Rivnu Investment Limited and another v United Docks Limited and another

This appeal turns on clause 11 in an agreement dated 30 June 2006 between four shareholders in the second respondent, Axys Group Ltd (“Axys”) (then called ACMS Holding Ltd). By clause 11, each granted to the others an option to purchase all or part of its shares “should there be any change in [its] shareholding structure …, resulting in the loss of the controlling interest of the shareholder(s) which/who currently hold(s) such controlling interest in the said party”. Following a re-organisation, the four shareholders were at the date of the agreement, the first appellant, Rivnu Investment Ltd (“Rivnu”), the second appellant, Portfolio Investment Management Ltd (“PIM”), Compagnie Desmem Ltée (“Desmem”) and the first respondent, United Docks Ltd (“UDL”). The first three companies each owned 20%, while the fourth owned 29.15% of the shares in Axys. Together they therefore owned some 89% of the shares in Axys on 30 June 2006. Desmem later amalgamated with Compagnie d’Investissement et de Développement Ltée (“CIDL”), and is a co-respondent to the appeal.

Axys was the holding company of ACMS Ltd, a relatively small company incorporated in 1996 and involved until 2006 in financial advisory and consultancy services and pension fund administration services. UDL is in contrast a large company with extensive interests additional to its interest in Axys. It had some 1,900 shareholders. However, on the evidence (recited more fully below), the position until June 2006 had been that “very low attendance” at annual general meetings meant that three of its shareholders - Promotion and Development Ltd (“P & D”), owning 11.65% of Axys’s shares, Anglo-Mauritius Assurance Society Ltd (“AMASL”), owning 6.62%, and La Prudence Mauricienne Assurance Ltée (“La Prudence”), owning 6.51% - “usually represented a very large majority and most substantial percentage of the members present and voting and in fact had appointed the then board of directors of UDL”. UDL’s 12 person Board was chaired by Mr Jean Piat and the chief executive officer was Mr Michel Rivalland.

On 18 July 2006 the position changed. A director of, and a major shareholder holding some 22% of the shares in, La Prudence was Mr Dominique Galéa. He was also the chair, and the major shareholder holding 89% of the shares in, Ducray Lenoir (Investments) Ltd (“Ducray Lenoir”). Ducray Lenoir was in turn party to a joint 50/50 venture in Horus Ltée (“Horus”) with Harel Frères Ltd (through the latter’s wholly owned subsidiary, Harel Frères Investments Ltd), whose managing director and most senior executive was Mr Cyril Mayer. Horus in July 2006 acquired the shareholdings in UDL previously held by P & D and AMASL, totalling 18.27%, at, it appears, a considerable premium over their general market price.

Horus then set about obtaining control of the Board. It eventually required UDL to give notice of a special general meeting to be held on 17 October 2006, to remove and replace all the existing directors, save two, Mr Leclézio and Mr Fondaumière (who appear to have been associated with AMASL and P & D). The ensuing struggle for control of the Board was fought out in letters to the general body of shareholders, with each side advocating the merits of its vision for UDL’s future, accompanied by considerable press coverage. Horus’s view of the current management of UDL was set out bluntly in a letter to UDL’s shareholders dated 21 September 2006. In that letter, Horus noted that the profit on ordinary activities had fallen from Rs 22m in 2001 to Rs 10m in 2005 and suggested that the board had shown little consideration for shareholders. The letter went on to describe Horus’s requisitioning of the special general meeting as a purely democratic step, open, as provided by the law, to any shareholder with more than 5% of the shares, to point out that the removal of directors in place and the nomination of the proposed new directors could only be effected by majority vote of the shareholders in general meeting and to state that Horus had neither the means nor the percentage of shares required to take control of the board, the designation of which remained at any moment the prerogative of the general assembly. At the special general meeting held on 17 October 2006, Horus’s resolution was passed, and a new Board was constituted, with Mr Galéa as chair, Mr Mayer as its vice-chair and Mr Jean Claude Baissac becoming the manager of UDL.

In Horus’s accounts issued 31 December 2007 for the period from 17 July 2006 to 30 June 2007, UDL was consolidated as a subsidiary, with the explanation that

On 12 December 2006, after taking legal advice, Rivnu, PIM and Desmem wrote to UDL calling upon UDL to transfer its shareholding in Axys to them under clause 11 of the shareholders’ agreement dated 30 June 2006. The letter said simply that UDL was bound to offer them “les actions qu’elle detient suite à l’acquisition de 18.27% du capital de United Docks Ltd [sic] par Horus Ltée ainsi par le ‘removal’ des Directeurs” (ie the shares which it held in consequent of the acquisition of 18.27% of the shares in UDL [sic] by Horus as well as by the removal of the Directors). UDL, under its new management, replied denying that the option conferred by clause 11 had been triggered. After various interlocutory proceedings and an order to safeguard UDL’s shareholding in Axys, pending resolution of the issue under clause 11, Rivnu, PIM and CIDL (with which Desmem had by now amalgamated) commenced the present proceedings claiming UDL’s shares in early 2009. The trial took place on 26 October 2009 on affidavits with oral argument before Lam Shang Leen J, and, after taking time to consider, he delivered a carefully reasoned judgment on 30 October 2012, dismissing the claims and finding for UDL. The reason for the delay is not apparent. Rivnu, P & D and CIDL gave notice of appeal in November 2012, the appeal was argued on 10 March 2014 and was dismissed by the Court of Civil Appeal (Matadeen CJ and Abdoula J) by judgment given with commendable despatch on 3 July 2014. Leave was on 9 September 2014 granted to Rivnu and PIM to appeal to the Board as of right, with CIDL being joined as co-respondent.

It is at this point appropriate to set out more fully terms of the shareholders’ agreement relevant to the parties’ respective cases. In recital (H), the four parties recited that they “had agreed to participate in the share capital of the Company [Axys] in the proportions set out in Schedule 1”, being those set out in paragraph 1 of this judgment, and that they were “therefore the major shareholders holding jointly more than fifty percent (50%) of the voting rights in and controlling jointly the composition of the Board of Directors of the Company”. Other recitals identified various subsidiaries of Axys. In clause 1 the Definitions included a definition of “Shareholders” as meaning “DESMEM, RIVNU, UDL and PIM as shareholders of the Company or the Subsidiaries (as the case may be)”.

The agreement included further provisions as follows:

As to clause 11.2, the term “controlling shareholder” was defined in the Listing Rules of the Stock Exchange of Mauritius as:

Before Lam Shang Leen J, the claim advanced by Rivnu, PIM and CIDL was supported by an affidavit sworn on 10 February 2009 by Mr Michel Guy Rivalland and two others. Mr Michel Guy Rivalland is not to be confused with Mr Michel Rivalland mentioned in para 2 above, but he produced and relied on an affidavit dated 15 May 2007 which had been filed by Mr Michel Rivalland in the interlocutory proceedings to which the Board has referred in para 6 above. Mr Michel Rivalland’s affidavit included these passages:

After setting out these passages, Mr Michel Guy Rivalland continued in his own affidavit as follows:

In reply, Mr Galéa swore an affidavit dated 23 March 2009, in which he averred (para 10(a)) that:

In reply, Rivnu, PIM and CIDL filed a further affidavit on 19 June 2009, stating inter alia:

At the trial on 26 October 2009, whatever the purport of the letter dated 12 December 2006, the case advanced by Mr Ribot for Rivnu, PIM and CIDL was that the change of boardroom control at the shareholders’ meeting on 17 October 2006 attracted the operation of clause 11, and that what was in issue was “the proper interpretation of that clause in relation to the position of UDL after the general assembly” (record pp 419, lines 30-31 and 420 lines 34-36). In response, Mr Pursem for UDL repeated that Mr Michel Guy Rivalland’s affidavit “did not establish any existing controlling interest which had been lost”, relied on Mr Galéa’s averment that “there was no [such] controlling interest at the point in time Horus acquired the 18.[2]7% shareholding of UDL”. In short, it was Mr Pursem who identified the need, at least under the literal wording of the clause, for a controlling interest which pre-existed Horus’s acquisition of the 18.27% shareholding and had been “lost” and replaced by another. Mr Sauzier for Axys then supported the case advanced by Rivnu, PIM and CIDL, submitting

Lam Shang Leen J recited the terms of clause 11, concluded that, since, prior to Horus’s purchase of the 18.27% shareholding, “there was no shareholder having a controlling interest or who is in a position to control the appointment and/or removal of directors holding a majority [of] voting rights at Board meetings”, there “cannot be a shareholder having a controlling interest losing that controlling interest when Horus came into the picture” and that “on that score itself, the application must be refused”.

However, Lam Shang Leen J also went on to consider the change of boardroom control on 17 October 2006. In that connection, he observed that, since “Horus and [La Prudence] together held only 24.78% of the voting rights at the shareholders’ meeting in UDL”, they must, in order to be able to have their candidates appointed on the Board “have obtained the favours of the other shareholders who [were] convinced with their arguments as to why there must be a change in the management of UDL”. He pointed out that the election of the board ousted on 17 October 2006 must itself have been “by consensus of the majority or all the shareholders of UDL”, and that this was “a healthy democratic exercise of the roles and powers of the shareholders of a company”. That consensus and its outcome might disappear at some future date, if the other minority shareholders were then to decide to join forces to defeat Horus and La Prudence. Conversely, as Lam Shang Leen J also noted, a majority shareholder (had there been one) could appoint directors and control the board, and further

On appeal to the Court of Civil Appeal, Rivnu, PIM and CIDL developed a more elaborate case, submitting that (1) the judge should have found that there had been a change in UDL’s shareholding resulting in the loss of the controlling interest of the shareholder(s) previously holding such an interest; (2) he should have found that such a controlling interest had previously existed, having regard to the evidence of Mr Michel Rivalland (para 10 above) and UDL’s own “representations”; (3) he was anyway wrong to hold that the absence of a particular controlling shareholder meant there could be no loss or change of controlling interest; and (4) he should have found that Horus and La Prudence were in a position to control the appointment and removal of UDL’s board “as they were in concert holding a majority of voting rights at board meetings on substantially all matters and that this was sufficient to trigger the effect of Clause 11”.

In supporting submissions before the Court of Civil Appeal, Mr Ribot highlighted the need to read clause 11 in the context of the agreement as a whole and, in particular, of clauses 10 and 12 as well as in accordance with the parties’ common intentions, rather than literally. If read as UDL contended or if there were no previous controlling shareholder(s) or if the clause was otherwise inapplicable in the events which had occurred, clause 11 would, in his submission, make no sense and would be a commercial absurdity.

The Court of Civil Appeal in dismissing the appeal started by referring to clause 1.2.6, thereby no doubt intending to dispose of the submissions based on clauses of the agreement other than clause 11. It went on to say that clause 11 itself was clear and unambiguous, and that it would be artificial and contrary to the express terms of clause 11.2 and would “dénaturer” or “modifier” clause 11 to interpret the phrase “loss of controlling interest” in clause 11.1 as “change of control”. On that basis, it upheld the judge’s judgment.

Before the Board, Mr Salim Moollan QC developed an elegantly presented series of submissions as to why the courts below had been in error. The first was that the terms of clause 11 were satisfied on the facts, even if clause 11 has the meaning given it by UDL and by the courts below. All the shareholders party to the agreement must have thought that clause 11 applied to each of them. Mr Moollan did not go so far as to suggest that UDL was in some way precluded from showing that there was or were no controlling shareholder(s), when the agreement was made. But he submitted that clause 11 showed the parties’ understanding that there were. Further, the evidence of Mr Michel Rivalland (set out in para 10) led to the conclusion that there were.

Mr Pursem in response points out that this was not a case that was advanced before the judge, where Rivnu, PIM and CIDL made clear that they relied on the boardroom change on 17 October 2006, and did not suggest that Horus’s prior purchase of 18.27% of UDL’s shares triggered clause 11. Mr Pursem goes so far as to submit that the new case would amount to the introduction of a new cause of action. The Board need not consider that last submission further. Even if clause 11 indicates that all parties probably thought that each had one or more controlling shareholder(s), that does not mean that each actually did have, and there is no basis in its language or otherwise for any suggestion that each represented to the others that such controlling shareholder(s) existed. Further, the brief passage in Mr Michel Rivalland’s affidavit relied on is incapable of showing that UDL had any controlling shareholder(s). All it means, as Lam Shang Leen J pointed out, is that the previous board had been appointed by consensus of shareholders present and voting at the relevant shareholder meetings. It makes sense to speak of a group of associated shareholders acting together in concert as controlling shareholders. But individual shareholders voting in the same direction at general meetings, but not acting in concert, do not fall within the concept of controlling shareholders for the purposes of the Listing Rules or clause 11 of the agreement. Further, when Mr Galéa in his affidavit in response to Mr Michel Guy Rivalland’s affidavit put squarely in issue the existence of any controlling interest at the time of the agreement, no further evidence was adduced on this point by Rivnu, PIM and CIDL. There is also force in Mr Pursem’s further point that, if the new case had been presented in the evidence or before the judge as it is now sought to be, UDL would have had the opportunity to investigate, and, as may be, respond with further evidence as to, whether there was any basis for suggesting that P & D, AMASL and La Prudence were acting in concert and/or together held a controlling interest in relation to UDL.

Mr Moollan’s further submissions challenge the “literal” meaning given to clause 11 by UDL and the courts below. First, he submits that the Court of Civil Appeal erred in so far as it relied on clause 1.2.6 and construed clause 11 in isolation. The Board agrees with this submission. Clause 1.2.6 is directed not to interpretation, but to validity of the remainder of the agreement, in the event of any particular clause being found to be invalid or otherwise unenforceable. It does not require courts to undertake the wholly artificial exercise of construing individual clauses, all of which are valid, in isolation, rather than in the light of each other and in the setting of the agreement as a whole. On that basis, Mr Moollan goes on to submit, as did Mr Ribot below, that clauses 10 and 12 demonstrate the parties’ evident intention to achieve a closed relationship to which outsiders could not gain access, at least without compliance with the requirements of those clauses. In a general sense, the Board accepts this submission. However, it still remains necessary to consider the actual scope of the obligations undertaken by the parties to each other.

On the face of it, clause 11 only applied if there was a change in UDL’s shareholding structure, (which must mean in the identity of those holding shares in UDL) which resulted in the loss of their controlling interest by the shareholder(s) currently holding such controlling interest in UDL. But Mr Moollan submits that the clause can and should be read as if the word “loss” read “change” or “acquisition”, and, if necessary, ignoring the reference to such change or acquisition relating to or being from “shareholder(s) which/who currently hold(s) such controlling interest”. The submission, in substance, is that parties who were concerned about transfer of an existing controlling interest would naturally be just as concerned about acquisition or emergence for the first time of a controlling interest.

In this connection, Mr Moollan submits that it is critical to appreciate the difference in approach to construction of an agreement which Mauritian civil law takes, when compared with English common law (or indeed with German law). Whether or not clause 11 is by itself clear, it must, in Mr Moollan’s submission, be read in the light of and in such a way as to give effect to the parties’ actual common intentions. The civil law approach in this respect subsumes under the head of construction issues which would at common law have to be resolved, if at all, by reference to the separate principles governing rectification. What matters is not the volonté exprimé but the volonté réelle of the parties. The principle is indicated in article 1156 of the code civil:

The meaning of this principle in practice is examined in Juris Classeur Civil Code, article 1156 à 1164 Fasc 10: CONTRATS ET OBLIGATIONS - Interprétation des contrats. - L’instrument: Notion, normes, champ d’application, as follows:

It is evident from these passages that, if a common intention is to shape the meaning which a written contractual clause would otherwise bear, it will have to have been in some way expressed and accepted by both parties, even if only tacitly. The Board also notes that none of the examples of the application of the principle cited in this text, or put before the Board by way of caselaw from France or Mauritius, comes close to the present case. (In parenthesis, the Board is happy to regard the shareholders’ agreement as a commercial agreement, so that, as Mr Moollan submits, there is no question of article 1341 of the code civil applying. Where article 1341 applies, it may limit the ability of a party to go behind the terms expressly agreed in writing: Harpal v Prayag 1969 MR 154, citing a passage from Planiol et Ripert, Droit Civil Français, t 6, no 103. But the position is even then nuanced: see S Vogenauer, Interpretation of Contracts: Concluding Comparative Observations, in A Burrows and E Peel’s Contract Terms, p 123 at pp 135-136.)

In the present case, the words of clause 11 are by themselves clear, and the facts do not fall within them. In invoking the principle of article 1156, Mr Moollan submits that the parties’ “intention” was that clause 11 should be effective in relation to each of them; that they must have intended that circumstances such as the present would give the other shareholders a right to acquire UDL’s shareholding; and so that the clause must be read as applicable to what has occurred. The difficulty which these submissions face is that, on Rivnu and PIM’s own case, the parties to the shareholders’ agreement did not have - or, still less therefore, express - any actual intention with regard to the situation which actually existed. Mr Michel Rivalland’s affidavit (quoted in para 10 above) suggests that clause 11 was in fact adopted not to “target anyone in particular”, but as a “standard clause set out in various agreements”, a procedure which carries some risk that it may prove not to cater for actual circumstances.

At most, clause 11 suggests that the parties believed that each party to the agreement had one or more current controlling shareholder(s). Their belief was, so far as the evidence goes, mistaken, but that by definition means that they did not form or express any common intention regarding the position if no such controlling shareholder(s) existed. It may be that they would have addressed the present situation with different words if they had contemplated it. But there is nothing to show what substitute or additional provisions they might have included. If they had focused on what, on one view, may have been the underlying concern, that the current directors should remain “at the helm” (to use Mr Michel Rivalland’s phrase), there may have been legal and other objections to such a clause, relating to the propriety of such a purpose and/or the current directors’ authority to give effect to it; so Lam Shang Leen J pointed out with reference to Criterion Properties plc v Stratford UK Properties LLC [2004] UKHL 28; [2004] 1 WLR 1846. If they had focused on the position arising where minority shareholders set out to oust and/or succeed in obtaining enough support from other shareholders to oust the current board, which may well be the correct analysis of the present situation (see below), it is far from easy to know what further provision(s) they might have contemplated. The upshot is that the Board sees no basis on which Mauritian civil law should be understood or developed so as to enable a court to rewrite or adapt the clear wording of clause 11 to cover the present situation. The Board is also comforted in this conclusion by the consideration that no case cited to it comes close to undertaking any such exercise, and that neither of the courts below in their clearly reasoned judgments contemplated any interpretive exercise of the radical nature which Mr Moollan advocates.

The Board also adds some observations about the basis on which this case was brought and about the further reasoning of Lam Shang Leen J summarised in para 16 above. It appears to the Board not without significance that the Listing Rules define a controlling shareholder as being “in a position to control the appointment and/or removal of directors holding a majority of voting rights at board meetings on all or substantially all matters”, that there was no suggestion, following Horus’s purchase of 18.27% of UDL’s shares on 18 July 2006, that this criterion was satisfied, that it was only after Horus had won a hard-fought battle for control of UDL’s boardroom at the general meeting on 17 October 2006 that clause 11 was invoked, and then only on the basis that the change in the board itself was the key change, and that it was only much later, on the appeal to the Court of Civil Appeal, that attention was also directed to the original share acquisition.

The fact is, as Lam Shang Leen J noted, that it can have been far from inevitable or even probable that Horus would with P & D’s support win the boardroom battle, ousting a well-established board. In the event, it did so, with votes in the region of only one-third of the 67% to 75% majority by which the various resolutions to replace directors were passed. There is no suggestion that the other two-thirds of voters who supported the resolutions were acting in concert with Horus or P & D. They simply agreed with the resolutions. And there was no guarantee that position would continue (although, so far as the Board is aware, it has done so, and there has been no subsequent fundamental boardroom change). In these circumstances, there is in the Board’s view considerable force in the judge’s view that, even if one ignores the requirement of “shareholder(s) which/who currently hold(s) such controlling interest”, Horus could not, with or without P & D, be said - either as a result of its acquisition of shares on 18 July 2006 or as a result of the actual success of its resolutions on 17 October 2006 - to have been “in a position to control the appointment and/or removal of directors holding a majority of voting rights at board meetings on all or substantially all matters”. It had the directors it wanted on the board, but their appointment and/or removal resulted from and depended on the will of the shareholders at large. That is not however a necessary part of the Board’s reasoning in resolving this appeal.

For the reasons given in paras 1 to 28, the Board dismisses this appeal. The parties are invited to make written submissions on costs within 21 days of the delivery of this judgment.