England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Rolls Building, 7 Rolls Buildings Fetter Lane, London EC4A 1NL
		22/11/2016

Mr Justice Mann :

Introduction

1. On 1st December 2014 the claimant's shareholding in the defendant company ("CHL") was compulsorily transferred to the company under what the defendant claims were its rights to do so under its Articles of Association because the claimant ("Mr Gunewardena") had ceased to be employed within the CHL group. It applied a valuation mechanism which technically gave Mr Gunewardena nothing for his shares because the valuation was nil, but in fact the company gave him the par value of his shares (£1,254). Mr Gunewardena challenged that entitlement. By the end of the trial his challenge had become limited to a claim that the event which entitled the company to invoke the compulsory transfer mechanism had not arisen on the true construction of the Articles, and that if it had, the true Articles entitled him to a valuation which would have produced more than the sum he received. He says that the company should have applied one which gave him a fair value as determined by the auditors, which would have yielded a sum of over £3m. He also mounted a last ditch attack on the notice invoking the company's rights on the odd footing that, if the company was entitled to invoke the Article as it did, and if the value was actually nil, the notice exercising the rights was invalid because it proposed payment of more than he would have been entitled to under the Articles. CHL disputes all those claims and maintains its acts were valid.
2. Mr Matthew Collings QC appeared for Mr Gunewardena; Mr Philip Jones QC appeared for the defendant company.

The core facts giving rise to the claim

3. The dispute as to valuation arises out of amendments to the Articles made in the 1990s and involves tracing the course of those amendments and associated events. I shall have to set out some precise provisions in those Articles, but in many instances I will be able to describe provisions by their nature rather than by setting out their detailed wording.
4. In this section of this judgment I deal with the core facts that give rise to the claim. In later sections I provide some additional factual background, and add other important facts, but it will be useful to build those facts around the framework of some central events.
5. CHL was formed in 1993 as the holding company for many of the various businesses of Sir Terence Conran, the well-known designer and restaurateur. Prior to that time his assets were held in a more disparate way. Mr Gunewardena was an accountant who joined Sir Terence in his businesses in 1991 as finance director. Over the following years he took on other roles in the businesses and was an important part of the overall operation. He and Sir Terence were close, both commercially and personally, until the present dispute.
6. When CHL was formed in 1993 Mr Gunewardena was given the opportunity to acquire a limited holding of the B shares issued by the company (2%). The first Articles adopted on incorporation were fairly standard modified Table A Articles to which I need not refer. The first important Articles were adopted by special resolution dated 12th August 1993 and were much more customised. In the jargon of this case they are called "the 1993 Articles".
7. Article 7 of the 1993 Articles dealt with the "Transfer of Shares", and contained a number of provisions relating to those matters which are not relevant to this action. It also contained pre-emption provisions binding a B shareholder (such as Mr Gunewardena) who wished to sell his or her shares. Such a shareholder was obliged to give a Transfer Notice which (in the familiar way) constituted the company the agent of the shareholder for the purpose of offering the shares to the other existing shareholders. The Transfer Notice was to specify a price, but if it did not, or if a price was not agreed between the outgoing shareholder and would-be purchaser, then the price was to be:

"… such price as the auditors of the Company for the time being shall certify in writing to be their opinion of a fair selling value therefor as between a willing vendor and a willing purchaser." (Article 7.8).

I shall call this basis of valuation the "fair selling valuation" or "fair selling calculation". The auditors were given no further instruction or guidance in the Articles as to how to arrive at their valuation. The Articles go on to provide a mechanism for finalising and, if necessary, enforcing the sale.

8. Article 7.6 operates so as to apply the pre-emption rights to a shareholder who was a group employee but who left that employment:

"7.6. Whenever any member (other than Sir Terence Conran) who is employed by the Group in any capacity ceases to be an employee of the Group (otherwise than by reason of his death) he shall be deemed to have served a transfer notice pursuant to Article 7.7 in respect of all the B shares held by him …"

9. In 1995, in circumstances which will be elaborated later, the Articles were amended by special resolution passed on 4th October 1995. The Articles in this form will be called "the 1995 Articles". The amendments replaced the former Article 7 with a whole new Article 7, with some minor consequential amendments elsewhere in the Articles. The new Article 7 was still headed (and dealt with) "Transfer of Shares". Some of the former Article 7 was reproduced, but the pre-emption and compulsory transfer provisions were changed. Article 7.5 was the equivalent of Article 7.6 of the 1993 Articles with some cross-references changed, but since it is the provision which is actually relied on by the defendants in this action I shall reproduce it here:

"7.5. Whenever any member (other than TOC [i.e. Sir Terence Conran]) who is employed by the Group in any capacity ceases to be an employee of the Group (otherwise than by reason of his death) he shall be deemed to have served a transfer notice pursuant to Article 7.6 in respect of all the B shares held by him …"

10. By Article 1.3 "Group" is defined as meaning:

" … the Company and its subsidiaries";

and "subsidiary" is defined as having:

"… the meaning ascribed to it in the Act."

"The Act" is defined as meaning the Companies Act 1985 as amended by the Companies Act 1989 and re-enactments thereof.

11. Articles 7.6 to 7.17 of the 1995 Articles contain pre-emption rights which operated when a B shareholder wished to dispose of his or her shares. The provisions are more complicated than those which they replaced in the 1993 Articles because, as well as providing for shares to be offered to existing members, the company was given the right to be an offeree as well, so provisions were necessary to provide for that to happen only where it could lawfully be done and for relevant meetings to be called if the company was to purchase the shares. It is unnecessary to set those out, but the introduction of those significant provisions is an important feature when it comes to considering what happened in 1998. It is one of the two important new matters introduced into the 1995 Articles.
12. The other is a change in the valuation mechanism. Article 7.7 provided that the transfer price would be:

" … such price ("the Transfer Price") as may be specified in the Transfer Notice or (if no such price is specified in the Transfer Notice or such price is not approved by the directors within thirty days after the date of the Transfer Notice) such price ("the fair price") as the auditors of the company for the time being shall certify in writing to be the opinion of a fair selling value thereof as between a willing vendor and a willing purchaser."

13. This wording is virtually the same as in the 1993 Articles, but in these 1995 Articles express guidance is given as to how the fair price is to be determined. It was to be calculated by reference to 5 times the average annual profit of the last two accounting periods. Article 7.9 provides:

"7.9 If the auditors are asked to certify the fair price as aforesaid:

(1) the fair value of the Said Shares shall be a sum equal to the percentage which the Said Shares shall be of all the issued shares in the Company as at the date of the Transfer Notice of the average of the consolidated profits or losses of the Group before tax and after minority interests for the two accounting reference periods of the Company ended on the accounting reference date last before the date of the Transfer Notice or the date upon which a Transfer Notice shall be deemed to have been given in accordance with articles 7.4 or 7.5 multiplied by five ..."

I shall call this "the Five Times Profits" valuation or calculation. As a matter of history, this method of calculating the fair price was proposed by Mr Gunewardena himself.

14. In 1998 Sir Terence wished to put some of his shares into a new trust, and it was decided that the shares thus dealt with should not participate in dividends until after 31st March 2003. This was achieved by a further amendment to the Articles which created C shares for this purpose and postponed their dividend rights. An EGM was called for 16th March 1998 and it was proposed that the following resolution be passed:

"That the Articles of Association of the Company be amended as follows:

1. By the deletion of the full stop at the end of article 1.3 and the addition of the following words:

"; and

(4) "the Trustees" means that the trustees for the time being of Sir Terence Conran's nineteen ninety-eight Settlement."

2. By the addition of the following words at the beginning of the second sentence of article 7.1(2):

"Subject as provided in sub-paragraph (3) of this article,";

3. By the addition of the following words after article 7.1(2):

"(3) Whenever a share which is an A share is transferred by TOC [i.e. Sir Terence Conran] to the Trustees, it shall be redesignated as a C share."

4. By the addition of the following words after article 2.7:

"2.8 If any A shares shall be redesignated as C shares in accordance with article 7.1(3) the A ordinary shares of £1 each so redesignated ("the C shares") shall, except as expressly mentioned in these Articles, rank pari passu in all respects with the B shares as if they were B shares so that any reference in these articles to B shares shall be deemed to refer also to C shares mutatis mutandis. The holders of the C shares will not be entitled to participate in any dividend paid or distribution made during any financial period of the Company ending on or before 31 March, 2003. Immediately before 31 March 2003 all C shares then in issue shall automatically be redesignated as B shares."

15. That is the scope of the resolution proposed. The notice of the meeting, which also contained an invitation to give a signed consent, was signed by Mr Gunewardena. The meeting itself was attended only by Mr Gunewardena and Sir Terence, but all other shareholders apparently consented. The resolution was therefore passed, as the minutes record. A board meeting called immediately after it approved the transfer of the shares. Mr Gunewardena originally claimed that this meeting somehow adopted the 1993 Articles, but that suggestion was not pursued by the end of the trial, though I touch on it below. For the present it is sufficient to note that I reject the suggestion.
16. Following that meeting Mr Geoffrey Davies, the company's solicitor, filed a form of Articles at Companies House ("the March 1998 Filed Articles"). A date stamp shows that they were received on 21st March 1998. The front page of that draft of the Articles describes them as:

"New Articles of Association of Conran Holdings Ltd (Adopted by Special Resolution passed on 12th August 1993 and amended by Special Resolution passed on 16 March 1998)."

17. This form of the Articles has led to one of the claims made by Mr Gunewardena in this action. The Articles do not reflect the 1993 Articles as amended in 1995 and then as further amended in March 1998; they are an attempt to merge the 1998 resolution with the unamended 1993 articles (missing out the effect of the 1995 amendments). As a result, the 1993 form of Article 7 (Transfer of Shares) is contained in this version, with the effect that it does not reflect the addition of the Five Times Profits calculation or the addition of the company as an offeree of shares which it is proposed to transfer. Mr Gunewardena seeks to rely on this form of the Articles as justifying his resistance to being bound by the Five Times Profits valuation technique and as enabling him to rely on the broader fair selling valuation as apparently contained in the 1993 Articles.
18. Mr Davies has given evidence that the mistake was his - when he drafted the 1998 Special Resolution and filed the March 1998 Filed Articles he had overlooked the 1995 Articles and worked from the wrong ones. I accept that evidence. It is consistent with the fact that the amendments proposed by paragraphs 2 and 3 of the resolution do not work, as a matter of fitting in with the 1995 Articles but do make drafting sense if related to the 1993 Articles. It is also consistent with the description on the front of the March 1998 Filed Articles (set out above) which does not mention the 1995 amendments.
19. By the end of the year Mr Davies apparently realised that a mistake had been made and the company put in train some apparently remedial steps. The shareholders were all circulated with, and invited to sign, a special resolution resolving to adopt what Mr Davies considered to be the correct form of the Articles, that is to say an appropriate amalgam of the 1993 Articles, as amended by the 1995 Articles (with the expanded Article 7) and further amended by the 1998 resolution. Most of the shareholders (including Mr Gunewardena) signed the resolution, but the signatures of two of them cannot be traced. The company did not seek to file this form of the Articles at that time.
20. Nothing further of relevance happened until 2006. In the preceding year CHL decided that it did not wish to continue to run its restaurant business and decided to dispose of its restaurants. A deal was struck with Mr Gunewardena and a business partner of his (Mr Loewi) to give them an interest in the restaurants. The ultimate deal involved the restaurants being placed into CGL Restaurant Holdings Ltd ("CGL"). CHL had a 51% shareholding in that company and Mr Gunewardena and his partners and financiers had 49%. Mr Gunewardena ceased to be an employee (CEO) of CHL but became an employee of CGL. He remained a director of CHL, and there were contractual terms operating as between him and CGL which permitted that.
21. Mr Gunewardena claims that at or by this time he reached an oral agreement with Sir Terence to the effect that, notwithstanding the Articles, he would not have to part with his shareholding. Until the occasion of the delivery of Mr Collings' written final submissions he relied on that agreement as binding the company in these proceedings, but at that point Mr Collings abandoned reliance on the agreement as binding, though not the agreement itself as a fact. It is disputed, but its relevance is only as a minor part of the background to the events thereafter (if that).
22. On 19th April 2013 Mr Gunewardena and a private equity house acquired CHL's remaining 51% in CGL. That terminated CHL's interest in CGL and, according to CHL, meant that Mr Gunewardena (who remained an employee of CGL) was no longer employed by the CHL group because CGL had left it (according to CHL). That was said by CHL to give rise to a deemed transfer notice in respect of Mr Gunewardena's shareholding in CHL and so CHL has sought to rely on that mechanism, and on the Five Times Profits valuation provision as fixing the price. The auditors have certified that there were no profits in the two relevant periods (there were in fact losses), which means that the price should have been nil, but CHL resolved to pay the par value of the shares (£1,254) and claimed to transfer the shares under the mechanism in the Articles. Mr Gunewardena disputes CHL's entitlement to take that course, maintaining that CHL was not entitled to rely on a deemed transfer notice, and that in any event the relevant Articles, for valuation purposes, are the March 1998 Filed Articles which provide for a fair selling price without the Five Times Profits valuation technique as a mechanism for arriving at it.
23. In 2014 the company filed another set of articles, this time marrying the March 1998 amending special resolution with the 1995 Articles. The details of how that was done as a matter of drafting do not matter.

Witnesses

24. Mr Gunewardena was his own sole witness. A number of witnesses were called for the defendant, both shareholders and company officers. Originally Mr Collings indicated that not all would be required for cross-examination, but in the end he cross-examined all of them. Most of the critical events in this case happened between 10 and 18 years ago and it is not surprising that the actual recollection of most witnesses is thin. Apart from Mr Gunewardena's evidence, a large part of the evidence of the witnesses is reconstruction from the documents. Some documents from the 1990s are not in fact available, but there is enough to enable me to judge whether the reconstruction is accurate or not.

Mr Gunewardena

25. Mr Gunewardena gave evidence of various aspects of the history of the matter. He is obviously an experienced and clever businessman. He would apply that description to himself, and Sir Terence would agree. As a witness his answers to questions were often long-winded and intended to make sure that his case was got over, both in terms of actual evidence and in terms of argument. On critical points that were in issue in this case, and on which he could give actual evidence, his assertions of his case were often not particularly convincing. The quality of his evidence was often that of litigation wishful thinking - at best he has convinced himself that things happened (or did not happen) because that is necessary for his case. In some instances I fear he was saying things that he knew to be untrue. I did not feel I could always rely on his evidence.

Mrs Elizabeth Dunley

26. She is the group financial director and company secretary of CHL, posts which she has occupied since 2012, though she has previously had jobs elsewhere in Sir Terence's business entities. Other than the events of 2013, she has had no involvement in the events which are relevant to this action, and most of her evidence consisted of explaining how CHL approached its disclosure exercise and of drawing inferences from, and setting out, the terms of a lot of historical documents. Insofar as her evidence recited documents it was not strictly necessary. She was cross-examined for over half a day by Mr Collings, and obviously found it trying. I do not consider that the cross-examination revealed any flaws in her evidence. She was, in my view, a reliable and conscientious witness, and showed herself to have been a very conscientious company officer as well.

Mr Geoffrey Davies

27. Mr Davies was the company's solicitor in relation to the transactions in the 1990s, in most of which he was involved as such. He was also involved in the 2006 sale. He gave evidence in relation to those matters, but particularly in relation to the 1990s he had little useful real recollection. His evidence in relation to those matters was largely reconstruction. He was impressively frank in acknowledging his mistakes in 1998, and extremely clear (and indeed accurate) in his exposition of the requirements of company law as he saw it. His oral evidence was clear and thoughtful, and he was particularly clear in distinguishing between the Articles as a concept and the Articles as a piece of paper, despite some cross-examination which was capable of confusing the two. He came over as a knowledgeable and careful solicitor and witness, notwithstanding the mistake he made in 1998.

Mr Roger Seelig

28. Mr Seelig is the current chairman of CHL and has been a board member of CHL since May 2008. Prior to that time he advised Sir Terence on a number of transactions. He is obviously a very experienced businessman. He gave evidence of events in 2013 and following, which he gave clearly, carefully and credibly, though by the end of trial that evidence was of limited significance.

Mr Alex Willcock

29. Mr Willcock is a designer who was, for a few years, a minority shareholder in CHL until he left his employment with the company and had his shares compulsorily acquired accordingly in 2000 and 2001, on a Five Times Profits valuation basis. He gave evidence of that event, and in particular how Mr Gunewardena insisted that that valuation basis be applied. He was somewhat guarded in his evidence, but that did not impact on the force of his evidence, which I accept.

Mr Sebastian Conran

30. Sebastian Conran ("Sebastian") is one of the children of Sir Terence and a minority shareholder in CHL. As with his siblings, he gave evidence of his involvement with the company and in particular the events of 1998. His evidence was clear and credible.

Mr Simon Brown

31. Between 1995 and 2000 Mr Brown was Group Finance and Business Manager, and then Group Finance Director, of CHL. He gave evidence relating to his involvement of the events of 1998, and in particular the attempts to undo the apparent error in the Articles at the end of the year. He also gave some unchallenged indirect evidence about the content of a Shareholder's Agreement signed by Mr Gunewardena, no original of which is available. His actual recollection was, like most of the other witnesses, very limited, which is understandable bearing in mind how long ago the events were, but his reconstruction was careful and credible.

Mr Jasper Conran

32. Jasper Conran is another of the children of Sir Terence, and a minority shareholder. As a matter of history he was a little more engaged with the business of CHL, because he was made a non-executive director in 2009 and chairman in 2014. He stood down in 2015. Like his siblings he was and is a minority shareholder in CHL. He had a limited actual recollection of events in 1998, and was in no way inclined to fill in the gaps with a pretended memory - he was frank about what he could not remember which, in the circumstances, supports the general honesty (as I find it to be) of the rest of his evidence. He was a reliable witness.

Mr Edmund Conran

33. Edmund Conran ("Ned") is another child of Sir Terence, and another minority shareholder. He gave limited evidence in relation to the events of 1998. He was not materially challenged, but his actual recollection was not great. He was a credible witness.

Miss Sophie Conran

34. Sophie Conran was another child of Sir Terence, and again was a minority shareholder. Her evidence was clear, fair, sensible and credible.

Mr Thomas Conran

35. Thomas Conran is another son of Sir Terence, and again was and is a minority shareholder. Like his siblings he gave limited evidence about the events of 1998. He said he was a designer and not a "corporate man". Again like his siblings, his first hand actual recollection of events was slight, but so far as it went his evidence was credible.

Sir Terence Conran

36. Sir Terence gave evidence on the last day of witness evidence. He is now 85 and was physically frail but certainly not mentally frail. He was able to give me clear evidence of matters within his recollection. His failure to recollect historic detail was no worse than the failure of much younger witnesses. He had a strong recollection of matters which one would expect him to remember. All in all he was a good, reliable and credible witness. I accept his evidence.

The issues

37. The issues in this case, by the time of final speeches, had been reduced to four, being as follows (taking them in what I consider to be a logical order):

(a) Was CGL a subsidiary of CHL immediately prior to the ultimate sale to CGL in 2013? If it was, then Mr Gunewardena was deemed to have given a transfer notice in 2013.

(b) Were the true Articles of the company those in the March 1998 Filed Articles by virtue of their filing and/or what happened at the March 1998 EGM? This goes to the basis of valuation of Mr Gunewardena's shares.

(c) If not, were the March 1998 Filed Articles the true Articles of the company by virtue of agreement, acquiesence or some other form of informal adoption? This again goes to the basis of valuation of Mr Gunewardena's shares.

(d) Has the company followed the correct procedure specified by the Articles?

38. I shall tackle the issues in that order, re-visiting and amplifying the evidence as may be necessary.
39. When the proceedings were opened there were two more issues - first, whether the March 1998 Filed Articles had become the Articles of the company by a process of acceptance by the shareholders in relation to the meeting in March, and second, whether there was a binding agreement between Mr Gunewardena and Sir Terence in 2006 which prevented the company (and presumably the shareholders) from applying the compulsory purchase provisions of the Articles if they would otherwise have been entitled to do so. The first was abandoned after Mr Gunewardena's evidence. The second was abandoned very shortly before written final submissions were delivered. If it matters, I record that Mr Collings was quite right to have abandoned them. Whether they should ever have been run in the first place is not something that I need to deal with in this judgment.

Was CGL a subsidiary immediately before the transfer by CHL of its shares in 2013

40. Immediately before the sale of a large part of the restaurant business in 2006, Mr Gunewardena was the CEO of, and employed by, CHL. On the sale he ceased to occupy that position, but became the CEO of CGL. It is Mr Gunewardena's case that at that point he ceased to be employed by "the Group" within the meaning of the Articles because CGL was not, on the facts, a subsidiary of CHL. That meant that while, in theory, the compulsory transfer rights under the Articles (whichever version one takes - either Article 7.6 or 7.5) could have been invoked at that time, they were not (perhaps because of an alleged agreement between Mr Gunewardena and Sir Terence, but that does not matter at this stage of the argument). There was a cesser of group employment at that stage, so there was no further cesser of group employment in 2013 (it had already happened). The 2013 transactions could therefore not be used as the basis of a compulsory transfer of his shares.
41. CHL's argument is that that is a faulty analysis. In 2006 Mr Gunewardena swapped one group employment (with CHL) for another (with CGL) because the latter was a subsidiary of the former. In 2013 CGL ceased to be a subsidiary and that meant that Mr Gunewardena was no longer employed within the group. That then triggered the compulsory acquisition regime.
42. CHL's argument can be shortly stated and depends on following through the definitions in the Articles (set out above) into the Companies Acts. The Article refers "the Group" which is defined as including its "subsidiaries" and that term is given its Companies Act definition. Section 736(1) of the Companies Act 1985, as amended, provided:

"A company is a 'subsidiary' of another company, its 'holding company', if that other company -

(a) holds a majority of the voting rights in it …"

43. Section 736A(2), as inserted by the Companies Act 1989, provided:

"(2) In section 736(1)(a) … the references to the voting rights in a company are to the rights conferred on shareholders in respect of their shares .. to vote at general meetings of the company on all, or substantially all, matters."

44. On this footing CGL was plainly said to qualify as a subsidiary. CHL owned 51% (actually 51.2%) of the ordinary shares, and could vote at general meetings on all, or substantially all, matters. There was one qualification in the Articles of CGL in respect of its voting rights. Under Article 17 Uberior Investments plc (an investment arm of, or backed by, the Bank of Scotland) had the right to appoint one director, and Article 17.2 provided that on a resolution to remove that director Uberior's ordinary shares should be taken to carry one vote in excess of 50% of all the votes exercisable at the relevant general meeting. This is the only qualification to CHL's voting rights, and it is submitted that that still means that it still has its majority voting rights in substantially all matters.
45. I accept that argument as a matter of construction of the Articles as they stand, and indeed Mr Collings did not dispute the argument thus far. He advanced a further gloss on the argument. He advocated a "purposive" construction based on an averment that from the date of the 2006 transaction onwards CGL was not regarded as a subsidiary but was treated as a joint venture company instead, or that it was essentially autonomous. That, it is said, means that Mr Gunewardena never was employed by a subsidiary of CHL, so he did not cease to be such an employee in 2013. Therefore the compulsory transfer provisions could not be invoked in respect of the events of that year.
46. The factual material on which this argument is based is material arising out of the overall arrangements between CHL and CGL (and its other shareholders) for the control of the business and their respective relationships in relation to that company. Immediately after the 2006 transaction the shares in CGL were held by CHL (51.2%), and the remainder were held in various proportions by Mr Gunewardena, some inviduals associated with him and Uberior. There were three classes, but that does not matter for present purposes. Because of a series of shareholder and other agreements, Uberior, CHL and the shareholders and directors (including Mr Gunewardena) undertook various restrictions on such things as increasing capital, varying the Memorandum and Articles of Association, making substantial acquisitions, dispositions of borrowing and removing and appointing directors. It is said that this deprived CHL of a lot of the powers that it would otherwise have been able to exercise by virtue of its majority shareholding. Furthermore, in the accounts of CHL CGL was described as an investment or joint venture and not as a subsidiary. That was how it was said to have been treated by the participants.
47. Much of the factual material relied on by Mr Collings was not disputed, though Sir Terence said that he still considered CGL to be a subsidiary. A paper was prepared at the instigation of the board after the 2006 transaction, in which one of the headings was "Accounting for CHL's investment in CGL". The document went on:

"Introduction

This analysis considers the relationship that now exists between Conran Holdings Ltd ('CHL') and CGL Restaurant Holdings Ltd ('CGL') following the Conran group reorganisation in September 2006 (Project Cougar). The determination of the relationship between these two parties is a pre-requisite to the formulation of CHL's accounting approach with regard to CGL.

Definitions

Investor control of an investee exists when the investor can direct the operating and financial policies of the investee. If an investor solely controls the investee, the relationship is that of a subsidiary. If the control is shared with another party, the relationship is that of a joint venture.

If an investor has significant influence over, but does not control, the operating and financial policies of the investee, the relationship is that of an associate.…

Conclusion

The directors of Conran Holdings Ltd considered that the relationship between CHL and CGL is that of investor and investee and, as such, CGL should be accounted for as a simple investment. The main factors leading to this conclusion are:

CHL does not control or significantly influence the board of CGL, nor the operating and financial policies of CGL;

the substance of CHL's ordinary shareholding in CGL is to give CHL a return relative to risk on its investment in CGL that is in line with its target; and,

consistency of this approach with that of fellow investor HBoS."

48. This approach was also reflected in the report and financial statements of CGL, of which one example is the report for the year ended 31st March 2012. In the Notes to the financial statements, at Note 11, there is an account of "Fixed asset investments". There is then a heading "Group" containing:

"Details of the investments in which the group held more than 10% of the nominal value of any class of share capital at 31 March 2012 were as follows…"

49. A number of companies are then listed under the heading "Subsidiaries"; those companies do not include CGL. There is then a heading "Associates and Joint Ventures", under which is listed CGL.
50. The reason for this appears to be the need for correct accounting treatment. This was set out in a letter from Ernst & Young to CHL dated 10th December 2007 (Ernst & Young were CHL's auditors at the time). In that letter they said:

"Further to your request, we are writing to set out our opinion as to the appropriate accounting treatment under UK GAAP for Conran Holding Ltd's ('Conran Holdings') investment of 51% of the ordinary shares in CGL Restaurant Holdings Ltd ('CGL') in the consolidated accounts of Conran Holdings.

We have taken the views of the directors of Conran Holdings on the accounting treatment, and expressed and debated these views on your behalf with the senior partner of our Financial Reporting Group and also with other senior audit partners within our firm.

However unfortunately, the response from these deliberations was very clearly that Conran Holdings has the ability to exercise control over CGL, irrespective of whether it chooses to exercise this control.The existence of the investment agreement is helpful in requiring certain matters to require more than just Conran Holdings consent and therefore we would accept the judgment that control is shared and it is appropriate to account for your investment as a joint venture, as opposed to continuing to consolidate it as a subsidiary."

51. The full proposed accounting treatment is set out in the following pages and they make it clear that what is being considered is the proper accounting treatment in accordance with accounting standards. The pages start by considering the prima facie position which is indeed that the 51% holding of CHL in CGL would give it the ability to control the majority of voting rights. They then reflect on the fact that the investment agreement requires consideration of whether there is "joint control" and arrive at the conclusion that there is. The conclusion is set out at the end:

"Conclusion

On the basis of Conran Holdings 51% of the ordinary shares of CGL, it has the ability to exercise control over CGL, if it chose to do so. The existence of the Investment Agreement and the matters set out therein that require the approval of Conran Holdings, but together with other shareholders, indicates that it is appropriate to account for the investment as a joint venture in the consolidated accounts of Conran Holdings."

52. It is on the basis of evidence such as this, and what are said to be the subjective views of individuals that CGL was not in reality a subsidiary, that Mr Gunewardena asserted that "everyone" believed that CGL ceased to be a subsidiary in 2006, and thereby founds his argument as to the invalidity of the recent invocation of the compulsory transfer Article.
53. In my view his argument fails. It fails to distinguish between what "subsidiary" means for the purposes of the Articles, and what sort of label would be right to apply to the proper accounting treatment of CGL in the consolidated accounts of CHL. The Articles are quite clear, and their effect is clear (and undisputed). For the purposes of the Articles, CGL was a subsidiary of CHL. True it is that for accounting purposes it fell to be treated as a joint venture company, as distinct from a subsidiary, in terms of consolidating the accounts (or not), but that is something required by proper accounting standards. It does not affect the true meaning of, or the operation of, the Articles. The Articles have to be construed as at the date they came into force, at which point of time CGL did not even exist. The meaning of the words in the Article cannot change according to changing circumstances; they cannot change by reference to how certain people regarded a relationship; and they cannot change depending on how accounting standards (which might themselves change over time) might view the situation. The Articles do not define "subsidiary" by reference to UK accounting standards; they define it by reference to the Companies Acts. That form of definition does not, as a matter of construction, give way to the accounting view. The application of UK GAAP means that CGL was not treated as a subsidiary for accounting purposes. It does not mean that it was not a subsidiary for the purposes of the Companies Acts and hence the Articles. It is the meaning of the Articles that matters, and that is clear.
54. As a matter of construction, therefore, the point fails. There is no other way in which the accounting treatment or the views of the parties can be relevant to this part of the debate. Mr Gunewardena asserted that "everyone" treated CGL as not being a subsidiary, and Mr Collings submitted that that meant that CGL was not a subsidiary, but the fact of its treatment (by "everyone") has no significance, whatever it may mean (which was not at all clear). If it means that the directors treated it as a joint venture company for accounting purposes, that is irrelevant. If it means that the various shareholders did not treat themselves as being subject to the same control as if there were no web of shareholder, investment and other agreements, that is irrelevant. None of that can affect the meaning of the Articles. There is no evidence that anyone formed a view as to whether CGL remained a subsidiary for the purposes of the Articles (though that would actually be irrelevant too).
55. Accordingly, Mr Collings' construction point (if that is a proper description of it) fails. CGL was plainly a subsidiary of CHL until the sale of the balance of the shares in CGL in 2013, and at that point Mr Gunewardena ceased to be employed by a company that was a subsidiary. He therefore gave a deemed Transfer Notice.

What were the Articles after the March 1998 EGM - the effect of filing

56. This question does not go to the entitlement of the company (including the shareholders) to operate the compulsory purchase mechanism. It goes to the valuation technique to be applied on such a purchase. If Mr Collings' submissions are correct the "fair selling price" test applies without the Five Times Profits methodology. If Mr Jones is right then the Five Times Profits methodology is applied to determing the fair selling price.
57. Mr Collings' first case is that the effect of what happened in March 1998 was that the March 1998 Filed Articles were thereafter the true Articles of Association of CHL, essentially by virtue of their being filed.
58. Although Mr Collings sought to rely on some of the facts relating to the development of the Articles, his point really turns on the proposition that once the Articles are registered at Companies House, then that is it - that form of Articles is in law the Articles of the company and it can only be changed by special resolution. That applies whether or not the filed form is mistakenly lodged, and even if it is nothing like an actual form into which the Articles have been amended by special resolution. Mr Collings went so far as to refer to the "sanctity of the register".
59. Mr Collings' starting position is that Articles have to be registered under section 10(1)(a) of the Companies Act 1985 (being the Act that applied at the time), and when registered they take effect as a statutory binding contract. They can be amended by special resolution, and the articles thus amended are required to be registered (section 18(2)). Scott v Frank F Scott (London) Ltd [1940] 1 Ch 794 refers to the significance of registration, and authority indicates clearly that Articles cannot be rectified once properly constituted. The 1985 Act has no provision to correct mistakes at the Registry without going through a formal procedure, and that is correct as a matter of principle because otherwise one would be rectifying the Articles, for which there is no jurisdiction.
60. This argument fails. It fails to distinguish between the Articles as a contractual or legal concept, and the Articles as a piece of paper designed to capture (or evidence) that concept. It also over-states the significance of registration of amended Articles and misapplies the concept of rectification.
61. Section 7 of the Companies Act 1985 provides that Articles of Association "may" be registered with the memorandum, and if so they have to be signed by the subscribers. If there are no lodged Articles, or if the lodged Articles do not exclude the Table A statutory form, then Table A (to the extent not varied) applies to the company. In the present case the original lodged Articles, signed by Sir Terence as subscriber, incorporated Table A with amendments, but were otherwise general purpose Articles.
62. Section 9 allows the amendment of the articles by special resolution, and goes on:

"(2) Alterations so made in the articles are (subject to this Act) as valid as if originally contained in them, and are subject in like manner to alteration by special resolution."

63. No other method of altering the Articles is suggested elsewhere in the Act. This was invoked in the present case shortly after incorporation. In the present case the original Articles were amended by a special resolution passed and signed by Sir Terence as sole member on 12th August 1993. The resolution refers to a form of Articles signed by Sir Terence by way of identification, and the form is a complete set of Articles (incorporating, with modifications, Table A again) in substitution for the original subscriber set. The Articles thus resolved upon became the Articles for the time being and were the 1993 Articles. They contained the transfer provisions referred to above, including the fair selling valuation (without the Five Times Profits valuation) but no right on the part of the company to be a recipient of transferred shares.
64. Under section 10:

"(1) The company's memorandum and articles (if any) shall be delivered -

(a) to the registrar of companies for England and Wales …"

65. Section 12(2) requires the registrar to retain and register the Memorandum and Articles (if any) delivered to him under that section (subject to his not doing so if all the requirements of registration are not fulfilled).
66. Section 14 deals with the technical effect of the Articles when registered:

"14. Effect of memorandum and articles

(1) Subject to the provisions of this Act, the memorandum and articles, when registered, bind the company and its members to the same extent as if they respectively had been signed and sealed by each member, and contained covenants on the part of each member to observe all the provisions of the memorandum and of the articles.

(2) Money payable by a member to the company under the memorandum or articles is a debt due from him to the company, and in England and Wales is of the nature of a specialty."

67. It was not disputed that later authority added the gloss that the memorandum and articles bound the company and members as if signed and sealed by each member and by the company.
68. These provisions thus far provide for the creation, registration and amendment of articles. The articles in question are clearly the articles that have been agreed, and there is obviously an assumption that what has been agreed will be registered, but the Act does not provide for any over-riding effect of registration in the event of some sort of conflict between what was agreed and what was registered.
69. Later sections deal with the filing of amendments to the articles. A combination of section 380(2) and section 18 requires the "sending" or "forwarding" of any special resolution amending the Articles, along with a print of the Articles in their amended form, to the registrar of companies. Section 380(1) requires the forwarding to the registrar (who will record it) of every resolution or agreement to which the section applies, and subsection (4) says that it applies (inter alia) to special and extraordinary resolutions. Thus a special resolution amending the articles has to be provided, as does a conformed copy of the Articles in their new form. The section supplies the sanction for failure to file the relevant documents – it is the criminal sanction of a fine imposed on the company and defaulting officers (see subsection (5)).
70. There is nothing in this statutory scheme which vests the Articles provided to the registrar with the special quality of being the real Articles for all purposes, which is what Mr Collings' submission amounts to. The Articles are what the members have resolved on from time to time, whether originally or by an amending special resolution. Nothing else can be the Articles. If the members resolve on an amendment by special resolution, the Articles, as amended, become the new contract and the new Articles. The Articles will essentially take effect as such immediately. Their status as articles does not depend on registration. When the conformed copy is filed with the registrar, the company secretary (assuming that that is the person who does the filing) is not completing some previous inchoate process. He or she is fulfilling a statutory obligation imposed on the company and its officers. If the right form of articles is filed, then the obligation is fulfilled. If the wrong form of articles is filed then the statutory obligation is not fulfilled, but the articles as resolved on remain the articles. Any other conclusion would be contrary to the statute which permits only one mechanism for the amendment of articles - a special resolution.
71. The contrary conclusion, as propounded by Mr Collings, would have the most striking effect. It would mean that the misplaced act of sending a wrong form of articles would have the same effect as amending them by special resolution. The members would suddenly find their contract altered by the unauthorised act of a company official when the statute provides that a special resolution is required for that purpose. This, according to Mr Collings, would apply whether the act of sending the wrong articles was accidental or deliberate. Strikingly, and probably inconsistently, Mr Collings said that a special resolution would be required to fix the problem. That would not only be a recipe for confusion, it would be a charter for dishonest officers, in the context of an inter-shareholder dispute, to achieve improper results merely by the registration of different forms of articles, and sitting back and requiring the victim to procure a special resolution. That cannot be right. The legal position is that the Articles are the Articles - the Articles as properly decided on from time to time by the members. The printed form is a record, either (it is to be hoped) accurate, or inaccurate. It does not achieve "sanctity" (Mr Collings' word) by being filed at Companies House. Statute makes the Articles amendable only by special resolution, not by misplaced filing at Companies House.
72. Mr Collings sought to support his conclusion by reference to authority. First he deployed Scott v Frank F Scott (London) Ltd [1940] Ch 794 at 802, where Luxmoore LJ (giving the judgment of the court) said:

"It is quite true that in the case of the rectification of a document, such as a deed inter partes, or a deed poll, the order for rectification does not order an alteration of the document; it merely directs that it be made to accord with the form in which it ought originally to have been executed. This cannot be the case with regard to the memorandum and articles of association of a company, for it is the document in its actual form that is delivered to the Registrar and is retained and registered by him, and it is that form and no other that constitutes the charter of the company and becomes binding on it and its members."

These remarks are, I believe, said by Mr Collings to demonstrate the conclusive nature of the registered version of the Articles.

73. This case does not help him. It is about something different from the situation in the present case, namely the original Articles as subscribed to by the original members (see p801). The claim was a claim for rectification based on the fact that that document, as signed and then filed, did not record the true intention of the subscribers. The claim failed because rectification of Articles was not permitted. The statements of Luxmoore LJ must be seen in that context. He was describing the circumstances and effect of incorporation where the subscribers have signed the Memorandum and Articles, and where that document gets registered. That then becomes the constitution of the company. He is not vesting registration of later versions of the articles with special significance.
74. The same is true of another authority relied on, namely Evans v Chapman [1902] WN 78. There again the subscribers actually appended their respective signatures to the original Articles, and those Articles were said to have contained a mistaken record as to their intentions. It was held that rectification was not available. That says nothing about the effect of filing subsequent versions of the Articles which may or may not flow from a special resolution changing their terms.
75. Other authorities cited by Mr Collings again emphasised the special nature of Articles, and how it was that they formed a contract but could not be rectified. None of them supported his case on the effect of filing and registration. However, one of the cases that he relied on in relation to his next point, namely Ho Tung v Man On Insurance Company Ltd [1902] AC 232 is implicitly against him on this point. In that case the Articles submitted for registration were not signed, but were registered and were acted on for years. As will appear, the Privy Council held that the unsigned Articles should be treated as the Articles by virtue of acquiescence and implied agreement. If Mr Collings' argument was right there would have been a short answer to the point - they were registered, therefore they were the Articles. But that point was not taken by anyone (apparently). In my view that is because it is a bad one.
76. Accordingly, the actual sending of the documents to the Registrar of Companies, and their appearance thereafter on the register of the company, does not have the magical effect of making the relevant form the Articles of the company if that form of Articles does not accurately record the proper effect of special resolutions that have been passed. In order to find the true Articles one has to find out what resolutions were (and in the present case were not) passed.

Adoption by acquiscence

77. This is a shorthand description of Mr Collings' next point. In essence he relies on what he says is the fact that the March 1998 Filed Articles were acquiesced in and acted upon by all shareholders after they were filed as if they were the true articles and have thereby become binding.
78. Before turning to the facts it is important to identify the principle that Mr Collings was relying on. The "Duomatic principle" is well-known and well-established. It gets its name from one of the cases in which it was applied (Re Duomatic Ltd [1969] 2 Ch 365), and in that case the principle was summarised in the following terms by Buckley J (at page 373):

"Where it can be shown that all shareholders who have a right to attend and vote at a general meeting of the company assent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting."

79. The claimant originally sought to run this point in relation to the March 1998 meeting, seeking to say (somehow) that Sir Terence should be seen to be acting for all the other shareholders (other than Mr Gunewardena, who acted for himself), and that by virtue of the meeting they somehow all assented to the March 1998 Filed Articles being adopted as the Articles of CHL. This was always going to be a difficult argument, and it was abandoned by Mr Collings immediately before final submissions.
80. Once he had abandoned that, Mr Collings said that he did not have another Duomatic argument in the case because he did not have another argument which went to anything which happened at that, or any other, meeting, presumably on the assumption that the Duomatic principle was so limited. However, he did have a similar point, to which he steadfastly declined to apply the Duomatic description, and which he said was more appropriately described as estoppel by convention. He preferred to describe it as the principle in Ho Tung, after the case on which he relied.
81. In Ho Tung v Man On Insurance Company Limited [1902] AC 232 the basic state of affairs can be seen from the headnote:

"The unsigned articles of a company incorporated under Hong Kong Ordinance I. of 1865 (similar to the English Companies Act, 1862) were irregularly registered along with its memorandum of association; but it appeared that they had for nineteen years been published, acted on without objection, and from time to time amended and added to by special resolutions."

82. It was held that the Articles should be treated as valid and operative, and as having been adopted by the shareholders.
83. The facts of the case were as follows. In Hong Kong, as in England and Wales, if a company is sought to be incorporated without the provision of signed Articles, Table A applied. Table A did not give directors the power to refuse to register transfers of shares. When the company in Ho Tung was registered the subscribers provided an unsigned version of Articles which contained that power. Despite their not being signed, the Registrar registered those unsigned Articles as Articles of the company. The key facts were (per Lord Davey, at p235):

"It appears, therefore, that these articles have been registered, and have been published and put forward as the company's only articles of association, and have been acted on, amended, and added to by the shareholders of the company, and the company's business has been conducted under the regulations contained therein for nineteen years without any objection, and the company on the record says that these articles are its articles of association. Their Lordships think that in these circumstances they are entitled to draw the inference that all the shareholders have accepted and adopted the articles as the valid and operative articles of association of the company."

Having considered the obligation on the Registrar to require the articles to be signed he went on:

"But there is no reason why the shareholders should not adopt them although irregularly registered. The statutory mode of doing so is by special resolution; but this again is only machinery for securing the assent of the shareholders, or a sufficient majority of them."

Having cited Phosphate of Lime Co v Green (1871) LR 7CP 43, he ended by saying:

"Their Lordships think that, by the acquiescence and agreement of the shareholders shewn by a long course of dealing, the registered articles have become and are the articles of association of the company as surely as if they had been formally adopted by special resolution."

84. I agree with Mr Jones that this is a manifestation and application of the Duomatic principle. In EIC Services Ltd v Phipps [2004] 2 BCLC 627 Neuberger J said:

"122.  Although the principle has been characterised in somewhat different ways in different cases, I do not consider that that is because its nature or extent is in doubt or the subject of debate. The difference in language is attributable to the fact that the principle will have been expressed by reference to the particular facts of the case. The essence of the Duomatic principle, as I see it, is that, where the articles of a company require a course to be approved by a group of shareholders at a general meeting, that requirement can be avoided if all members of the group, being aware of the relevant facts, either give their approval to that course, or so conduct themselves as to make it inequitable for them to deny that they have given their approval. Whether the approval is given in advance or after the event, whether it is characterised as agreement, ratification, waiver, or estoppel, and whether members of the group give their consent in different ways at different times, does not matter."

85. I respectfully agree. It is not clear to me why Mr Collings was so adamant in saying that Ho Tung embodied a different doctrine. To my eyes it does not do so. It may be because he wished to say that a lesser degree of acquiescence sufficed than was required for Duomatic, but if that is right then he is wrong about that. The underlying principle of assent or acquiescence (plus perhaps inequity) is all within Duomatic. Assent is at the heart of Ho Tung itself:

"Their Lordships think that in these circumstances they are entitled to draw the inference that all the shareholders have accepted and adopted the articles as the valid and operative articles of association of the company (p235)";

And:

" … by the acquiescence and agreement of the shareholders shown by a long course of dealing, the registered articles have become and are the articles of association of the company as surely as if they had been formally adopted by special resolution." (p236) (my emphasis in each case).

86. Be all that as it may, Mr Collings said that the facts of this case fell within Ho Tung, because all the shareholders acted as if the March 1998 Filed Articles were the true Articles. "Everyone" is said to have proceeded on the basis that the March 1998 Filed Articles were the true Articles, and he relied on the following facts and matters:

(a) Mr Davies did so at the end of 1998 because his proposed remedying resolution sought to replace or correct something, and one cannot replace or correct something which does not exist.

(b) The company relied on the March 1998 Filed Articles as its specific constitution, and made specific reference to them at board meetings.

(c) When the company was dealing with the sale of its 51% interest in CGL in 2013 Ms Dunley obtained and distributed the March 1998 Filed Articles.

(d) Both the company and Mr Gunewardena negotiated on the basis of a fair selling value without the Five Times Profits valuation in 2013 and 2014 (until Ms Dunley started to discover the 1998 mistake of Mr Davies).

(e) The claimant himself proceeded throughout on the basis that he was entitled to a fair selling value without the Five Times Profits elaboration. He put the value of his shares in the company at £3.5m in a directors' questionnaire (which was far less than would have been yielded by the Five Times Profits calculation at the time), and in undertaking the risk of the 2006 management buy-out, and in undertaking the risk of the 2013 buy-out as well. He said that if he had known that his belief would have been challenged he would immediately have approached Sir Terence, who would have agreed that the Five Times Profits valuation method should be removed.

87. In order to assess the strength of this case it is necessary to go back into a little more of the history. When that is done it becomes apparent that not only did the other shareholders not act on the footing that the March 1998 Filed Articles were the true Articles, neither did Mr Gunewardena for at least part of the time.
88. In 1995 the Articles of the company were changed to introduce the Five Times Profits qualification to the concept of the fair selling price. This was in fact done at the instigation of Mr Gunewardena. At this time Mr Gunewardena increased his shareholding by acquiring an additional 5% (he had previously held just 2%). The subscription price was £375,000, and it was agreed that he need not pay that sum but would pay it over the following few years out of hoped-for dividend payments (a hope that was largely realised). At the same time Mr Gunewardena sought to secure his position in the event that he he left the company with large sums still owing on the shares. At the time the company was going through a phase when it generated significant profits, and calculating value on that basis would give Mr Gunewardena greater security against the risk that he might depart with large sums owing on his shares. Sir Terence (the majority shareholder) agreed and the Articles were changed accordingly (with the consent of the other shareholders, largely the children of Sir Terence).
89. The contemporaneous documents demonstrate what several witnesses said about Mr Gunewardena, namely that he was a meticulous man. He received a number of technical documents about the proposed amendments, and his own markings show that he read, considered and (where appropriate) responded to technical matters. They do indeed show that he was meticulous, especially in matters relating to his personal interest. These documents, and the rest of his evidence on the point, demonstrate that Mr Gunewardena was well capable of identifying what was necessary to protect his own interests, persuading others that it should be done and then policing the documentation and the technicalities.
90. In 1998 Sir Terence's desire to place shares in a trust for his children triggered a new class of shares (C shares) which could not enjoy dividends for several years. There was a tax motivation for this. It required an amendment of the Articles and the March 1998 EGM was called for this purpose. At this point the shareholding was that Sir Terence held 76.5% of the shares, his 5 children held 2.89% each, Mr Gunewardena held 7.01% and Mr Willcock (then Sir Terence's son-in-law) held 2.06%.
91. On Friday 13th March 1998 notice was given of the EGM necessary to pass the necessary amendments, with the meeting being called on the following Monday (16th March). The notice was signed by Mr Gunewardena as company secretary. The only resolutions proposed in it were resolutions necessary to give effect to the new class of shares and consequential matters. There was not a hint of any change to the valuation mechanism in the event that the compulsory purchase provisions or the pre-emption provisions of the Articles were invoked.
92. The relevant detail of what was to be amended by the proposed special resolution appeared in the opening words:

"That the Articles of the Association of the company be amended …".

93. In his final submissions Mr Collings accepted in terms that that was intended to be a reference to the 1995 Articles, which were, of course, the Articles then in force and which contained the Five Times Profits valuation mechanism. What the resolution therefore proposed was an amendment to those Articles. It is now known, and accepted by Mr Gunewardena, that Mr Davies, who prepared this documentation, was looking at the 1993 Articles when he prepared this document, but that is because he thought they represented the true Articles. No shareholder had those Articles in mind. Accordingly, Mr Davies' proposed amendments made grammatical sense when fitted into the 1993 Articles but not when measured against the 1995 Articles. Nonetheless, none of these proposed amendments touched on the valuation, transfer and pre-emption provisions which are important to this case.
94. The meeting took place on Monday 16th March. Only Mr Gunewardena and Sir Terence were present. The other shareholders had consented to short notice and to the amendment by signing an appropriate form of consent (obviously prepared for them by Mr Davies). Both attendees voted in favour by a show of hands (as recorded in the minutes signed by Sir Terence). The resolution was passed.
95. It is known that Mr Davies based his drafting on the 1993 Articles, and Mr Collings sought to argue that those Articles were actually before the meeting, in the sense of being available to the participants and part of some sort of pack of documents relevant to the transaction. There is no positive evidence to this effect. A letter from Mr Brown to the shareholders sent later in the year on 1st December 1998 explains that certain amendments "were not contained in the document distributed to you at the meeting on 16th March", and it is suggested that that document must have been the 1993 Articles. He relied on Sir Terence's evidence that Mr Davies was meticulous and was likely to have provided a pack, supported by correspondence preceding the 1995 resolution which demonstrated that some sort of pack was prepared.
96. By the end of the case it was no longer clear what relevance the presence of the 1993 Articles at the March 1998 meeting had to Mr Collings' case. He was not running a legal case based on some sort of belief, or attributed belief, in all shareholders, to which the presence of the Articles might have been relevant - he abandoned that form of Duomatic case. Nor is it clear what good it would have done to establish their presence without their also having been sent to non-attending shareholders. Mr Collings accepted that the reference in the amending resolution was to the 1995 Articles, and the presence of the 1993 Articles at the meeting cannot have affected that. But in any event I do not find that the 1993 Articles were "before" the meeting. I am sure the meeting was a quick and informal one, at which the resolution (which did not require immediate reference to any form of Articles) was passed.
97. There was also a belated attempt to suggest that Articles in the form of the March 1998 Filed Articles were before the meeting. This might have been relevant if Mr Collings was maintaining some sort of adoption point in relation to that meeting, but I could not detect any such form of argument in his written final submissions. In any event, I find that that form of Articles was not before the meeting either. The form that was sent to Companies House is dated 18th March 1998 - 2 days after the meeting. It bears the word processing reference WP683.2. That form of reference suggests there might have been prior versions (WP683, and/or WP683.1). Mr Davies confirmed that there was a WP683, which was the reference on the 1993 Articles, but under his reference system he did not generate an x.1 reference. Under his system the first draft had the number X, and the second had the number X.2, and so on. Accordingly, since WP683.2 was not generated until after the meeting, and WP683 was the 1993 Articles, there cannot have been another version of the March 1998 Filed Articles at the March meeting - there was no WP683.1.
98. I accept that evidence. In his final submissions Mr Collings pointed out that the March 1998 special resolution bore the reference WP.2475.1, suggesting that Mr Davies' evidence was wrong about his system. This point was not put to Mr Davies, so I do not know what explanation there might be for it. It is too late to raise the point in final submissions. I therefore reject it, and Mr Davies' evidence on the point stands. It therefore follows that the mistakenly drafted March 1998 Filed Articles were not before, or available to, the March meeting participants (or, a fortiori, the other shareholders) - they did not exist on that date.
99. Mr Davies having mistakenly created that form of Articles, he then sent them to Companies House, where they were received on 21st March 1998. 5 copies were apparently sent by Mr Davies to Mr Brown on 19th March 1998, but it is not apparent what he did with them. It seems that he did not send them to the shareholders (or at least the minor shareholders) and I so find, because Jasper, Ned, Sophie and Tom have all looked through their papers and cannot find any copy of the March 1998 Filed Articles. Some of them do have other documents from the period. At this point, as I find, no shareholder will have been aware of the mistake of Mr Davies, or that there existed a form of Articles which had reverted to the 1993 form of transfer and valuation provisions. This includes Mr Gunewardena, despite some evidence from him which suggested that he wanted a change back to the "fair selling" valuation basis in 1998; I elaborate on that below.
100. In November 1998 the error came to light. It is possible that that occurred in the context of negotiations to buy out Mr Willcock, who was leaving group employment at that time. I shall return to this incident. Whatever the prompt, Mr Brown wrote something about the matter in a letter to Mr Davies dated 17th November 1998, which we do not now have but which is referred to in a reply by Mr Davies dated 18th November 1998, which we do have. In that letter Mr Davies points out the mistake in the "retyped Articles of Association" in that they did not take account of the 1995 amendments. He pointed out that the March 1998 amendment did not invalidate the 1995 amendment so the 1995 form of Article 7 still stood. He ended by saying:

"It would be sensible to clarify the amendments to Article 7 by adopting a further Special Resolution of Conran Holdings to deal with that issue [ie the unsatisfactory wording created by applying the 1998 amendments to the 1995 drafting]. That is a relatively simple matter but will involve either an EGM of Conran Holdings or all of the members signing a written resolution."

The letter bears a marking stating it was sent to Mr Gunewardena for information and it also bears a manuscript direction from Mr Gunewardena, obviously to Mr Brown, saying:

"Pls sort this out as Geoffrey [Davies] suggests."

101. I was invited to find that Mr Brown had previously spoken to Mr Gunewardena to alert him to the problem, so that he already knew about it before he marked up the letter to which I have just referred. Whether or not that is the case, I am satisfied that the direction of a copy of the letter to Mr Gunewardena, his manuscript addition to it, his close involvement in the business and his meticulous attention to detail, all mean that by the time he marked up the letter, if not well before, he fully understood the problem and fully understood and accepted the solution. The proposed solution did not mean reverting to the 1993 version of the transfer provisions; it meant producing a form of articles which made it clear that the 1995 version, with the Five Times Profits calculation and the right of the company to buy the shares, was fully in force.
102. There is another reason for supposing that Mr Gunewardena knew and accepted that that was or ought to be the position, and that nothing material had changed since 1995 in respect of the relevant transfer provisions. In November 1998 he was discussing with Mr Willcock the terms of the latter's departure from the CHL group. The latter was leaving group employment and therefore had to transfer his shares. On 27th November 1998 Mr Willcock wrote a letter to Mr Gunewardena dealing with, among other things, the purchase of Mr Willcock's shares. The relevant section opens:

"You indicated that the company had an option to buy the shares at a value of shares based on the formula contained within the articles and using the previous two years' audited accounts."

103. It goes on to recite discussions in terms which demonstrate quite clearly that it was the Five Times Profits calculation technique that was being discussed. That discussion, and the reference to the company having an option to buy the shares, mean that what was clearly in play between the two men was the 1995 form of transfer provisions. Mr Willcock gave evidence that in the course of discussions with Mr Gunewardena he told Mr Gunewardena that the calculation seemed unattractive because of the in-built level of discount. Mr Gunewardena told him that that was not negotiable and that they were both "in the same boat", or words to that effect. I accept that evidence. In the end the shares of Mr Willcock were bought out on that basis.
104. What this episode shows is that Mr Gunewardena was proceeding on the basis that it was the 1995 version of the Articles that governed transfers of shares of departing employees. That deals with the suggestion made in the proceedings by Mr Gunewardena that he had realised by March 1998 that the Five Times Profits calculation was no longer appropriate and he had established that it ought to be changed back to the 1993 version which would give an outgoing shareholder the fair selling price without a super-imposed valuation technique. I do not accept that evidence. If he had established that there ought to have been a change, I am quite confident that he, or conceivably Sir Terence, would have mentioned it to Mr Davies and an appropriate amendment would have been proposed. It is very unlikely that a man with the abilities of Mr Gunewardena would have believed that somehow the March 1998 meeting achieved the removal of the Five Times Profits mechanism when it so manifestly did not. His conduct in relation to Mr Willcock demonstrates what his understanding was – it was the same as that of everyone else, namely that the 1995 transfer provisions had not been amended in that respect.
105. Returning to the attempt to unravel the mistake, Mr Brown wrote to each of the shareholders on 1st December 1998, including Mr Gunewardena. Each of the letters to the other shareholders was also copied to Mr Gunewardena even though each letter was in the same terms as his own. This was probably to enable Mr Gunewardena, as company secretary, to keep track of things. The letters all read:

"Conran Holdings - Articles of Association

As part of a review of the books of the company, it was noted that certain amendments to the Articles of Association, which were established by resolutions passed in 1995 and 1998, were not contained in the document distributed to you at the meeting of 16th March 1998.

I now therefore enclose a copy of the appropriately updated document for your records. As a formality, please sign the attached Special Resolution, which simply acknowledges that the Articles are correct in this form, and return it to me as soon as possible.

Thanks."

106. What was enclosed was a draft of complete Articles of Association which reflected the 1995 amendments and introduced the intended 1998 amendments in an appropriately grammatical form.
107. The letter is slightly puzzling in its content. It refers to a document "distributed to you" at the meeting, when it is not apparent that any document was distributed. Furthermore, it suggests that the type of document which was distributed was the same sort of document as the March 1998 Filed Articles, when it is known that the appropriate form of that document did not come into existence until after the meeting. It is likely that this confusion arose from a misunderstanding on the part of Mr Brown. In my view nothing turns on it, and it is not reliable evidence to the effect that a document of that kind was in fact before the 1998 meeting. In any event, even if it was, the majority in number of shareholders who were not present at the meeting will not have received it.
108. The document that the shareholders were invited to sign was a form of special resolution intended to be subscribed to by consent in writing. It read:

"I/We, the undersigned, being a member of the Company entitled to attend and vote at general meetings of the Company, hereby agree in accordance with Article 9.10 of the Articles of Association of the Company to pass the following Resolution of the Company as a Special Resolution as if proposed and passed at an Extraordinary General Meeting of the Company:

SPECIAL RESOLUTION

THAT the regulations contained in the document annexed hereto be adopted as the Articles of Association of the Company in substitution for and to the exclusion of the regulations contained or incorporated in the existing Articles of Association of the Company."

109. All but two of the shareholders (Mr Willcock and Thomas Conran) can be seen to have signed and returned the resolutions, according to the documentation currently available. Mr Willcock and Thomas Conran can think of no reason why they would not have signed the document. I find that their failure to sign and return the document does not in some way connote their dissatisfaction with it and their preference for the 1993 form of the Article 7 transfer provisions.
110. So far as the other, signing, shareholders are concerned, the fact that they signed up demonstrates their consent, and their preference to sort out the mistake created by Mr Davies, and must be taken to be an expression of their view that the 1995 form of the transfer provisions was the one to be preferred. None of them (except perhaps Mr Gunewardena) is likely to have worked out what the real effect of the changes was, because they did not receive an explanation of the mistake or even a copy of the March 1998 Filed Articles so that they could work it out for themselves. Nonetheless, for the purposes of Duomatic or Ho Tung, those who returned signed copies of the resolution were doing the opposite of consenting to the operation of the March 1998 Filed Articles because what they signed up to was inconsistent with it.
111. So far as the individual shareholders are concerned, Sebastian Conran remembered being told there had been a mistake, and remembered being faintly amused at what had happened. He usually inquired about what he was being asked to sign up to, though he could not remember whom he talked to about these proposed Articles. I accept that he did and that he knew, in general terms, what was being done, though he did not know the details of the mistake and did not know in particular that it was intended to correct an error relating to, or which impacted on, the transfer provisions. He was definitely aware of the Five Times Profits calculation, and understood it continued throughout and had not been changed. I accept all that evidence. It means that this evidence, by itself, is sufficient to destroy Mr Collings' case on acquiescence, because on any footing Sebastian did not acquiesce, and nothing that happened thereafter indicated that he did. That destroys the unanimity that Mr Collings' case requires.
112. Jasper Conran intended that the mistake, whatever it was, be corrected. He had no useful recollection other than that. Mr Willcock was confident that he would have looked through the Articles when he received them, but cannot remember what he took from them. The issue of valuation was very important to him at the time. I find that he is likely to have noticed what the proposed Articles said about valuation, and accept his evidence that there was no good reason on his part not to sign them, though there is no evidence that he did. All the family shareholders agreed with Jasper that they did not intend to revert to the straight "fair selling price" valuation and did not assent to it.
113. Thus the position at the end of this attempt to amend the Articles was that all but two of the shareholders had expressly assented. Even the two whose signatures were not provided did not profess any intention that the Five Times Profits calculation should be removed. The family minority shareholders may well not have focussed on the particular point (except for Sebastian), but it is impossible to spell out of these events any acquiescence in the application of the March 1998 Filed Articles. In fact one would infer the opposite. For that to be cancelled out, and for Mr Collings to be able to establish his Ho Tung point, he would have to establish conduct from which one could infer that the signing shareholders, at least, had changed their minds - conduct from which one could infer that, despite their intention to adopt Articles which corresponded to the 1995 version, they then somehow accepted that that had not happened and were content to adopt the Articles which they been told were a mistake and which they had voted to change. That would require compelling evidence. Mr Collings' case, as will appear, does not even begin to provide it.
114. One further point needs to be made in relation to Mr Gunewardena's own beliefs and state of mind. I have already adverted to the fact that he signed the December 1998 resolution, having received Mr Brown's letter about the mistake (and not challenged it). I consider it likely that he, in particular, read the new Articles for a number of reasons. First, he was the company secretary, and it was his job to do so, and he would have been conscientious about that. Second, this was the sorting out which he had given manuscript instructions to do on Mr Davies' letter (see above). He would be likely to want to follow through and check that his instructions had been complied with. Third, he himself received the covering letter form Mr Brown referring to a mistake, and he did not challenge it, and I am sure he would have read what he received to make sure it fixed the mistake and achieved the sorting out that he required. Earlier in the year he had asked Mr Brown for a summary of the buyout provisions in the shareholders' agreements within the group. Both he and Mr Willcock (among others) had agreements with such provisions. Mr Gunewardena's agreement was not available at the trial, but the summary of its buyout provisions prepared by Mr Brown on 24th April 1998 shows that it contained a Five Times Profits valuation provision. If he had really believed that the March 1998 EGM had changed the valuation basis back to a fair selling price valuation I am sure he would have taken steps to change his shareholders' agreement too. It is theoretically possible that his shareholders' agreement contained a provision which automatically brought it into line with the Articles from time to time, but that is unlikely. Mr Brown's memorandum does not reflect it, and Mr Willcock's agreement, which is available, does not have such a provision in it. The only available draft of Mr Gunewardena's does not contain it either. This shows Mr Gunewardena's belief as to his rights, and supports the conclusion that he, like the other assenting shareholders, was consenting to Articles which contained a Five Times Profits valuation.
115. I can now return to the other factors that Mr Collings relied on in support of his proposition that "Everyone" proceeded on the basis that the March 1998 Filed Articles were the true Articles of the company (see above paragraph 86): I deal with them as follows:

(a) Mr Davies did so because one cannot replace or correct something that does not exist. I find that Mr Davies was not a shareholder, so his views were irrelevant, but in any event there was no evidence that he thought he had actually bound the members to new Articles when he sent in the wrong form. Indeed, in the witness box he disputed that he could. When he proposed his December 1998 changes he was proposing to register articles which best reflected the 1995 Articles as intended to be amended in March. He was not intending to replace Articles which had somehow been validated by registration. This point does not help Mr Collings.

(b) The company relied on the the March 1998 Filed Accounts as its constitution and made specific reference to them at such things as board meetings. One example of such a board meeting is given. Otherwise the reliance by the company is not particularised. I think it is likely that between 1998 and 2014, if it was necessary to consider Articles the March 1998 Filed Articles will have been referred to, but it does not follow that all its provisions should be taken as being acted on by the company, and in particular the transfer provisions, which never fell for consideration (save in relation to Mr Willcock, and on that occasion the March 1998 Filed Articles were not invoked, because the Five Times Profits calculation was invoked). Referring to the wrong Articles in the manner relied on (which seems to have been infrequent) does not demonstrate any form of informed assent by the company to its acting on the footing that Mr Gunewardena's preferred version of the transfer provisions was the operative one. In any event, the company's assent is not relevant. Shareholder assent is, and there is no suggestion of shareholder involvement at all.

(c) When dealing with the 2013 sale of the 51% interest in the restaurant business, Ms Dunley obtained the March 1998 Filed Articles from Companies House and distributed them. This is true, but again the transfer provisions were not relevant to this exercise, and the answer is the same as under point (b).

(d) Before the buyout of the 51%, an approach was made to Mr Gunewardena by Mr Seelig on behalf of Sir Terence to see if Mr Gunewardena was interested in selling his shares at a price that might be acceptable to both sides. This came to nothing because Mr Gunewardena proposed a figure which was too large. It is correct that the discussions were not on a valuation basis trammelled by the Five Times Profits valuation basis. However, this was an attempt at a consensual valuation exercise. The Articles were not in issue, and it was not in the context of a compulsory purchase. The 2013 transaction had not been finalised, and Mr Seelig's evidence is that it was uncertain at this time. Accordingly, it is not any real evidence of an acceptance by anyone of the existence of the fair selling valuation basis of the 1993 Articles. It was a simple bilateral negotiation. After the buyout the negotiations started again, and it is true that for some time they were on a fair selling valuation basis. The company sought a valuation on this basis, and Mr Gunewardena got a form of countervaluation on the same basis. In subsequent debate with Mr Gunewardena Mr Seelig specifically cited Article 7.6 of the March 1998 Filed Articles (though not the actual valuation provisions - he cited provisions relating to whether Mr Gunewardena was a group employee). All this is true but not particularly relevant. These are acts of the company. They demonstrate an assumption as to what the valuation mechanism was, but not necessarily acceptance of, or acquiesence in, the operation of the March 1998 Filed Articles as such. And again, all the other shareholders were in no way party to this.

(e) Mr Gunewardena himself proceeded on the basis that the fair selling value calculation was appropriate to his shares. He did so when he filled in the questionnaire in 2006 (see above), in undertaking the risk of the 2006 buyout, and in undertaking the risk of the 2013 buyout. He also says he incurred the cost of his side's valuation in 2014 in response to the company's. The formulation of his case in relation to 2006 and 2013 is interesting. In Mr Colling's written final submissions it is not put on the basis that Mr Gunewardena believed the March 1998 Filed Articles were in force. He is said to have believed that the Five Times Profits valuation applied. His witness statement says he did not, and did not need to, look at the Articles before the 2006 and 2013 share sale transactions because he knew that he was entitled to a fair selling valuation. In other words, he was acting on his own misconception. He was not acting on the assumption that any particular set of Articles applied. It is not clear how he came to that view after the events in 1998, as a result of which he must have plainly known that the Five Times Profits valuation was the applicable one, but I do not need to make findings about that. None of this means that the shareholders were under any misapprehension as to the Articles that were in force.

116. Those particular instances are therefore very weak in relation to the people they involve, but the most important point is that they do not relate to the other shareholders in CHL at all. There is nothing in those instances of conduct which relate to the Conran children (if I may call them that). There is nothing there from which one can infer their acquiescence in any form of Articles at all, let alone Articles which would be inconsistent with what most of them wanted to sign up to in 1998. The case is very far removed from Ho Tung. In that case the shareholders as a whole had participated in two amendments of the Articles which were plainly attempts to amend the filed but unsigned Articles. The unsigned Articles were a complete set that had been in existence more or less since incorporation (for practical purposes). In that context the amendments would be a clear act of acquiescence in, or agreement to, those unsigned articles as the basis of the company's constitution. There were also other unspecified respects in which the company had carried on business under the unsigned regulations, and that factor is not present in the present case either. In the present case the company might have had to resort, when necessary, to Articles which contained the wrong Article 7, but in the circumstances it is impossible to say that it carried on business on the footing that Article 7 of the March 1998 Filed Articles was the basis on which the members were conducting themselves. As I have indicated, most of them had indicated that they were not content with that.
117. In his opening Mr Collings relied heavily on Phosphate of Lime Co v Green (1871) LR 7 CP43, (referred to in Ho Tung). That was a case in which the court found that there had been ratification by shareholders of an act of the directors which was ultra vires the directors. It was referred to in Ho Tung as an instance of the sort of acquiescence that was found to bind in Ho Tung. In his final submissions Mr Collings seemed to confine his attention to the headnote, which reads:

" 4. To shew assent and acquiescence in such a case, it is not necessary (or possible) to prove the acquiescence of each individual shareholder. It is enough to shew circumstances which are reasonably calculated to satisfy the Court or a jury that the thing to be ratified came to the knowledge of all who chose to enquire, or having full opportunity and means of enquiry."

118. His submissions on the point were not developed further, but I think he might have intended to rely on the case as demonstrating his ability to rely on some sort of constructive notice, arising from the registration of the March 1998 Filed Articles, of their existence and of their being used as the constitution of the company. If that is his point then I do not accept it. The Phosphate of Lime case was a case on its own facts in which it was found that documents placed before the members, which reflected a transaction but did not actually give particulars of what that transaction was, were sufficient to found a claim of ratification or acquiescence so as to validate the underlying ultra vires transaction by the directors. It was significant to the court that no shareholder was called to say that he or she did not have knowledge of the transactions. It was held that there was evidence from which the jury might find ratification. It is a case on the facts. It is not a case which supports some sort of constructive notice doctrine (if that's what Mr Collings was suggesting), and the facts were nothing like the facts in the present case. Nothing was ever placed before the shareholders in the present case from which it can be deduced that they accepted the validity of the March 1998 Filed Articles; indeed, there is express evidence to the contrary in the form of what happened in December 1998.
119. In the circumstances, far from being a case which is very similar to Ho Tung, the present case is one which is a long way away from it on the facts. I find that there is no case for saying that any of the shareholders apart from Mr Gunewardena (and query even him) acted on the footing that they agreed, or acquiesced in, the fact that the March 1998 Filed Articles were those governing the company. This aspect of the claim therefore fails.

A last ditch point on mechanism

120. The title to the section of this judgment reflects the merits of a point taken by Mr Collings at the very end of his written final submissions and which had never before then been hinted at, let alone taken. Putting the point shortly, Mr Collings said that if the company and the members were entitled to invoke the Five Times Profits valuation, then on the figures the consideration payable to Mr Gunewardena was nil (with which the company agrees). However, the directors agreed to offer Mr Gunewardena the par value of the shares (£1,254). That was operating the mechanism incorrectly, so the exercise could not stand. In other words, a proposal to pay him too much meant that the exercise failed.
121. This cannot be more than a technical point at the end of the day. If it were right then the company could go back and offer a zero consideration and Mr Gunewardena would have achieved nothing apart from depriving himself of £1,254. It was also not pleaded, which would be a complete procedural answer to it. However, since it has been taken, and since it can be seen to have no merit, I will deal with it.
122. In order to deal with it I will have to set out some more of the terms of Article 7.
123. Article 7.6 provides for a member who desires to sell his or her shares to serve a "Transfer Notice", specifying, amongst other things, the price at which he desires to sell. Article 7.5 provides that a departing employee such as Mr Gunewardena is deemed to have served a transfer notice in respect of all his shares when he ceases to be employed by the Group. What happens next is dealt with in article 7.7:

"7.7 On service of a Transfer Notice the Company may at the discretion of the directors either:

(1) If the Company has sufficient distributable profits (within the meaning of Part VIII of the Act) with which to purchase the Said Shares, require (by notice in writing) the Vendors to sell the Said Shares to the Company in accordance with article 7.10; or

(2) Offer as the Vendors's agent the Said Shares for sale to all the members of the Company (other than the Vendors) in accordance with articles 7.11 to 7.15

in either case at such price ("the Transfer Price") as may be specified in the Transfer Notice or (if no price is specified in the Transfer Notice or such price is not approved by the directors within thirty days after the date of the Transfer Notice) such price ("the fair price") as the auditors of the Company for the time being shall certify in writing to be their opinion of a fair selling value thereof as between a willing vendor or and a willing purchaser."

124. It is common ground that an auditors' certificate was obtained, albeit by the slightly unconventional route of the company preparing a valuation and asking the accountants to approve it, which they did by agreeing with it and providing the certificate. By a certificate sent under cover of a letter dated 19th November 2014 the auditors set out the fair value of Mr Gunewardena's shares "calculated by reference to the Articles of the Company". It set out the losses for the two preceding accounting periods, found an average loss of £1,883,500 and concluded:

"The Fair Value at a multiple of 5 for 7.16% shares is minus £674,293".

125. That certificate was considered at a board meeting on 19th November 2014 which resolved to purchase Mr Gunewardena's shares at par value. On 21st November the company's solicitors wrote to Mr Gunewardena's solicitors, setting out a large amount of background and at paragraph 5.3 saying:

"5.3 Our clients did not believe it necessary to go to the time and cost of instructing its auditor to certify a calculation that, given the negative figures, could only ever result in a valuation of zero. However, our client has now instructed its auditors and we attach a certified copy of the auditor's certificate for your information."

126. It ended with a section entitled "Action taken" which read (so far as material):

"7.1 In the light of the above, our client has now undertaken the following actions:

(a) it has filed a copy of the Correct 1998 Articles at Companies House; and

(b) it has resolved, in accordance with the Articles, to purchase your client's shareholding in CHL at par value of £1 per share (giving a total of £1254.00) and approved the terms of an Off-Market Purchase Agreement (attached) in respect of such purchase;

7.2 We should like to invite your client to sign the draft Of-Market Purchase Agreement and return the same to us together with copies of all relevant share certificates. In the event that we do not receive the same from him within the next seven days, we shall arrange for the Chairman or other authorised person to sign the Agreement on behalf of your client in accordance with the Articles."

127. At the end of the letter two enclosures are recorded – the certified copy of the certificate and the Off-Market Purchase Agreement. It is accepted that those documents were thus provided.
128. Mr Collings accepted in terms that if this letter had said in terms that the company would purchase "at the price specified by the auditors" (or something like that), or had said it would take the shares at nil, then it would have been a good letter. However, because it specified a price which was other than that which the auditor certified then it was not a good notice within Article 7.7(1).
129. This argument fails for the following reasons. Since there was no Transfer Notice, there was no price specified in such a Notice which could be reproduced in the company's notice for the purposes of Article 7.7. In order to be good the company's notice therefore had to give notice that the company would purchase "at such price… as the auditors of the Company for the time being shall certify in writing to be their opinion of a fair selling value…". The auditors specified the fair value as a negarive figure, which the company would be entitled to treat as nil. It did not in terms adopt the expedient of specifying nil, or of specifying in general terms, and expressly, that it would purchase at the sum certified by auditors, but in my view the letter, in terms of being a notice under Article 7.7, is to the same effect for the purposes of the Article. It encloses the auditors' certificate which carries out a calculation which arrives at a minus figure, but from which it is plain that the value of the shares was zero. It then offers more than zero for the shares. Read sensibly, the company was giving notice that it was prepared to purchase at zero but was in fact offering more than that. The offer to a seller of more than he is entitled to cannot, in the circumstances, and viewing the letter as it would be taken by a sensible recipient, mean that the notice is bad. If it had offered less than the certified sum then the position would be otherwise. However, the specification of £1,254 should be taken to be an offer of nil with a further proposal to purchase at more than that.
130. Neither side took me to any authority on this point, though Mr Collings did refer in general terms to authorities considering theoretical cases where a form of one colour was prescribed and a form in another colour was used. In those circumstances I prefer to resolve the point without reference to authority and use normal principles (including the common sense that a recipient would be deemed to bring to bear in these circumstances) in relation to the construction of notices. I conclude, without hesitation, that the notice served by the company was a good notice for the purposes of Article 7.7.

Conclusion

131. It follows from the above that the claim in this case fails and falls to be dismissed. I shall dismiss it accordingly.