The Judicial Committee of the Privy Council Decisions

“Horus only holds 18.27% in [UDL]. However, it controls the Board of Directors of [UDL], having nominated more than half of the directors to the Board. Therefore, it effectively controls [UDL] and is treated as a subsidiary.”

Horus was thus treating UDL as a “subsidiary” within the definition in section 3(2) of the Companies Act 2001, whereby a company

“shall be a subsidiary of another company where -

(a)       that other company ...

(i)        controls the composition of the Board of the company;

(ii)       is in a position to exercise, or control the exercise of, more than one-half the maximum number of votes that can be exercised at a meeting of the company …”

The shareholders’ agreement

“1.2.    General

Unless the contrary intention appears or the context otherwise requires or admits:

1.2.1   A reference to this Agreement includes the Recitals and Annexes which shall be deemed to form an integral part of this Agreement.

1.2.2   Headings are for convenience of reference only and shall not affect the construction or interpretation of the provisions of this Agreement.

1.2.6   Each and every provision of this Agreement and each and every part thereof shall unless the context otherwise necessarily requires be read and construed as a separate and severable provision and as separate and severable parts thereof so that if any provision or part thereof shall be void or otherwise unenforceable for any reason whatsoever then such provision or part thereof as the case may be shall not only be severed but the remainder shall be read and construed as if the severed provision or part thereof was omitted there from.

2          Consideration

In consideration of the mutual agreements and undertakings herein set out, the Parties grant the rights and accept the obligations set out in this agreement.

10.1    Share Retention

Subject to Clause 11, except with the prior consent of either Shareholder and for Permitted Transfers, no Shareholders shall transfer any of its shares in the issued capital of the company for the three (3) years starting with the Effective Date. At the expiry of the three-year period, the transfer of shares in the issued capital of the Company shall comply with the provisions of clauses 10.2 and 10.3.

10.2    Bona fide offer from a third party

10.2.1 Any party who has received a bona fide offer for some or all of its shares (the ‘said Shares’) and desires to transfer such shares (the ‘Seller’) shall give to the Company notice in writing of such desire (the ‘Transfer Notice’) stating the identity of the proposed purchaser, the price of the bona fide offer, and the terms as to the payment thereof.

10.2.2 Subject as hereinafter mentioned, a Transfer Notice shall constitute the Company the Seller’s agent for the sale of the said shares to the other Shareholders at a price that is at least as high as the price of the above-referenced bona fide offer. Such Transfer Notice shall be revocable at any time prior to the other Shareholders communicating their acceptance in the form of an Acceptance Notice.

10.2.4 The other Shareholders shall have sixty (60) days from the service upon them of a copy of the Transfer Notice to serve on the Seller, copy to the Company, an Acceptance Notice stating whether they are willing to purchase any and, if so, what maximum number of the said Shares at the price and terms of the bona fide offer.

10.2.5 At the expiration of sixty (60) days acceptance period, the Company shall:

10.2.5.1          apportion the said Shares amongst the Shareholders (if more than one) who have expressed an intention to purchase the said Shares and, as far as possible, on a pro rata basis, according to the number of Shares already held by them respectively, or

10.2.5.2          if there is only one Shareholder, all the said shares shall be sold to that Shareholder,

provided that no Shareholder shall be obliged to take more than the maximum number of said Shares stated in that Shareholder’s response to such notice.

10.2.8 The Seller shall be free to transfer such said Shares for which no Acceptance Notice was received at the price referenced in the Transfer Notice to the proposed purchaser referenced in the Transfer Notice for a period of thirty (30) days following the expiry of the acceptance period.

10.3    No Bona Fide Offer from Third Party

10.3.1 Any party who desires to sell or transfer any of the shares registered in its name (‘the Seller’) and has not received any offer from a third party shall first propose to sell or transfer such shares to the other Shareholders, indicating the price and terms at which it is prepared to sell the shares (the ‘said Shares’). A Transfer Notice shall constitute the Company the Seller’s agent for the sale of the said shares to the other Shareholders. Such Transfer Notice shall be revocable at any time prior to the Other Shareholders communicating their acceptance in the form of an Acceptance Notice.

10.3.2 Where the Transfer Notice includes several Shares, it shall not operate as if it were a separate notice in respect of each such Share, and the Seller shall be under no obligation to sell or transfer some only of the Shares specified in such Notice.

10.3.3 The other Shareholders shall have sixty (60) days from the service upon them of a copy of the Transfer Notice to serve on the Seller an Acceptance Notice stating whether they are willing to purchase any and, if so, what maximum number of the said Shares, or to request a fair value appraisal (the ‘Fair Value Request’) as follows:

(a)       if an Acceptance Notice is received for the said Shares, and no Shareholder requests a fair value appraisal, then the other Shareholders shall purchase from the Seller, and the Seller shall sell to them, the said Shares at the price referenced in the Transfer Notice within thirty (30) days of the Acceptance Notice, the provision of Clauses 10.2.5 and 10.2.6 applying mutatis mutandis.

10.3.5 The Seller shall be free to transfer to any third party such said Shares for which no Acceptance Notice has been received, at a price which cannot be less than the fair price determined by the Auditors for a period of thirty (30) days following the date of expiration of the Acceptance Notice Period.

10.4    No pledge

Neither Shareholder shall, without the prior consent of the other Shareholders, create or suffer the creation of a pledge, lien or other encumbrance on the shares it holds in the Company. The Shareholders, however, record that they may need to raise loans from financial institutions for the acquisition of shares in the Company and agree that in the event that the lenders of a Shareholder requires a pledge of the shares held by that Shareholder in the Company as security for any loan disbursed to that Shareholder in that respect, the other Shareholders shall consent to the creation of such encumbrance.

10.5    Tag Along

If any Shareholder (a ‘Seller’) wishes to sell all of its shares in the Company, and if the other Shareholders (the ‘Non Selling Shareholders’) do not exercise their pre-emptive rights, then any of the Non Selling Shareholders shall have the right to require the Seller to procure the sale of all its shares in the Company on the same terms and conditions as those on which the Seller is disposing of its share (the ‘Tag Along Right’). The Non-Selling Shareholder shall notify the Seller of its decision to exercise the Tag Along Right within sixty (60) days from the service upon him of a copy of the Transfer Notice by the Seller or within ten (10) days of the receipt of the Auditor’s Fair Valuation, whichever is the later. The purchase by the third party of the Non Selling Shareholder’s shares pursuant to the Tag Along Right shall be a condition precedent to the sale of the said shares by the Seller to the third party.

10.6    Permitted Transfers

10.6.1 Notwithstanding clauses 10.1, 10.2 and 10.3 each Shareholder shall have the right to transfer of shares in the Company to any related party for company. For the purposes of this clause, related company for party shall be defined in accordance with the Act and shall include natural as well as legal persons.

10.6.2 For the avoidance of doubt, in the case of Desmem, a related party shall include Mon Loisir Compagnie Limitée, Compagnie d’Investissement et de Développement Limitée and their respective related companies as well as the existing shareholders of the Company whose names appear on Annex 4.

10.8    Share transfer and deed of adherence

Unless the Parties agree to the contrary, any Transfer of Share shall be conditional upon the transferee adhering to the present Agreement, by execution and delivery of an agreement in the form set out in Annex 2 (at the cost and expense of the transferee), prior to the acquisition by it of the Shares and undertaking to comply with all the terms and conditions of such Agreement, it being understood that the transferring Party shall in any case stand as joint guarantor in relation to the obligations thus falling on the transferee.

11.       Call option in case of change of controlling interest within a shareholder

11.1    Should there be any change in the shareholding structure of any of the parties, resulting in the loss of the controlling interest of the shareholder(s) which/who currently hold(s) such controlling interest in the said party, the other parties shall have an option to purchase all or part of the shares of such party.

11.2    For the purpose of this Clause 11, ‘controlling interest’ shall be interpreted as the interest held by a controlling shareholder as per the Listing Rules of the Stock Exchange of Mauritius.

11.3    Upon the occurrence of the change of shareholding in any party referred to in paragraph 11.1 above, or upon written request of any of the other parties informed of such occurrence, the concerned party (‘the Transferor’) shall forthwith propose to transfer its shares to the other parties in accordance with the following provisions:-

11.3.1 The Transferor shall deliver a written notice to the other parties stating its intention to transfer all its shares at the fair price determined in accordance with the provisions of Clause 10.3.3(d) and (e) of the present agreement (the ‘Auditor’s Fair Valuation’)

11.3.2 Within 90 days of the receipt of such notice, the other parties shall have the option to purchase the shares of the Transferor at the price determined under paragraph 11.2(a) above, in proportion to their existing shareholding. The Company shall act as agent for the transfer of the said shares.

11.3.3 Should any of the parties to whom shares are offered for acquisition in accordance to its respective shareholding decline to acquire such shares, the said shares shall be offered anew to the remaining parties (excluding the Transferor) in accordance with their respective shareholdings. The said parties shall then inform the Company of their intention to purchase the said shares within a further period of 30 days.

11.3.4 Should any of such shares remain unsold, the Transferor shall remain a shareholder of the Company and shall continue to be vested with all the rights and obligations attached to the remaining shares still held by it.

11.3.5 Should any party fail to give Notice of its intention to acquire the shares offered to it within the prescribed delay, it shall be considered to have declined the offer.

12.       Non-Competition

No shareholder shall sell and transfer its shares in the Company without entering into appropriate non-competition undertakings, and substantially in the form and substance of Annex 3, with the Company and the Subsidiaries, to the satisfaction of the remaining Shareholders.”

“any person who is (or in the case of a related party transaction only was within the 12 months preceding the date of that transaction) entitled to exercise, or control the exercise of, 20% or more of the voting power at meetings of shareholders of the issuer or one which is in a position to control the appointment and/or removal of directors holding a majority of voting rights at board meetings on all or substantially all matters.”

The issues in greater detail

“(6)     The option set out in Clause 11 is a mutual undertaking given by all the parties which could be exercised upon the happening of an event, such event being a change in the controlling interest within any one of the parties. The said option to purchase and forced sale is one which ‘cuts both ways’, that is to say, it could be an option in the favour of UDL, in the event there was a change in the controlling interest within any of Desmem, Rivnu or PIM, or it could be the reverse, forcing UDL to sell its shares in the Company in the event of a change in [the] controlling interest within UDL.

(7)       The Agreement was entered in all good faith by UDL and Clause 11 did not target anyone in particular. It is a standard clause set out in various agreements and very common in employment contracts where shares are given to executive employees for so long as they are in employment and the employee may be forced to sell his shares in the event of termination of employment. I am advised that in connection with sociétés, it is specifically provided for in the Civil Code respect of certain events such as insolvency (article 1860) or death (article 1867) of one of the partners. It is also a common clause in shareholders’ agreements in closely held companies. It is a clause not entered into in isolation by UDL but UDL signed similar clauses in other agreements as well.

(8)       In view of the fact that the Company was an investment holding company it was important for UDL, Desmem, Rivnu and PIM that the persons at the helm of each one of Desmem, Rivnu, PIM and UDL all shared similar investment policies, vision and way of doing business in relation to the Company. The parties agreed to protect this preferred relationship by inserting Clause 11 which forced a sale of the shares in the event this relationship was disturbed by any raider or for some other reason resulting in the change of control within any one of the parties. This change of control would result in a change of the persons at the helm of any one UDL, Desmem, Rivnu and PIM, a situation in which the parties did not wish to be placed in relation to the Company. Clause 11 precisely catered for such a situation and is the situation in which UDL finds itself by the change in the controlling interest on the board of UDL.

(13)     In fact Horus paid to Promotion and Development Ltd and The Anglo Mauritius Assurance Society Ltd some Rs 204m for the said shares. In view of the exceptional weight Promotion and Development Ltd and The Anglo Mauritius Assurance Society Ltd had in the voting at the members meetings (added with the shareholding of La Prudence) Horus knew that in purchasing these shares it could take control of the board of directors of UDL. In view of the very low attendance of members at the AGM of UDL, Promotion and Development Ltd and The Anglo Mauritius Assurance Society Ltd and La Prudence usually represented a very large majority and most substantial percentage of the members present and voting and in fact had appointed the then board of directors of UDL.”

“59.     UDL’s objections were fully argued before the Honourable Judge in Chambers. UDL argued inter alia that since no shareholder had the control of UDL prior to the purchase of the shares by Horus there could not be any change in control in UDL. It is averred that this argument is fallacious in as much as such argument:

(1)       is contrary to representations made by UDL itself in the agreement;

(2)       was never disclosed to the other parties during the numerous discussions regarding the Agreement;

(3)       renders Clause 11 absurd as in Desmem also there is no one shareholder having a controlling interest;

(4)       is contrary to what all parties to the Agreement had in mind and the bargain reached when signing the Agreement;

(5)       does not make sense as even if there was no shareholder which had the control of UDL at the time of the Agreement, the fact remains that (i) a new shareholder which acquires a block of shares giving control is a ‘change’ in control and (ii) a major change at board level where the persons managing UDL are different from those who were at the helm of UDL at the time of the Agreement is also a ‘change’ in the control.”

“Since there was no controlling interest at the time the Agreement was entered into, there has been no change in the controlling interest whatsoever at that time or anytime thereafter as provided in Clause 11 of the Agreement.”

He also averred that Horus did not by acquiring 18.27% of UDL’s share capital acquire a controlling interest in UDL or control the appointment or removal of directors of UDL who held a majority of voting rights at all board meetings on all or substantially all matters (para 6(c)(i) and (ii)). He went on to point out that shareholders attending at the meeting on 17 October 2006 had held 8,001,225 shares, representing 75.7% of the total issued share capital of UDL, and that the 12 directors elected on that date had been elected by percentages ranging from 67.3% to 74.9% of the 8,001,225 shares voted, while Horus held only 24.1% of such 8,001,225 shares. He concluded that Horus could easily be outvoted by the other shareholders present and voting on any of the resolutions and that at the relevant time, no shareholder held a controlling interest.

“(7)     The relevant clause 11 of the Agreement was inserted in the agreement at the specific request of Rivnu. The parties knew the factual situation as regards controlling interest. The clause and the wording thereof were to cater any change [sic] in the controlling interest of each one of the parties including Desmem and UDL which did not have a particular controlling shareholder. The applicants fail to see how Mr Galéa, who was not present and never participated in any of the discussions at the relevant time, may give an interpretation of the clause which is in the teeth of what was discussed and agreed upon by the parties.”

“… it is not the acquisition per se. It is when in this case Horus or Mr Galéa exercises the voting rights in order to remove the majority of directors on board. This is the change of control.”

He also emphasised that, under the code civil, what mattered was the common intention of the parties, rather than the literal sense of the terms used. As to Mr Pursem’s submission, put to Mr Sauzier by the judge, that what clause 11 required was a “loss of the controll[ing] interest of the shareholders who currently hold such controlling interest”, Mr Sauzier said:

“This is what he said. So we have been according to this paragraph 57. They have been negotiating for a long time. They have been reducing it in writing and the clause is a nonsense. The whole agreement is a nonsense because there was no controlling interest. So meaning that if Horus let us go along another path, if they have acquired 90% of the shares of UDL we will be in the same situation. There would be no controlling interest because there was no control at the time they signed the document. This is not the intention de partie. This is certainly not. It means a change of control. Change of control ultimately comes to the board and there is a change.”

Like Mr Ribot, Mr Sauzier was therefore focusing on the boardroom change in October 2006.

“It would be the same situation in the case of a shareholder having subsidiaries or associates … in the same company who would be joining forces and the minority shareholders will never be able to ‘take over’ the management put in place by the majority shareholder.”

As to Horus’s accounts issued 31 December 2007, the judge explained them as based on Horus’s actual control, with La Prudence and through its nominated directors, of UDL’s board.

“On doit dans les conventions rechercher quelle a été la commune intention des parties contractantes, plutôt que de s’arrêter au sens littéral des termes.”

25.             The meaning of this principle in practice is examined in Juris Classeur Civil Code, article 1156 à 1164 Fasc 10: CONTRATS ET OBLIGATIONS - Interprétation des contrats. - L’instrument: Notion, normes, champ d’application, as follows:

“40.     Méthode: volonté déclarée - Le principe est une chose, la méthode en est une autre: étant admis qu’il faut, par priorité, respecter l’intention des parties, comment les intentions peuvent-elles être perçues par le juge? Si l’on raisonne sur l’hypothèse la plus commune, où il existe un écrit, il faut assurément scruter d’abord le contenu de l’acte. Aussi imparfait que soit le langage comme véhicule de la pensée, si la formulation est claire et dénuée d’ambiguïté, elle doit être tenue pour exacte, pour des raisons évidentes de sécurité du commerce juridique. Telle est la justification du contrôle par la Cour de cassation de la dénaturation des clauses claires et précise.

Pourtant, l’article 1156 recommande de rechercher la commune intention plutôt que s’arrȇter au sans littéral des termes. Cela ne signifie-t-il pas que l’intention profonde doit toujours l’emporter sur la lettre, celle-ci fût-elle claire et précise?

A cet égard, on opposait naguère les systèmes français et allemand, le premier étant réputé donner plein effet à la volonté interne, le second étant censé s’en tenir à la volonté déclarée. La démonstration a cependant été faite que les deux systèmes, qui reposent, en effet, sur des approches théoriques opposées, se rejoignent en pratique par le biais d’aménagements convergents, au point qu’en définitive le constat d’une réelle unité jurisprudentielle a pu être dressé (A Rieg, Le rôle de Ia volonté dans l’acte juridique en droit civil français et allemand: LGDJ 1961, n 365 s).

Une volonté qui serait restée purement interne est à l’évidence hors d’atteinte du juge et, au surplus, rebelle à toute preuve par celui qui l’a prétendument conçue. Seule une volonté perceptible, donc extériorisée de quelque manière, peut produire des effets juridiques (sur les modes d’extériorisation, V P Godé, Volonté et manifestations tacites: PUF 1977, spécialement n 242 s). Réciproquement, le droit allemand ne s’en tient pas aveuglément à la volonté déclarée, mais en corrige le sens chaque fois qu’une volonté réelle différente peut ȇtre établie, ce qui suppose, à nouveau, qu’elle ait été exprimée et ait laissé des traces ou des indices.

41.       Méthode: commune Intention - Au reste, l’article 1156 oppose au sens littéral des termes non la volonté interne, mais la ‘commune intention’ des parties (V Cas 1re civ, 20 jan 1970, cité supra n 36). Or, cette expression implique qu’il y ait eu accord des parties par un échange des consentements, qui requiert nécessairement une déclaration des volontés. Au minimum, l’intention de l’une des parties doit avoir été perçue, comprise et non contestée par l’autre. En définitive, l’article 1156 n’oppose pas, dans ses deux propositions, une volonté interne à une volonté déclarée. II envisage seulement l’hypothèse de la discordance entre la volonté effectivement déclarée, pour peu qu’elle puisse ȇtre prouvée, et son imparfaite expression écrite (V pour un legs d’une certaine somme, interprété comme ne désignant pas des francs nouveaux, quoique le testament fût postérieur à leur instauration, mais des anciens francs, Cass 1re civ, 6 janv 1971 JCP G 1971, II, 16709, M D - Pour l’emploi du terme ‘jour’, alors que les autres clauses de l’acte révélaient clairement l’intention de constituer une servitude de ‘vue’, par la création d’une fenêtre, C A Rouen, 15 mai 2007, n 06/02490: JurisData n 2007-340509 - V aussi, à titre de pièce d’anthologie, à propos du sens de la conjonction ‘copulative’ ‘et’ et de celle, alternative, ‘ou’, C A Dijon, 26 oct 1988: JurisData n 1988-604259). L’esprit, en d’autres termes, doit l’emporter sur la lettre (V A Sériaux, op ci, n 43).

On ne peut totalement exclure l’hypothèse de l’interprétation d’une convention verbale (V JCI Civil Code, article 1156 à 1164, fasc 20, préc), mais l’économie générale des articles 1156 à 1164, comme aussi certaines formules précises (emploi répété du terme clause, référence à ce qui est ou n’est pas exprimé dans le contrat ...), indiquent que c’est à l’interprétation des écrits que le législateur a songé (V J Dupichot, article préc, n5).

Au total, la signification de l’article 1156 est assez simple. Dès lors qu’il est établi, par quelque moyen que ce soit, qu’il y a discordance entre la volonté réelle, par hypothèse exprimée, fût-ce tacitement, et la formulation - écrite ou même orale - de cette volonté, la première doit l’emporter. Il n’y a là aucune contradiction avec la théorie de la dénaturation. Une clause peut n’être claire et précise qu’en apparence. Tel est précisément le cas si la discordance ci-dessus décrite est établie. Rien ne justifierait que l’apparence l’emportât, dans cette hypothèse, sur la réalité (V Cass 1re civ, 18 févr 1986: Bull civ, 1986, I, n 31; Defrénois 1987, article 33913, p 398, obs Aubert L’arrêt ajoute au contrat qui, par lui-même, n’avait rien d’ambigu, des obligations qui avaient fait l’objet d’un accord antérieur à la signature du contrat, resté muet sur ces obligations).”