England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		21 September 2005

Mr Peter Prescott QC :

1. Ruth Romer-Ormiston ("the Claimant") complains that she owned 33 shares in a company called Claygreen Limited ("the Company"), but they were wrongfully taken away and allocated to other members of the Company. She applies for the rectification of its register under section 359 of the Companies Act 1985.
2. The Defendants admit that the Claimant did indeed own those shares but say that she was properly deprived of them on 4 January 2005. She was deprived of them pursuant to certain pre-emption powers laid down in the Company's articles. They say that, while the Claimant is entitled to compensation for her shares, at a value that was arrived at by the Company's auditors, she is not entitled to the shares themselves.
3. But in any case (say the Defendants) there is no automatic right to rectification of the register, for the matter is in the discretion of the court. The circumstances are such that the court's discretion should not be exercised in favour of the Claimant. Mainly, because the person who really controls these shares is not the Claimant, but (it is said) an outsider: a Mr Harris, a man the Defendants want to have nothing to do with.

What Happened

4. The Company holds land at Hilton's Wharf, Greenwich and is interested in developing it. Until 13 January 2005 its registered members were as follows:

(a) The Claimant (33 shares)

(b) Mr Leonard Wallis (17 shares)

(c) Miss Andrea Burns (16 shares)

(d) RDB Investments Ltd (33 shares).

The other shares were not issued.

5. The directors of the Company are Mr Leonard Wallis (a businessman) and Miss Andrea Burns (a solicitor). Mr Wallis and Miss Burns are, in fact, husband and wife, and so meetings of the board of directors sometimes took place informally in a domestic setting. Miss Burns is also the company secretary.
6. The person who controls the fourth shareholder RDB Investments Limited is a Mr Ronald Baker. Mr Baker did not take part in the day-to-day management of the Company: that was the province of Mr Wallis and Miss Burns. But, as regards the matters I have to decide, they kept him relevantly informed.
7. The Claimant lives with a Mr Joseph Chamberlain at an address in Monaco. They are described as "partners" – not business partners, but what are sometimes called life partners. According to the Defendants the Claimant is really a nominee for Mr Chamberlain who they say is an undischarged bankrupt. If that is so, they do not claim to have found out about it recently.
8. Now, Mr Chamberlain owed a lot of money to a Mr Patrick Harris, who is said to be a scrap metal merchant. Mr Harris did not come to court, but the evidence shows that he was a man who could be exceedingly unpleasant about getting his way. Anyway, Mr Harris wanted his money. In order to raise it, the Claimant wanted to sell her shareholding to another company, which I shall call Epsom, in which Mr Harris was interested. I shall call it "the Epsom proposal". (There seem to have been variants on the Epsom proposal, but I do not believe they make any difference for present purposes.)
9. In the summer of 2004 the Epsom proposal was discussed with the directors of Claygreen Limited. In that regard the Claimant was represented by an accountant, Mr Daniel O'Doherty. Mr Doherty was also representing Mr Harris. Mr O'Doherty was also a director of Epsom. In short, and for all practical purposes, throughout what happened Mr O'Doherty was representing the Claimant, Epsom and Mr Harris.
10. As we shall see, the Company's articles prohibited any member from transferring her shares to an outsider without first offering them to the other members. (I shall call those "the pre-emption rights".) Of course, that was a restriction that could be waived, provided that everybody consented. At first it appeared that a waiver would be forthcoming. Mr Wallis and Miss Burns expressed themselves to be amenable in principle to the Epsom proposal; and the other shareholder, RBD Investments Limited, knew about the discussions and made no objection at the time. As I have said, that was in the summer of 2004.
11. However, in late July 2004 there was a sharp exchange of words between Mr Wallis and Mr O'Doherty, perhaps a sign that relations had begun to deteriorate. On 9 August 2004 solicitors for RDB Investments wrote to the Company drawing attention to the pre-emption rights and warning that if the directors were to register a transfer from the Claimant to a third party (an obvious reference to Mr Harris or Epsom) it would be a breach of their duty. They must have stated the substance even before that date, because it had already been communicated to the Claimant's solicitors on 5 August.
12. On 31 August there was a meeting between Mr Harris, Mr O'Doherty and Mr Wallis and Miss Burns. Near the outset Mr Harris made serious allegations, to the effect that he had been cheated by Mr Chamberlain and that Mr Wallis and Miss Burns had been party to it. When Miss Burns laughed off those allegations as being ridiculous he flew into a rage, using obscene and threatening language in relation to her. Despite that, the meeting did not terminate immediately. On any showing it went on for at least half an hour and if Miss Burns' note is correct it must have lasted longer.
13. It seems that Mr O'Doherty thought that the Epsom proposal might still be salvaged. Perhaps he thought he might be successful if he handled it himself, in the absence of the abrasive Mr Harris. Perhaps he was just being over-optimistic. Perhaps he had in mind to negotiate his way out of the difficulty, offering some material inducement at a suitable juncture. Anyway, he was still after his waiver.
14. On 29 September 2004 the Claimant executed an enduring power of attorney in favour of Mr O'Doherty in relation to anything to do with her shareholding in the Company. It was enduring, but revocable. At some stage the Claimant signed a document which purported to create a charge over her shares in favour of Epsom but the document was never dated, nor signed on behalf of Epsom.
15. On 14 October Mr O'Doherty wrote to the company secretary as follows ("the First Letter"):

Dear Andrea,

As you known, Ruth Romer-Ormiston has agreed to transfer all her shares in Claygreen Limited to Epsom …

Please would you be kind enough to confirm that, upon receipt of a duly signed and stamped Stock Transfer Form, you will register that transfer.

I look forward to hearing from you.

In my judgment that was a request for information. Mr O'Doherty wanted to know if the Company was willing to register a transfer of the Claimant's shares in favour of Epsom. The Claimant's solicitors had been informed, two months before, that the Company's articles contained certain pre-emption provisions – a fact that Mr O'Doherty, as an experienced man, would have been likely to suspect anyway. In my judgment Mr O'Doherty was not attempting to trigger the pre-emption provisions. He just wanted a waiver.

16. It was said that Mr O'Doherty was not purporting to act on behalf of the Claimant, for the letter did not say so. There is nothing in that, for on 19 October he wrote again ("the Second Letter"). He said:

As you know, Ruth Romer-Ormiston has transferred her shareholding in Claygreen to Epsom… [Emphasis supplied.] She has also appointed me her Attorney and I attach a copy of the Enduring Power of Attorney.

I hereby require you to call an Extraordinary General Meeting of the company, and look forward to hearing from you with the appropriate Notice and date.

The Agenda items, apart from any business which you want to raise, should include:

the registration of shares in the name of Epsom;

the appointment of officers;

the appointment of auditors.

I look forward to hearing from you.

In demanding a general meeting Mr O'Doherty did not say he was acting on behalf of Epsom: he said he had a power of attorney from the Claimant. In whatever capacity, he obviously was not suggesting that he was in a position to force the issue at the meeting, because the shares represented but a third of the voting power and unanimity was required anyway. I repeat that the Claimant's solicitors had already been informed that RDB Investments were in a position to insist upon the exercise of the pre-emption rights. Thus I conclude that the purpose of this letter, objectively read in the light of the surrounding circumstances, was to procure a general meeting at which Mr O'Doherty hoped to obtain his waiver by unanimous consent.

17. Despite what was said in the letter, at the trial it was argued for the Claimant that she had not really transferred her shares to Epsom, for it was proved that the transfer form, though signed, had been left undated and was not stamped: in effect, in escrow. But it seems to me that it is of little significance in itself. Mr O'Doherty could have filled in the blank any time he wanted. In other words, and assuming that it was legally possible to transfer any interest in the Claimant's shares to Epsom, or anybody else, without the assent of all concerned, the Claimant had done everything she possibly could to divest herself of ownership. Compare the decision of Jacob J in Hurst v. Crampton Bros (Coopers) Limited [2002] EWHC 1375 (Ch), [2003] 1 BCLC 304.
18. However, it will have been noticed that Mr O'Doherty's letters nowhere specified the price for which the shares were to be, or had been, transferred to Epsom. In my judgment it was not possible for the directors of the Company objectively to deduce that price with proper certainty from their knowledge of the surrounding circumstances. True, there had been previous talk of Mr Harris taking the Claimant's shares because of a debt of £2.3 million owed by Mr Chamberlain; but to those who were not parties to that proposed transaction it was not clear whether it would have extinguished the whole debt. In any case, for all that they knew the deal might have changed since then.
19. I infer that, because the Defendants did not want Epsom (effectively, Mr Harris) to become a member of the Company or, for that matter, to stand in the shoes of one who was, namely the Claimant, they decided to treat those letters as a Transfer Notice within the meaning of the Company's articles, thus triggering the rights of pre-emption.
20. On 4 November 2004 the Company instructed its auditors to value the shares. On 19 November 2004 the shares were valued by the auditors. Thereafter the shares were offered to the other members and on 4 January 2005 they were allocated pro rata. The register was amended accordingly.
21. At the trial it was argued for the Claimant that the auditors were appointed irregularly. There are grounds for some suspicion, but having paid attention to the cross-examination of Mr Wallis I do not find it to have been established on the balance of probabilities. However, it is fair to say that the auditors were appointed at a general meeting of which the Claimant had no notice. (I believe it is common ground that they did not have to give her notice, because she resided abroad.)
22. Also, but before the trial, there had been an application to set aside the valuation as invalid. The application was made too late and was dismissed by the judge for that reason. Hence I shall proceed on the basis that the valuation is now beyond challenge. However, there is material from which a reasonable person standing in the shoes of the Claimant might well be led to believe that the value ascribed to her shares was very much less than their real value. The only relevance of that is that it is possible to understand why the Claimant, having originally been willing to part with her shares, should now wish to retain them.

The Articles

23. Many companies do not allow their shares to be traded freely. This may be quite understandable, seeing that the members of a small private company may not wish to be forced into a relationship with a shareholder of whom they know nothing, or one they do know but do not approve of.
24. A member of a private company usually has the right to attend general meetings and to speak and vote at those meetings. In a small company those rights may be influential or even decisive. Furthermore, an obstreperous member may disrupt the smooth running of the company.
25. That said, an existing member may fall out with the others; or, although formerly sensible, he may undergo a personality change and become cantankerous; or he may fall under an unwelcome outside influence. He may fall under the influence of his creditors, a significant other, or even his drinking companions. If it is desired to legislate against such eventualities, with a view to compulsorily depriving him of his shareholding, the articles of the company ought to make provision accordingly. He cannot be stripped of his shareholding just because the other members do not approve of the company he keeps or of the influence that can be brought to bear on him by outsiders, unless, on a fair construction, the articles cover such eventualities, and so provide.
26. The Articles of Claygreen Limited contain certain provisions which are intended to prevent a member from parting with his shares without giving to the other members a right of first refusal. I shall now quote or summarise them, emphasising certain phrases:

4.5 Limitations on Transfer

Except in the case of a transfer expressly authorised by Article 4.3 [which concerns family trusts, and is not germane to our case] or save as otherwise expressly provided in these Articles, no Shares or any interest therein shall be transferred, assigned, charged or otherwise disposed of:

a) unless such transfer or disposal is to be of the whole legal and beneficial interest in the entire shareholding of the Transferor, for a single cash payment in sterling; and

b) unless and until the following rights of pre-emption have been exhausted, and then only as permitted by Articles [sic] 4.6.

4.6 Before transferring or disposing of his Shares, the Transferor shall give a Transfer Notice to the Company stating that he desires to transfer the same and the Transfer Price. The Transfer Notice shall constitute the Company his agent for the sale of the Shares therein mentioned … at the Transfer Price during the Prescribed Period to any Shareholder, and shall not be revocable except with the consent of all the Shareholders. On receipt of such Transfer Notice the Directors shall determine, at their sole discretion, whether the Transfer Price is reasonable … If the Directors determine that the Transfer Price is not reasonable, then they shall request the Auditors of the Company (acting as experts and not as arbitrators) to determine the Transfer Price in substitution for the Transfer Price contained in the Transfer Notice which shall be the fair market price for the Shares Offered as between a willing buyer and a willing seller at the date upon which the Transfer Notice is served.

27. There then follow provisions describing the basis of the valuation. They also stipulate that the Auditors' determination shall be final and binding. Article 4.7 provides that the shares shall be offered to the members at the Transfer Price (meaning, I suppose, the original transfer price or, if applicable, the revised transfer price as determined by the auditors), the offer to be open for at least 21 days. Article 4.8 deals with the situation where some of the members, but not all of them, wish to avail themselves of the offer. Article 4.9 provides that if willing purchasers have been found the company shall issue an Allocation Notice. Article 4.10 stipulates that the Transferor shall be bound to transfer the shares mentioned in the allocation notice against tender of the Transfer Price; if she refuses, the Company can act on her behalf.
28. Finally Article 4.11 provides that if willing purchasers have not been found and the Company itself is not willing to purchase or redeem the shares, "The Transferor shall be then at liberty" within a stated period to transfer her shares to a single transferee on a bona fide sale, but not at less than the Transfer Price.
29. It will be seen that the scheme (which will apply unless the members consent unanimously – what I have called a waiver) has several special features. First, a member can never dispose of some of her shares: it must be all or none. Secondly, legal and beneficial ownership may never be separated; nor can the shares be charged; nor can they be sold except for a lump sum in cash.^[1] Thirdly, even a cash sale is prohibited unless and until the pre-emption rights have been exhausted. Thus, unless everybody consents, there can be no exit unless the member gives a transfer notice. The giving of that notice may result in the shares being acquired by other members or, if they are not interested, in the sale of the entire block to a single buyer at not less than the transfer price.

What Triggers the Right of Pre-Emption?

30. Those, then, are the pre-emption provisions which bound the members of the Company. Mr Gavaghan, who appeared for the Defendants, contended that the Second Letter, if not indeed the First Letter on its own, constituted a proper Transfer Notice within the meaning of Article 4.6. It stated that the Claimant desired to transfer her shares: in fact, had already done so. That fulfilled the first condition. Assuming the second condition, namely, a statement of the Transfer Price, was not fulfilled, it did not matter. It did not matter because that was a condition that existed wholly for the benefit of the other members and so could be waived by them. It was waived, the other members preferring the valuation arrived at by the Company's auditors. Thus the letter constituted, amongst other things, an offer to sell the Claimant's shares at the auditor's price. The offer was irrevocable for a defined period and was accepted within that period. Thus the Claimant's shares were properly allocated to the other members.
31. We must bear in mind that articles of this sort are often available as off-the-shelf precedents or that, at any rate, identical articles may have been adopted by a number of private companies – not just Claygreen Limited. The articles must surely be construed identically in each case. So in arriving at their true meaning we ought not to be influenced by what happened after they were adopted.
32. A member of such a private company might well be desirous of selling his shares to an outsider, and open up negotiations with the other members to see if it could be done amicably and without fuss. On Mr Gavaghan's approach that might easily result in the fulfilment of the first condition, namely, that the member had signified a desire to part with his shares. Then the other members could treat that as a Transfer Notice, waive the second condition, and compulsorily purchase the shareholding at a price which the member had never contemplated.
33. I do not believe that is the true construction of these Articles. Those minded to dispose of their shares in such a company with the consent of the other members would continually be acting at their peril unless they employed the right wording in their communications, or employed expensive lawyers or accountants to vet the articles and do it for them. I cannot think of any valuable human purpose that would be achieved by such a construction.
34. Article 4.6 stipulates that a Transfer Notice must state that an intending transferor desires to transfer her shareholding and must state the intended transfer price. Those are two requirements. In my judgment, at least the first of those statements must be unconditional. It is important to bear in mind that the two requirements are not to be regarded in isolation. Any human statement whatsoever must be examined in context. A shareholder who really wishes to exhaust the pre-emption provisions will normally state the transfer price. If she does not, it may cause us to wonder if the first statement is unconditional.
35. In my judgment the First and Second Letters, when read together in the light of the surrounding circumstances known to the recipients (which I think is the right approach), were not an unconditional statement of the proposition that the Claimant intended to part with her shares. For that would have amounted to the following: "You and I know that there are pre-emption provisions that apply unless all members of the Company agree otherwise. There has been no such agreement. Despite that, the Claimant desires to part with her shares (indeed, already has parted with her shares) in defiance of the Company's articles". That is a possible construction. However, the following intent seems more probable: "I know I need the unanimous consent of the members if I am to proceed, and that is what I am looking for. That is why I want a general meeting".
36. It is true that the Second Letter stated that the Claimant had already transferred her shares to Epsom. That was not allowed under the Articles. Whether Mr O'Doherty had properly read the Articles, I do not know. Even so, the business sense of the communications was the expression of a desire to have Epsom registered as a member in succession to the Claimant if the necessary consents could be forthcoming. It may have been over-sanguine, but it was not unconditional.
37. Further, I do not accept that the second requirement is to the sole benefit of the other members, so that an omission to fulfil it might be waived, accordingly. In my judgment the existence of that condition is to the benefit of everyone, and is not a sterile formality. A shareholder who is writing to say that she desires to part with her shares should feel safe if she does not state the transfer price. After all, that is what Article 4.6 seems to require.
38. In my judgment the Claimant never intended to offer her shares for purchase by the other members in accordance with the pre-emption provisions of the Company's articles. As the other members must have known, she wanted to sell them to Epsom in order to get Mr Harris off her back – or rather, to get him off the back of her life-partner Mr Chamberlain. At any rate, I do not believe the letters properly bear the construction urged by the Defendants.
39. What if a member were to say "I mean to sell my shares to an outsider for a certain price, but I refuse to tell you what it is". Or what if the member, having mistaken her rights, were to say "I have already sold my shares to an outsider", not stating the price. The proper course of the directors, under a set of articles such as these, is to refuse to register the transfer. They have no discretion in the matter. See the decision of the Court of Appeal in the Tett case, discussed further in paragraph 46 below.
40. The articles do not say that a member may be deprived of her shares merely because she is in breach of the articles. It is not necessary to imply such a term in order to give business efficacy to the articles. And as Arden LJ pointed out in Martyn Rose v. AGK Group Ltd [2003] EWCA Civ 375, [2003] 2 BCLC 102, at [42], a share is a bundle of rights and the right to hold on to a share is as much a part of the right of property constituted by the share as the right to transfer it. Accordingly, the right is not accordingly to be taken away unless that is the fair interpretation of the articles.
41. I can see why the Defendants wanted to get rid of the Claimant: they probably thought it was the best way of getting rid of the influence of Mr Harris. However, a citizen is not to be deprived of her property except under law, and in this case that means the Articles. And, while I accept that Mr Harris, being an important creditor of her life-partner, was in a position to bring considerable influence to bear upon the Claimant, I do not accept that he enjoys or Epsom enjoys proprietary rights with regard to her shares – such as might affect the exercise of my discretion under section 359 of the Act. I shall return to that below.

Option To Purchase?

42. Mr Gavaghan contended that the Claimant's shares were transferred to Epsom and that the transfer created an option in the other members to purchase the shares in accordance with the pre-emption rights. The option was an equitable interest prior in time to the interest taken by Epsom. For that proposition he cited the judgment of Mr Kevin Garnett QC in Cottrell v. King [2004] EWHC 397 (Ch), [2004] 2 BCLC 413, itself following the judgment of Vinelott J at first instance in Tett v. Phoenix Property and Investments Co Ltd [1984] BCLC 599.
43. I do not accept that the Claimant's shares, or any equitable interest therein, were transferred to Epsom. True, I have held that by executing the transfer in escrow the Claimant had done everything she possibly could have done to divest herself of the property. But I said that on the assumption that it was legally possible to transfer an interest to Epsom without the consent of all the members of the Company. Why was the transfer executed merely in escrow? In my judgment, because Mr O'Doherty or those advising him knew that he needed the consent of all the others. He did not fill in the blanks on behalf of his client nor cause the document to be stamped because he knew that, if those consents were not forthcoming, the transaction would be worthless. However that may be, and on my interpretation of the Company's articles, such indeed was the case.

Did the Claimant Transfer a Beneficial Interest to Epsom?

44. Mr Michael Ashe QC, who appeared for the Claimant, argued that no beneficial interest in the Claimant's shares was transferred to Epsom, because it would have been a breach of contract. He cited the speeches of Lord Browne-Wilkinson in Linden Gardens Trust Ltd v. Lenesta Sludge Disposals Ltd [1994] AC 85 at 109 and Lord Atkin in Nokes v. Doncaster Amalgamated Collieries Ltd [1940] AC 1014 at 1033. Those authorities do not support his proposition. They are concerned with the assignment of contractual not proprietary rights. Mr Gavaghan for the Defendants relied on a preceding portion of Lord Browne-Wilkinson's speech (at 108H) to establish the contrary proposition, namely, that proprietary rights can be assigned in breach of contract. That passage is about the assignment of leases in breach of covenant and whether the assignment may be good at law. It does not touch on the validity of rights in equity – equitable rights said to have arisen as a result of dealings in shares in a company whose articles are worded like Claygreen Limited's. I must approach the point as a matter of principle.
45. The whole point of the pre-emption provisions in these particular Articles is to stop persons acquiring any proprietary right or interest in a member's shares, except by the unanimous consent of the other members, or unless they have been given the right of first refusal and have declined to avail themselves of it. Furthermore Article 4.5 intends to prohibit any kind of dealings in the shares except an outright transfer of the whole block for an immediate cash payment.^[2]
46. The legal title to shares in a company is not transferred until it is registered: see Re Piccadilly Radio plc [1989] BCLC 683, 696g-h per Millett J. If a member should attempt to transfer his shareholding in breach of the pre-emption provisions in the company's articles, the directors may refuse to register it. Indeed the directors would have no power to register a transfer which had to their knowledge been made in breach of the relevant article: Tett v. Phoenix Property and Investment Co Ltd [1986] BCLC 149, 162i, 167, C.A.
47. What about beneficial interests, though? Can they be created contrary to the company's articles? I have in mind, for example, a contract for the sale of a share; or the pledging of a share as security for a loan; or the execution a transfer form in consideration of payment; and so forth. In such cases, may the transfer bind the immediate parties, even though the company would refuse to register it? There are a number of authorities that touch on that question. Sometimes they hold that the transfer is void as against those who had notice, as in Hunter v. Hunter [1936] AC 322. At other times they hold that, although the company may ignore the transaction, it is nevertheless good as between the parties: see, for example, Re Piccadilly Radio plc [1989] BCLC 683, 697a; Hurst v. Crampton Bros (Coopers) Ltd [2002] EWHC 1375 (Ch) [31], per Jacob J.
48. I am not concerned with whether the transaction is good as between the parties in the context of a claim for damages for breach of contract. I am concerned with whether equity would uphold the transaction as between the parties. What does that mean? It means that equity would, in an appropriate sense, consider the vendor to hold the property on behalf of the purchaser, or would decree specific performance.
49. In my judgment the answer depends on the true construction of the articles, and on the existence of notice. Cases on other articles are of limited assistance. And in our case it is clear that Article 4.5 intends to prohibit the passing even of a beneficial interest. Indeed, so far as I can see, and subject to the very limited exception I have already noted, the very existence of a beneficial interest separate from outright legal ownership is something the Article intends to forbid. "No shares or any interest therein shall be transferred, assigned, charged or otherwise disposed of" unless it is to be of "the whole legal and beneficial interest in the entire shareholding of the Transferor, for a single cash payment in sterling". It is intended that the shares cannot even be used as security for loans.
50. In my judgment those who, like Epsom or Mr Harris, wish to acquire interests in shares in private companies, and employ experienced professionals to represent them, like Mr O'Doherty, must be taken to know that, frequently, those shares cannot be traded freely because the articles contain pre-emption provisions. And if I am wrong about that, Mr O'Doherty himself stated in cross-examination that he was aware of the existence of the pre-emption rights, although he was hoping they would be waived. In the context I infer that he knew at least by the summer of 2004, when matters were still proceeding amicably. Mr O'Doherty was representing the Claimant and he was being paid to look after the interests of Mr Harris and Epsom.
51. The articles of the Company are open to public inspection. Thus persons in the position of Mr O'Doherty and those whom they are acting for have constructive notice of their precise terms. In those circumstances, anyone who attempts to acquire an interest in the shares of a private company without troubling to read the articles does so at his peril.
52. In my judgment the purported transfer of the Claimant's shares to Mr Doherty's company (Epsom) was forbidden by Article 4.5. The same must be true of the charge upon those shares, if such there was. Both parties to those transactions must be taken to have had constructive notice of that. What is the consequence?
53. A share in a company should not be thought of as a tangible object, but as a bundle of rights. Those rights have existence in virtue of the company's articles. If Epsom has acquired rights of any sort in the Claimant's shares, they must be rights recognised in equity alone, for no legal transfer of the shares has been or could be effected without registration. Now, how can equity recognise or give effect to a transaction in relation to a bundle of rights which, by their very nature, do not admit of that transaction, the parties having had notice thereof?^[3]
54. According to Article 4.5 these shares are inalienable unless and until the pre-emption rights have been exhausted. I hold that Epsom, who must be taken to have known it, acquired no interest in the Claimant's shares.

Discretion

55. Section 359 of the Companies Act 1985 empowers the court to order rectification of the register, but confers a discretion. I have held that the other members did not acquire the right to purchase the Claimant's shares. Therefore the Claimant is entitled to be restored to the register unless there are proper reasons why I should exercise my discretion otherwise.
56. Counsel cited no authorities on this point except the decision of Millett J, as he then was, in the Piccadilly Radio case, reference as above. It establishes that there is a discretion and it must be exercised having regard to the circumstances in which and the purpose for which the relief is sought. However, in that case the circumstances were completely different. That was a public company and the whole purpose of the relevant provision in its articles was to protect it from the risk of losing its broadcasting licence, which risk would arise if shares got into the hands of those of whom the Independent Broadcasting Authority might disapprove. The IBA was aware of the facts and did not disapprove. The application in that case was to restore certain shares, not to the applicants themselves, but to Virgin; yet Virgin did not want them. The real object was to prevent the voting rights being exercised by shareholders who did not support a commercial venture which was favoured by the applicants. In sum, the applicants' purpose in that case "was foreign to the statutory remedy which they invoked".
57. In our case I can understand why the Defendants would object to the shares being restored to the Claimant if she is in the pocket of Mr Harris. But the Company's articles do not go that far. They prohibit any interest in the shares being transferred e.g. to an outsider. In my judgment, that has not happened as a matter of law. It is true that the Claimant may well be under the influence of Mr Harris because of her personal relationship with Mr Chamberlain and because of Mr Chamberlain's indebtedness to Mr Harris. Let us suppose that, as a result of that, she will feel compelled to vote at general meetings in accordance with Mr Harris' directions. As I have already ventured to explain, that is not something that is prohibited by the articles nor is it a valid ground upon which she may be stripped of her ownership. Therefore I do not consider that my discretion should be exercised adversely to the Claimant.
58. I was not called upon to decide whether the execution of the power of attorney in favour of Mr O'Doherty was contrary to the Company's articles. I must not be taken to be deciding that, in the circumstances of this case, the Company would be bound to recognise the validity of that or any other power of attorney. The point is not before me.

Note 1   There is an obvious exception, which must be implied in order to give business efficacy to Article 4.11. If and when the pre-emption rights have been exhausted, or there has been an unanimous waiver, with the result that the member is now at liberty to transfer his shares to the outsider, there will be an interval between transfer (equitable title) and registration (legal title). See paragraph 46 below, first sentence. See also paragraph 53 below, note 3.    [Back]

Note 2   Subject to what is stated in note 1, above, and note 3, below.    [Back]

Note 3   Of course, an intending vendor may enter into a contract subject to the condition precedent that the pre-emption rights shall have been exhausted, or that there shall have been unanimous consent. That, I believe, would be valid.    [Back]