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The Supreme Court handed-down its judgment in this case on 2 December 2015, allowing appeals by Eclairs Group Ltd and Glengary Overseas Ltd against the decision of the Court of Appeal (see [2014] EWCA Civ 640), and restoring the decision of the trial judge (reported at [2014] Bus. L.R. 18).

The appellants (Eclairs and Glengary) were shareholders in JKX, an English company listed on the London stock exchange, with oil and gas concessions in the Ukraine.  In 2013, the two shareholders became embroiled in a dispute with JKX’s board.  The shareholders opposed the board’s proposals to issue additional capital and disapply pre-emption rights, and sought to remove the Company’s chief executive and commercial director from office.

The directors convened an AGM, and in advance of the meeting, sent letters to Eclairs and Glengary under article 42 of JKX’s articles, a provision broadly modelled on section 793 of the Companies Act 2006.  Article 42 empowered the board to seek disclosure from shareholders of any voting arrangements affecting shares in the company, and to issue restriction notices suspending shares from voting if it (the board) concluded itself to have reasonable grounds for believing the replies to be inaccurate.

Eclairs and Glengary replied to the article 42 letters, but at a meeting shortly before the AGM, the board concluded their replies to be inaccurate, and imposed restrictions, suspending their voting rights.  Eclairs and Glengary thereupon commenced proceedings, seeking to have their suspensions declared unlawful.

Eclairs and Glengary won at trial before Mann J., but lost in the Court of Appeal.  Mann J. concluded that the board had infringed the proper purposes principle by acting predominantly for the improper collateral purpose of preventing the shareholders from voting at the AGM, and that it made no difference that the directors had honestly believed themselves to be acting in the Company’s best interests.  The Court of Appeal (Briggs L.J. dissenting), however, held that the proper purposes principle had no application in the context of restriction notices under section 793 or (by extension) article 42.

The Supreme Court’s judgment reaffirms the pervasive relevance of the proper purposes principle in company law, and the decision of the majority (Lord Sumption, with whom Lord Clarke and Lord Hodge agreed) gives valuable guidance on when the presence of an improper purpose will suffice to vitiate a decision.

The full judgment can be read here:

Andreas Gledhill QC acted for one of the two successful appellants, Glengary Overseas Limited.