England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
(MR JUSTICE JACOB)

		Royal Courts of Justice Strand London WC2A 2LL Friday 9 August 2002

1. LORD JUSTICE CHADWICK:This is an adjourned application for permission to appeal from an order made by Jacob J on 11 July 2002 in proceedings brought by Mr Brian Hurst against Crampton Bothers (Coopers) Limited ("the company") and two individual defendants who are now the executors of the late Mrs Ada Crampton, who died on 18 November 1998.
2. Mrs Ada Crampton was, until her death, the registered holder of 1500 shares in the company. Her brother-in-law, Mr Harold Crampton Snr, was the holder of the remaining 500 shares. Mrs Ada Crampton and Mr Harold Crampton Snr were the only directors of the company. Shortly before her death, Mrs Ada Crampton decided to give 400 of the shares registered in her name to Mr Harold Crampton Jnr, the son of Mr Harold Crampton Snr.
3. On 30 September 1998, in circumstances described in the judgments of this court in Pennington & Anor v Waine & Ors 2002 EWCA Civ 227, [2002] 1 WLR 2075, Mrs Ada Crampton executed a stock transfer form for the purpose of transferring those 400 shares. On 15 October 1998 her accountant, Mr Pennington - who, as one of her executors, is the third defendant to these proceedings - informed Mr Harold Crampton Jnr that Mrs Ada Crampton had given instructions for 400 shares in the company to be transferred to him. He added that Mr Harold Crampton Jnr was required to take no action. The stock transfer form remained in the accountant's office and the transfer was not completed by any entry in the company's register of members. That was the position when Mrs Ada Crampton died some four weeks later.
4. The question for this court in the earlier appeal was whether there had been a valid equitable assignment by Mrs Ada Crampton of her interest in the 400 shares to Mr Harold Crampton Jnr. The court held that there had been. Mrs Ada Crampton had done all she needed to do to transfer her equitable interest - see Clarke LJ's observations at paragraph 110 on page 2031H of the report. The court accepted that Mrs Ada Crampton remained the legal owner of the shares until her death, because her name remained on the register.
5. The Articles of Association of the company contain provisions relating to the transfer of shares. Article 8(A) provides that shares 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 similar relatives or to the executors of that deceased member.
6. It is common ground that Mr Harold Crampton Jnr was not within the class of relatives to whom a transfer could be made by Mrs Ada Crampton, his aunt by marriage, without restriction under Article 8(A). The restriction on transfer - applicable in other cases - is contained in Article 8(B), which is in these terms:

"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 deciding 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 twenty-eight 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 therefore. The retiring member shall deliver up his certificate and shall thereupon be paid the purchase money. If within twenty-eight 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."

7. It is not suggested that regulation 3 of Table A, Part II, has any relevance in the present case.
8. If the provisions of Article 8(B) were triggered by the execution of the stock transfer form by Mrs Ada Crampton on 30 September 1998, then Mr Harold Crampton Snr - as the only other member of the company at that date - was entitled to enforce the pre-emption rights in respect of the 400 shares which were the subject of the stock transfer form.
9. The claimant in these proceedings, Mr Hurst, is the holder of one ordinary share in the company. That share was transferred to him by Mr Harold Crampton Snr on 31 January 2001 and registered in his name on 7 February 2001. Mr Hurst also claims to be the assignee of all other pre-emption rights, formerly vested in Mr Harold Crampton Snr, although that matter is in dispute. Mr Hurst now seeks to enforce pre-emption rights in respect of the 400 shares which, as he says, Mrs Ada Crampton transferred, or purported to transfer, to Mr Harold Crampton Jnr on 30 September 1998. The executors are defendants to the claim because the shares are either still registered in the name of the testator or have become registered in their names as permitted by Article 8(A). But they defend the proceedings on behalf of Mr Harold Crampton Jnr, who has been held to be the beneficial owner as against the estate.
10. For the avoidance of doubt, I should add that there is nothing in the judgment of this court in the earlier appeal which can be taken to suggest that if pre-emption rights arose on the execution of the transfer on 30 September 1998, Mr Harold Crampton Jnr would take the shares free of those rights. His Honour Judge Howarth, the trial judge in that earlier case, had found that the transfer was in breach of Article 8(B). There is nothing in the judgment of this court to suggest that he was wrong about that. But the point did not arise in this court and was not considered. Judge Howarth's observations are not binding as between the executors and Mr Hurst.
11. The claimant sought an injunction restraining the executors from seeking to alter the Articles of Association. No doubt he feared that they would seek to vary the pre-emption rights, or to remove them. By paragraph (2) of the claim for relief, he sought an order for specific performance of the obligations which, as he said, arose under Article 8(B); including, in particular, an order for the issue of a sale notice. Paragraph (2) of the prayer reads:

"An order for Specific Performance of the terms of Articles 8(A) and 8(B) of the Articles of the Company, and in particular to require the executors to issue a sale notice to the Company and require the Company to value the 400 shares described in the stock transfer form dated 12th October 1998; and to thereafter offer the shares to the Claimant."

12. The relief sought reflects the machinery provided for in Article 8(B), if that machinery is triggered.
13. That matter came before Deputy Master Weir in November 2001. The executors had filed and served a defence to the claim. Each side had applied for summary judgment on the claim in paragraph (2). As the Deputy Master recorded in the first paragraph of his judgment, he was invited by both parties to give, of his own motion, summary judgment on paragraph (2) of the prayer to the particulars of claim. He held that the obligation to issue the sale notice under Article 8(B) had not arisen in the circumstances and he struck out paragraph (2) of the claim for relief.
14. Mr Hurst appealed. The appeal came before Jacob J in July 2002. He took a different view. He held that the pre-emption rights under Article 8(B) were triggered when Mrs Ada Crampton executed the stock transfer form and sent it back to Mr Pennington with instructions to effect the transfer. He allowed the appeal and directed the executors to offer 400 shares to the first defendant. It is not clear from his judgment why he did not make the order in the form in which it had been sought in paragraph (2) of the prayer; but the order was in the form of an agreed minute, and the fact that the order differed from the relief sought may not have been drawn to the judge's attention.
15. The judge refused a stay pending appeal, or pending any application for permission to appeal. It is not clear whether he asked for permission to appeal; or whether, if he were asked, he took the view that he would have no power to give permission, having in mind the provisions of section 55(1) of the Access to Justice Act 1999.
16. The executors applied to this court for permission to appeal and for a stay, and (by notice dated 1 August 2002) for a stay pending appeal. That application came before me on paper. On 4 August 2002, I adjourned the application for permission to appeal to an oral hearing on notice. I also granted a stay of paragraph 1 of Jacob J's order until after the determination of the application for permission to appeal. So it is that the matter comes before me today.
17. The account of the proceedings which I have set out shows that this is an application for permission to appeal to this court from a decision made by the High Court when hearing an appeal. It therefore falls within section 55(1) of the Access to Justice Act 1999, which is in these terms:

"Where an appeal is made to a county court or the High Court in relation to any matter, and on hearing the appeal the court makes a decision in relation to that matter, no appeal may be made to the Court of Appeal from that decision unless the Court of Appeal considers that-

(a) the appeal would raise an important point of principle or practice, or

(b) there is some other compelling reason for the Court of Appeal to hear it."

18. In this case there was an appeal from the Master to Jacob J sitting in the High Court. Mr Johnson, on behalf of the applicants, made the novel, bold and startling submission that section 55(1) of the 1999 Act did not apply where the appeal to the High Court was an appeal from a Master sitting in that court. He accepted that, if he were correct, it would follow that that section does not apply in a case where there has been an appeal to a county court judge from a district judge sitting in the county court. If that were the position, it is surprising that it has gone unrecognised ever since the Access to Justice Act 1999 came into force. It would be surprising also that, when this court had to deal with the matter in a different context - in Clark v Perks [2001] 1 WLR 17 - it overlooked that point.
19. In Clark v Perks this court was concerned with the position where there had been an appeal to the High Court from a tribunal - in that case, an appeal from the Special Commissioners or from the VAT and Duties Tribunal. This court held that where there had been an appeal to the High Court from a tribunal, a further appeal from the High Court was an appeal to which section 55 of the 1990 Act applied. The court said at paragraph 12:

"It follows that the new procedural regime applies as much in relation to the handling of appeals to the courts from tribunals or other persons or bodies, as it does in relation to appeals from a lower court or a High Court in the ordinary sense of those words."

20. If it had occurred to anybody that section 55 did not apply in the ordinary case, where the matter has come up through two hearings in the county court, or after hearings in the High Court before a Master and then a judge, it is remarkable that they thought it unnecessary to say so.
21. The explanation, of course, is that the S55 regime does apply. That is implicit in the judgments in Tanfern v Cameron McDonald [2000] 1 WLR 1311. Brooke LJ said, at paragraphs 41 and 42:

"Parliament is responsible for controlling the expenditure of public resources on the administration of justice (whether in relation to direct costs of the courts, including the cost of the judiciary, or in relation to expenditure on what used to be called legal aid). It has now made it clear that it is only in an exceptional case that a second appeal may be sanctioned."

22. He then set out section 55(1) of the 1999 Act and continued:

"42. This reform introduces a major change to our appeal procedures. It will no longer be possible to pursue a second appeal to the Court of Appeal merely because the appeal is 'properly arguable' or 'because it has a real prospect of success'. The tougher rules introduced by a recent Court of Appeal Practice Direction for 'second tier appeals' related only to cases where a would-be appellant had already lost twice in the courts below (see Practice Direction (Court of Appeal) (Civil Division) [1999] 1 WLR 1027, para 2.19.1). The new statutory provision is even tougher - the relevant point of principle or practice must be an important one - and it has the effect even if the would-be appellant won in the lower court before losing in the appeal court. The decision of the first appeal court is now to be given primacy unless the Court of Appeal itself considers that the appeal would raise an important point of principle or practice or there is some other compelling reason for it to hear this second appeal."

23. The Practice Direction of 1999, to which Brooke LJ referred and which ante-dated the introduction of section 55(1), applied only where the would-be appellant had already lost twice, not in a case such as this where he had won at the first hearing but lost on the an appeal. As Brooke LJ points out, that situation was changed. But there is no doubt, in the passage to which I have just referred, that Brooke LJ and the other members of the Court of Appeal had well in mind - as, so far as I am aware, any other member of the Court of Appeal would have in mind - that the new procedure is intended to apply where there has been an appeal to one court and there is, thereafter, an attempt to have a further appeal to this court. Tanfern was, itself, a case where the appeal had come up from the district judge to the county court judge and there was an attempt to have a further appeal in this court.
24. Accordingly I reject the bold and startling submission that section 55(1) does not apply in this case. The section requires this court to address the question: does the appeal raise an important point of principle or practice or is there some other compelling reason for the Court of Appeal to hear it?
25. Mr Johnson sought to identify two points of principle: (i) what are the limits of waiver in this case; and (ii) what is the meaning of transfer in the Articles of this company?
26. Neither of those points, properly understood, can be described as points of principle.
27. As to the first point, no question of waiver was taken in the defence served. The executors, as appears from the first paragraph of the Deputy Master's judgment, invited the court to give summary judgment on paragraph (2) of the claim for relief. If it was going to be said that summary judgment was not appropriate because there was a plea of waiver, then waiver should have been pleaded and the Deputy Master should have been told that he was wasting his time in acceding to the invitation of the executors to give summary judgment under paragraph (2) because they were going to rely on waiver in any event. The Deputy Master was not told that.
28. A plea of waiver seems to have been raised for the first time before Jacob J. Before him reliance was placed on a letter of 23 August 1999, written by Mr Harold Crampton Snr's solicitors to Mr Harold Crampton Jnr. That letter enquired whether Mr Harold Crampton Jnr had any knowledge of the existence or whereabouts of any share transfer form or agreement executed by Mrs Ada Crampton in his favour in respect of the 400 shares in the company. It continued:

"If it transpires that either you or somebody else can produce a valid share transfer form in your favour in respect of the 400 shares then you will be entitled not only to those 400 shares but also to the 620 shares specifically left to you by Mrs Crampton under the terms of her will."

29. There is no suggestion there inference being that, unless Mr Harold Crampton Jnr was already a member, there would be difficulties under the pre-emption provisions in transferring to him, or to anyone else, any shares left by Mrs Ada Crampton under her will. The letter then contains this sentence:

"Your father has advised us that he would be willing to waive any rights that he may have to acquire the 400 shares so that you can be registered as a member of the Company in respect of those shares."

30. The judge thought, and there has been no evidence to contradict his view that there was no reply to that letter; notwithstanding that Mr Harry Crampton Jnr knew that Mrs Ada Crampton had executed a transfer in his favour. As the judge said at paragraph 41:

"Remarkably, following the letter (and the similar letter to Mr Pennington), neither Harry nor Mr Pennington revealed the fact that Ada had indeed executed a transfer form for 400 shares, though 'the first purpose of this letter' was to get an answer about that. I am told that on top of that Harry sat through a meeting where the question came up but that he sat tight, saying nothing. I do not fully understand why (and do not need to): the strategy formed part of a tussle for control of the company. It is not disputed that Harry misled his father over this matter."

31. The position is that both Mr Pennington and Mr Harry Crampton Jnr were invited to disclose whether or not they had in their possession the share stock transfer form in respect of the 400 shares on the basis that, if they did, Mr Harry Crampton Snr would be willing to waive rights that he might have in relation to those shares. They chose not to take advantage of that offer. In those circumstances, the judge took the view that it was too late for them to raise any question of waiver on the appeal before him. If Mr Harry Crampton Snr had changed his mind, it is because his son and accountant/executor chose, for reasons which no doubt seemed good to them at the time, to mislead him.
32. In my view, the judge's decision on that point cannot be regarded as raising an important point of principle. I am not at all surprised that the judge took the view that he did on the question of waiver. Waiver was never raised in the defence. The party who now seeks to rely on it joined with the claimant in inviting the Master to deal with paragraph (2) of the claim for relief on the basis that there was no factual issue in dispute on that claim. It is now too late to come to this court and assert either that there is an important point of principle in relation to waiver, or that the existence of a possible defence in relation to waiver, still unpleaded, provides a compelling reason why an appeal should be heard.
33. I turn, therefore, to consider whether an appeal would raise an important point of principle in relation to the construction of these Articles? As the courts have emphasised time and again, rights of pre-emption have to be construed in the context of the particular Articles and the circumstances which have given rise to the claimed trigger. There is no point of principle in cases of this nature. The question in these cases is one of construction. It turns on the particular Articles. These Articles are not skillfully drawn and there is no reason to think that a decision on these Articles is likely to be of any value in relation to other Articles which may be more skillfully drawn.
34. It would be sufficient to dispose of the application on those grounds. There could be no compelling reason to hear an appeal unless the court were persuaded that there is a high probability that the judge was wrong in the construction which he gave to these Articles. It is plain that the test under CPR 52.13 and section 55(1) of the 1999 Act is not the ordinary test of "real prospect of success", meaning some prospect other than fanciful (see Tanfern); it is the stricter test of "important point of principle or compelling reason". For my part - in common, I think, with other members of this court - I would recognise a compelling reason in a case where there were strong grounds for thinking that the judge had probably erred; a compelling reason because, if this court feels strongly that the judge has probably erred, then justice requires that his decision should be put right. This is not such a case. In my view, the judge was probably right.
35. But, because the point is a short point of construction on which it is impossible to avoid forming some conclusion. I think it appropriate to address it myself.
36. It is important to construe Article 8(B) as a whole. On analysis, it can be seen to have seven limbs which are distinct. The first limb is contained in the first sentence, which is the restriction on transferring a share -otherwise than, as provided in paragraph (A), to the privileged class of relatives and executors - unless it is first offered to the members at a fair value to be fixed by the company's auditors. That is the basic restriction and that applies to any transfer, for whatever consideration or none.
37. The second limb is contained in the second and third sentences. Those sentences oblige a member desiring to sell a share to give a sale notice. Two immediate consequences follow. First, the notice constitutes the company his agent for the purposes of such sale; and, secondly, it cannot be withdrawn without the directors' sanction. In that context, "such sale" does not mean any particular sale which (but for the restriction) the member desires to effect. It refers to the sale which is to be effected consequent upon the giving of the sale notice. It is in connection with the sale under the sale notice that the company is constituted the agent of the member.
38. The third limb is the fixing of a fair value by the auditors. That is implicit in the same machinery for which Article 8(B) provides. The restriction applies unless the shares to be transferred are first offered at a fair value to be fixed by the company's auditors. If the company is to act on the sale notice and offer the shares to the other existing members, it must first require the auditors to fix a fair value, otherwise the sale machinery cannot work.
39. The fourth limb of the Article is contained in the first half of the fourth sentence:

"The directors shall offer any share comprised in a sale notice to the existing members".

40. They do that as agent of the member who has given the sale notice ("the retiring member"); and they make the offer at the fair value which has been fixed by the auditors.
41. The fifth limb is contained in the second half of the fourth sentence:

".... if within twenty-eight 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."

42. The fourth sentence makes provision for the offer and the acceptance required to create a contract.
43. The sixth limb is the subject of the fifth, sixth and seventh sentences of the Article. They provide for the transfer of the share by the purchasing member and completion by the payment of the purchase money to him. The seventh and final limb is the last sentence of the Article:

"If within twenty-eight 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."

44. Once the sale notice procedure has been carried through, it will either produce a purchasing member within 28 days; or it will fail to produce a purchasing member within that period, with the result that the restriction in the first limb falls away.
45. The Article is not artistically drawn for two reasons. First, it does not, in terms, deal with the situation where a member desires to make a gift of shares; and, second, it does not deal with the situation - which must be likely to arise from time to time - where there is more than one other existing member who wants to be a purchasing member. It is an Article into which terms have to be implied if it is to work. That is a feature which is not uncommon. If Articles which confer rights of pre-emption to provide for each and every possibility, they will need to be lengthy.
46. But there is no difficulty in implying the terms. For example, if more than one purchasing member were found, then (prima facie) the shares which were on offer should be apportioned between the purchasing members pro rata to the shares when they already held. Some provision of that nature would be necessary in order to make the sale mechanism work. Equally, there is no difficulty where the retiring member desires to transfer his shares to a non-member but has not agreed a price. In such a case the transfer cannot be effective because of the restriction in the first sentence, unless and until the sale notice machinery has been worked through so that the restriction is lifted by the last sentence. There is no difficulty in those circumstances in treating the person who desires to transfer as subject to the restriction. And the position is no different if the member who desires to transfer has not agreed a price because he intends the transfer to be by way of gift.
47. In the present case, the Court of Appeal has held that Mrs Ada Crampton's execution of that stock transfer has taken effect as a transfer of the equitable interest. It is no longer open to Mrs Ada Crampton, or her executors, to say that they do not desire to transfer the shares. The transfer has had the effect of carrying the equitable interest to Mr Harry Crampton - subject to the rights of pre-emption in Article 8(B) - but the transfer cannot be completed by registration until the sale notice procedure in the article has been complied with. A sale notice must be given. If, on giving a sale notice, no purchasing member comes forward prepared to pay the fair value fixed by the company's auditors, then the restriction will be lifted; but not until then.
48. For those reasons, I reject the suggestion that the judge was plainly and obviously wrong, so as to call for the intervention of this court. It seems to me that he was plainly and obviously right. The only criticism of his order - and it is not intended as a criticism of the judge if the order were drawn by counsel as an agreed minute - is that the right order in a case of this nature is the order sought in the prayer for relief, namely an order that the executors issue a sale notice in order to trigger the provisions under the Article.
49. Should this court then entertain an appeal in order to vary the detailed working out of the judge's order? Mindful of Brooke LJ's observations about the scarcity of resources in this court, I am satisfied that the answer is no. Why should the time of two or three Lord Justices be used for that purpose when the parties can work out the order for themselves? If they cannot agree on what needs to be done, they can ask Jacob J for directions.
50. For those reasons, the application for permission to appeal is refused. The application for a stay falls with it.
Order: Application for permission to appeal refused with costs summarily assessed in the sum of £1,500.