescribed Price which is higher than would result from using the block basis, and if the price that an arm’s length third party buyer would be willing to pay if offered any unsold shares pursuant to Article 5(L) is less than that produced by using the pro rata basis, then the effect of using the pro rata basis may be to hinder or prevent the Vendor from disposing of any shares that he has not become obliged to sell under the antecedent paragraphs of Article 5. Again, however, it seems to me that this is only part of the picture, because, on that premise, the Prescribed Price will have been fixed at a level which is higher than the price that the Vendor could expect to obtain on the open market, such that anyone who wishes to exercise the pre-emption rights for which those antecedent paragraphs make provision will have been obliged to pay a price for any Transfer Shares that they wish to buy that is higher than the open market price. One possibility is that this will be to the advantage of the Vendor, because the persons who enjoy those pre-emption rights will wish to exercise them notwithstanding the level of the Prescribed Price. To the extent that this advantage does not materialise, that is not the end of the matter, because if the Vendor still wishes to dispose of his or her shares, the Article 5 process can be repeated.

In sum, it seems to me that no solution is perfect. Whichever basis of valuation is adopted under Article 5(C) is likely to produce an element of swings and roundabouts for each side. At the end of the day, I consider that Mr Salzedo is right in saying that Article 5(L) tells one nothing about what the Prescribed Price should be or how it should be calculated, and that it would function equally well irrespective of the particular basis of valuation used to calculate the Prescribed Price under Article 5(C).

For these reasons, I decide this issue in favour of Mr Gerrie and Ms Hawksley.

I have reached this conclusion without having to rely on the cases to which I have been referred in which the court has considered the wording of various articles of association, none of which are entirely the same as the wording of Article 5 in the present case. However, for reasons explained above, I do not consider that the decisions in Re Castleburn Ltd [1989] 5 BCC 652 and Howie v Crawford [1990] BCC 332 are of any great assistance in the present case. In contrast, I consider that the reasoning of Lloyd J in Pennington v Crampton [2004] BCC and the observations of Oliver LJ in Re Bird Precision Bellows Ltd [1986] Ch 658, (1985) 1 BCC 99,467 are helpful, because they relate to provisions which are, in my judgment, comparable to Article 5.

Accordingly, I consider that those cases support the conclusion that I have reached.

The agreed wording of this issue is as follows:

“If the answer to question (1) is (b), whether the Accountants are, in respect of the Defendants’ shares in each of the Claimants, required to value the tranche of 955 shares that Mr Gerrie owns outright (“Tranche A”) and the tranche of 853 shares that Mr Gerrie and Ms Hawksley own jointly (“Tranche B”) (a) separately; (b) together; or (c) entitled to make their own decisions as to the basis of valuation.”

On the Claimants’ case, this issue does arise, and they contend that the correct answer is (a). On the case of Mr Gerrie and Ms Hawksley, this issue does not arise, but, if it did, they contend that the correct answer is (c).

In my judgment, as set out above, the answer to the question raised by Issue 1 is not (b).

Accordingly, Issue 2 does not arise, and I propose to say no more about it.

The agreed wording of this issue is as follows:

“Whether the Accountants’ valuations should be conducted on the basis of (a) publicly available information only; or (b) on the basis also of such further information available and relating to the Claimants as the Accountants may request from them.”

The Claimants contend that the correct answer is (a); Mr Gerrie and Ms Hawksley contend that it is (b).

Mr Bloch’s main submissions were as follows:

Mr Salzedo’s main submissions were as follows:

Article 5 does not expressly state the information with which the Accountants are to be provided, and I am unable to accept that, applying the correct approach to construction that is set out above, any of the arguments put forward by the Claimants provide a basis for construing Article 5 as if it limited the information with which the Accountants are to be provided to “publicly available information”. Nor do I consider that there is any basis for implying a term to this affect, applying the approach stated most recently by the Supreme Court in Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited & Anr [2015] UKSC 72, [2015] 3 WLR 1843.

In my view, the correct interpretation of Article 5 is that it is for the Accountants to decide what information they require in order to carry out the job that they have been appointed to do. It appears to me to that (a) this accords with the agreed principles that apply to the construction of articles of association, as set out above, and (b) any different or more restrictive approach would not be in keeping with those principles. I have in mind, in particular, the summary provided by Lord Neuberger PSC in Arnold v Britton [2015] UKSC 36, [2015] 2 WLR 1593, and the statements in Palmer to the effect that articles of association are commercial documents and should be construed so as to give them reasonable business efficacy, where a construction tending to that result is available on the language used, in preference to a result which would or might prove unworkable.

If I am wrong about that, I consider that a term to that effect should be implied in accordance with the “clear, consistent and principled approach” identified and commented on by Lord Neuberger PSC in the Marks and Spencer case.

In short, at the heart of Article 5 is the concept of getting the Accountants to carry out a valuation exercise in the event that the Vendor and the Company are unable to agree on the Prescribed Price, and I am unable to see how the parties can have intended the Accountants to carry out that task, or how the Accountants could be expected to carry it out, unless they are provided with the information that they need to perform it. To set up a procedure for appointing expert valuers, and to then require those experts to carry out their valuation on some basis other than providing them with whatever information is available and they consider they need to do their job appears to me to be contradictory, to risk placing the experts in an invidious and unworkable position, and a recipe for disaster.

I consider that these views are supported by the cases concerning pre-emption clauses to which I have been referred, in which it appears to me that the courts have consistently made clear that when assessing “fair value” it is for the valuer to consider all relevant circumstances, and in which (with limited exceptions, which depend on the facts of the particular case) the courts have refrained from circumscribing those circumstances. They are also supported by, or at least are consistent with, Cream Holdings Ltd v Davenport [2012] BCLC 365, for the reasons which Mr Salzedo identified in his submissions.

No doubt the information that the valuer reasonably considers that he requires will depend on the nature of the valuation exercise that he is being called upon to perform. In this regard, the Accountants in this case will need to pay heed to my ruling on Issue 1.

It seems to me that a significant part of the Claimants’ case on Issue 3 depends on the suggestion that the Accountants should not be provided with any more information than Mr Gerrie and Ms Hawskley are entitled to receive as shareholders and/or that a prospective outside purchaser would be entitled to receive in the event that Article 5(L) comes into play. I do not find this line of argument at all convincing.

Where a valuation has been produced as a result of the work of two independent chartered accountants who have had access to all the information concerning the Company that they considered they needed, this is likely to provide an acceptable basis for a reasonable third party to assess the value of any shares that are offered by the Vendor pursuant to Article 5(L) even if that third party is unable, e.g. on grounds of confidentiality, to have access to all the information on which that valuation is based. I therefore doubt that there would arise in practice any significant risk of a mismatch between the Prescribed Price and the price which a third party would be willing to pay, and that for this reason the Vendor will be left with shares that he is unable to sell pursuant to Article 5(L).

However, even if that is wrong, I do not consider that the prospect that this may occur could provide a sufficient basis for restricting the Accountants to considering only “publicly available” information, if they would otherwise require additional information for the purpose of ascertaining “fair value” in accordance with my ruling in Issue 1 above.

For these reasons, I decide Issue 3 in favour of Mr Gerrie and Ms Hawksley.

The agreed wording of this issue is as follows:

The Claimants contend that the correct answer is (a); Mr Gerrie and Ms Hawksley contend that it is (b).

Mr Bloch’s submissions on this issue are incorporated in the summary of his submissions on Issue 3 set out above.

Mr Salzedo’s submissions were as follows:

In my view, in addition to information which is publicly available, the Vendor is entitled to tell any prospective third party purchaser of the Transfer Shares anything which (a) the Vendor knows about the Company or which bears on the value of those shares and (b) the Vendor is not otherwise inhibited from disclosing (e.g. because some of what the Vendor knows is subject of obligations of confidentiality to the Company).

Where the Prescribed Price has been arrived at on the basis of a valuation process carried out pursuant to Article 5(C), the information which the Vendor can pass on to a prospective third party purchaser will include (a) the prices determined and certified in writing by the Accountants (and, thus, the “fair value” of each individual share that is being offered for sale, as fixed in accordance with Article 5(C)) and (b) any other information that the Vendor has learned as a result of that process, save only to the extent that the Vendor has received that information subject to an obligation of confidentiality.

I consider that the mechanism for asserting and preserving any confidentiality that may be claimed by the Company (or anyone else who provides information to the Accountants for the purposes of enabling them to carry out their valuation pursuant to Article 5(C)) is, in the first instance, to assert this to the Accountants, and, in the second instance, for the Accountants to decide how to deal with the information in light of that assertion. In case of disagreement or uncertainty, application can be made to the court: by the Accountants if they need guidance and are uncertain as to what they should do; by the Company (or any other party asserting confidentiality) if it is considered that the Accountants are going to breach confidentiality; and by the Vendor if he considers that the Accountants are withholding information from him, or are communicating it to him subject to restrictions as to further use or disclosure by him, without good reason.

It seems to me that, in this way, an appropriate balance is struck between the Vendor’s right of transfer inherent in personal property such as the Transfer Shares and other legitimate rights, such as confidentiality.

Although no submissions were addressed to me about this, if my understanding is right, this will mean that the Vendor is in no better and no worse position than any other owner of property who wants to sell what he owns but who is at the same time subject to obligations of confidentiality in relation to information which affects the value of his property. In some cases, those obligations, properly understood, do not prevent the owner from disclosing the confidential information for legitimate purposes, subject perhaps to obtaining appropriate restrictions from the prospective buyer of the use to which the information may be put. The way of resolving any tension between the owner’s wish to maximise the sale price and the legitimate rights of those asserting confidentiality is to decide, on the concrete facts of the case, whether and to what extent it is appropriate that the rights of confidentiality should be construed or tempered to take account of the owner’s legitimate interest in selling his property (including the extent to which the person to whom obligations of confidence are owed can be protected by obtaining appropriate undertakings from the prospective purchaser).

Although these points were there discussed in different contexts, the cases recognise that there is a public interest in maintaining confidentiality, and accordingly it is subject to public policy considerations, one of which is that regard needs to be had to countervailing public interests, including the public interest in freedom of trade (see, for example, Printers & Finishers Ltd v Holloway [1965] 1 WLR 1, Attorney-General v Guardian Newspapers Ltd (No 2) [1990] 1 AC 109).

This may be no more than another way of saying that the potential transferee should be provided with such information as he or she may reasonably request (on the basis that no one could reasonably request information which is subject to an obligation of confidentiality, and where confidentiality cannot be protected by undertakings), but I am not convinced that it goes as far as to place an obligation on the Claimants to provide information. I have reached the conclusion that I have on the basis of applying what I perceive to be the common law (and maybe common sense) to the circumstances to which the Article 5 process gives rise. I am not sure that this is even a matter of construction of Article 5: on one view, it looks beyond the meaning of the wording and involves addressing what is to happen in practice on the ground if Article 5(C) is invoked.

I agree, however, that if an obligation is to be placed on the Claimants, this would have to be as a matter of implication. I am not persuaded that the tests for implication of such a term are made out, in light of the conclusion that I have reached as to what the Vendor may divulge to prospective third party purchasers in any event.

In addition, I am not persuaded that the decision of Lord Hoffmann in O’Neill v Phillips[1999] 1 WLR 1092 is of assistance in this context. It seems to me that case was addressing different circumstances than those which arise under Article 5(L). It was concerned with what is required to be known to both sides for a “fair” valuation in the context of a petition for unfair prejudice, not with what a potential purchaser can be expected to require to know (fairly or otherwise) in the context of a transfer of shares.

I am not sure that Mr Gerrie and Ms Hawksley lose much by the difference between my approach and the answer for which Mr Salzedo contends. It seems to me that, if the test is whether any requests they may make for information from the Claimants are “reasonable”, there may be fertile ground for argument over this, all of which would arise against the background that the window of time in Article 5(L) is only 90 days.

I acknowledge that, on my approach, there may still be room for argument over whether or not confidentiality has been asserted rightly, and, if it has, over how the balance should be struck between maintaining confidentiality and the Vendor’s right of transfer. However, on my analysis, all or most of that debate would take place earlier in the process envisaged by Articles 5(C)-(L), and so be subject to less severe time pressure.

For these reasons, my ruling on Issue 4 is that a potential transferee of the Defendants’ shares under Article 5(L) is not to be provided with publicly available information only, but is instead to be provided with such further information available and relating to the Claimants as the Defendants know and are not prevented from disclosing due to obligations of confidentiality to the Company (or any other person(s)) including, where the Prescribed Price has been arrived at on the basis of a valuation process carried out pursuant to Article 5(C) (a) the prices determined and certified in writing by the Accountants (and, thus, the “fair value” of each individual share that is being offered for sale, as determined in accordance with Article 5(C)) and (b) any other information that they have learned as a result of that process, save only to the extent that they may have received that information subject to an obligation of confidentiality.

The agreed wording of this issue is as follows:

“Whether the “any person” to whom Article 5(L) gives the Vendor liberty to transfer shares is (a) restricted to natural persons (so as to exclude a corporate transferee); or (b) not so restricted.”

The Claimants contend that the correct answer is (a); Mr Gerrie and Ms Hawksley contend that it is (b).

Mr Bloch contrasted the wording of Article 5(L) with that of Article 5(G). Article 5(L) provides that the Vendor has liberty to transfer any of the Transfer Shares which he has not become obliged to sell under the pre-emption provisions, to “any person”, whereas Article 5(G) gives the Company the right, at an earlier stage of the process, to sell to “any person or Company of whom or which in its absolute discretion it shall approve” (emphasis added). Mr Bloch submitted:

Mr Salzedo submitted that the Claimants’ argument that the words “any person” in Article 5(L) are restricted to any natural person (so as to exclude a corporate transferee) is plainly wrong, for the following reasons.

First, in Article 2(a) (directors’ power to allot shares), the term “person” is used in a context where it would be highly surprising for it to be encumbered by such a restriction.

Second, the Articles incorporate Table A as it stood in 1985 (see Article 1(a)). Table A is peppered with the word “person” in contexts were it could not be limited to natural persons (including, in particular, where it refers to any member of the company).

Third, the context for the Articles and Table A is the Companies Act 1985, which was also liberally sprinkled with the word “person”. Because “person” is not separately defined in the Companies Act 1985, its definition in Schedule 1 of the Interpretation Act 1979 applies in that context, namely: “‘Person’ includes a body of persons corporate or unincorporate.”

Fourth, the plain and natural meaning of the words “any person” in Article 5(L) is that it applies to any potential transferee of the Transfer Shares, irrespective of whether they are a “natural person” or a “legal person.” The contrary, restrictive interpretation advanced by the Claimants can only be sustained either by reading-in the words “natural” between the words “any” and “person” or by implying a prohibition against transfers “to corporate transferees” or “legal persons.” The Court should not strive to uphold such a restrictive and artificial interpretation of Article 5(L). If the words “any person” are to be construed as referring only to “natural persons” (and as thereby precluding a transfer to any legal or corporate persons), this would impose a significant restriction on the freedom of Mr Gerrie and Ms Hawksely (and that of the other members) to transfer their shares in accordance with the pre-emption provisions of Article 5. If the draftsman of the Articles had intended the provision to be read in this way then he could (and should) have spelt out a prohibition against transfers to legal persons in express and unambiguous terms.

In this regard, Mr Salzedo placed reliance on Greenhalgh v Mallard [1943] 2 All ER 234. In that case, the articles of association provided that any member desiring to transfer his or her shares had to offer them first to the existing members. The Court of Appeal unanimously held that the relevant article was only concerned with transfers to non-members and that it did not apply to transfers to existing members. Lord Greene MR rejected the submission (at 236H) that the articles should be read “as containing a prohibition that no shares in the company shall be transferred to any person, whether a member or not”. Having referred to previous authority, Lord Greene MR went on to say (at 237A) that “there was not there, any more than there is in this case, an express prohibition against transfers to members. There is an express prohibition against transfers to non-members. If a prohibition against transfers to members is to be found it can only be found by implying into the affirmative directions in [the relevant article] a negative restriction which is not expressed in terms.” At 237B-C Lord Greene MR said:

“... in the case of the restriction of transfer of shares I think it is right for the court to remember that a share, being personal property, is prima facie transferable, although the conditions of the transfer are to be found in the terms laid down in the articles. If the right of transfer, which is inherent in property of this kind, is to be taken away or cut down, it seems to me that it should be done by language of sufficient clarity to make it apparent that that was the intention.”

Fifth, there is no commercial justification for construing Article 5(L) restrictively such that a member is only entitled to sell to his or her shares to a “natural person” under this provision. Article 5(L) is a default provision that only applies in the event that all of the Transfer Shares have not either been taken up by the existing members under Article 5(D) or sold by the Company under Article 5(G). There is therefore no risk or potential prejudice to either the existing members or the Company by permitting the Vendor to sell any remaining shares to a pool of potential transferees that includes both “natural persons” and “legal persons.” Neither the existing members nor the Company need compete to purchase the Transfer Shares against the pool of persons to whom the Vendor might sell directly under Article 5(L).

Sixth, it is immaterial that Article 5(L) refers to the right of a member to sell any remaining Transfer Share to “any person” whereas Article 5(G) refers to the right of the Company to sell to “any person or Company.” This is because the term “Company” in Article 5(G) is capitalised. Properly construed, the effect of Article 5(G) must therefore be that, in the event that all of the Transfer Shares are not taken up by the existing members under Article 5(D), then “the Company” is entitled to sell any remaining shares to “any person” (being any natural or legal person) or to purchase those shares for itself. If that is not correct, then it would seem that Article 5(G) has not been drafted with care or precision (in the words of Lord Greene MR in Greenhalgh v Mallard, it has not been “artistically drawn”). There is therefore no reason to think that the reference to “any person or Company” in this provision was intended implicitly to restrict the definition of “any person”in Article 5(L) or to cut down the scope of the transfer rights set out in Article 5(L).

I agree with Mr Salzedo’s submissions to the effect that (a) the plain and natural meaning of the words “any person” in Article 5(L) is that it applies to any potential transferee of the Transfer Shares, irrespective of whether they are a “natural person” or a “legal person”, (b) the interpretation advanced by the Claimants can only be sustained either by reading-in the words “natural” between the words “any” and “person” or by implying a prohibition against transfers “to corporate transferees” or “legal persons”, (c)if the words “any person” were to be construed as referring only to “natural persons” (and as thereby precluding a transfer to any legal or corporate persons), this would impose a potentially significant restriction on the freedom of the Vendor to transfer his or her shares, and (d) the court should be slow to attribute such a restrictive interpretation to Article 5(L) for sound reasons which are reflected in the judgment of Lord Greene MR in Greenhalgh v Mallard [1943] 2 All ER 234.

I consider that the use of a capital letter in the second mention of the word “company” in Article 5(G) is a typographical mistake, and that the reference to “any person or Company” in Article 5(G) should be read as “any person or company”.

I also consider that the use of the expression “person or company” in Article 5(G) is deliberate, in light of the immediately following words “of whom or which [it shall approve]” (emphasis added).

I accept that, although the Company has (on that basis) the right to sell the Transfer Shares to any person or company of whom or which it shall approve, there could be good reasons why, when it comes to the Vendor exercising the liberty to transfer contained in Article 5(L), the parties should have wanted to restrict the outside persons to whom or which a transfer could be made thereunder.

I also accept that where an agreement appears to have been the subject of careful drafting it should ordinarily be presumed that language is used consistently throughout, although the extent to which that principle is of application in the present case is slightly tempered by the fact that there are typing errors in bothArticle 5(E) and Article 5(G).

In my judgment, however, these points provide far too slender and unsatisfactory a basis for rejecting Mr Salzedo’s points which I have summarised in paragraph 126 above. Those are the arguments which he advanced which weigh most with me, although I am not to be taken as holding that there is nothing in any of his other points.

For these reasons, I decide this issue in favour of Mr Gerrie and Ms Hawksley.

The agreed wording of this issue is as follows:

“Whether liability for the fees and expenses of the Accountants is (as between the Claimants and the Defendants) (a) the responsibility of the Defendants in any event, (b) to be shared between the Claimants and the Defendants; or (c) a matter to be determined by the Accountants themselves.”

The Claimants contend that the correct answer is (a); Mr Gerrie and Ms Hawksley contend that it is (b).

It was common ground between the parties that the Articles make no provision as to who is liable (either initially or ultimately) for the Accountants’ fees, and that it is therefore necessary to imply a term to determine how they are to be allocated.

Mr Bloch submitted as follows:

Mr Salzedo submitted as follows:

I hope that I do Counsel no discourtesy, and that I can do justice to their arguments on this topic, by saying that I have no hesitation in preferring Mr Salzedo’s submissions.

I therefore rule in favour of Mr Gerrie and Ms Hawksley on this issue.

In the result, the Defendants have been successful on Issues 1, 3, 5, and 6, and have succeeded in substance on Issue 4; and Issue 2 does not arise.

Counsel should agree a form of order which reflects the above rulings. I will hear submissions on any points on which they are unable to agree, and on any other issues such as costs and permission to appeal, either when judgment is handed down, or at some other convenient date.