On 22 February 2013, the Court of Appeal (Lewison, McCombe and Laws LLJ) allowed the appeal of Patrick Dear and Reade Griffith against the judgment of Briggs J dated 25 July 2012.
The appeal concerned the construction of a shareholders’ agreement concluded (among others) between the Appellants and Alexander Jackson as sole voting shareholders in Tetragon Financial Group Limited – a Guernsey domiciled closed ended investment fund.
By the agreement the Appellants undertook annually to appoint Jackson to the board of Tetragon and not to procure his removal save in circumstances of a Termination Event as defined.
Tetragon’s Articles of Incorporation specified a number of events upon the happening of which a director would cease to hold office. Among them was: “if he is given notice by all other directors to vacate office.” (Article 88(e))
In January 2011 the Appellants joined with Tetragon’s four independent directors in giving Jackson notice to vacate office. The question which came before Briggs J by way of preliminary issue was whether it was open to the Appellants to join with the other directors in exercising the power of removal conferred by Article 88(e), or whether the meaning and intent of the shareholders’ agreement was that Jackson would not be removed otherwise than upon the happening of a Termination Event.
Briggs J held that it was an implied term of the shareholders’ agreement that Article 88(e) would not be used so as to remove Jackson from the board. He considered that it was incumbent on the Appellants to procure an amendment to the Articles so as to disapply Article 88(e) to Jackson.
The Court of Appeal reversed Briggs J. The Articles were part of the background against which the shareholders’ agreement fell to be construed. The shareholders’ agreement addressed the extent of Jackson’s protection from removal and was silent as to removal by Tetragon’s directors. The implication of a term was not necessary to secure the commercial workability of the agreement and the term contended for was not obvious. Per Lewison LJ, terms will not lightly be implied into an agreement made by contracting parties in one capacity (viz as shareholders) which result in fetters on their powers to act in another capacity (viz as directors).
The Appellants were represented by Robert Miles QC and Camilla Bingham QC. The full text of the judgment is now available for download.