Home Information Cases Lambert v MCM Select Foods Ltd (2008)

Skip to content. | Skip to navigation

Navigation
 

Lambert v MCM Select Foods Ltd (2008)

Summary

The court interpreted a clause in a shareholders' agreement on the basis that the inclusion of words of obligation in a transfer of shares provision did not, on their own, oblige shareholders to purchase the shares of shareholders who were no longer employed by the relevant company.

Facts

The claimant shareholder (F) applied for a declaration that the defendant principal shareholder (M) was obliged by the terms of a shareholders' agreement to purchase his shares on departure from the relevant food supplying company (E). F had been the principal shareholder of E. He and the other shareholders agreed to sell 22.5 per cent of E's shareholding to M and to exercise an option in M's favour entitling it to purchase a further 47.5 per cent shareholding at a future date. In return, M agreed to execute a shareholders' agreement and to continue to employ F as E's managing director and chief executive. Later, M exercised the option to purchase the additional shares. On that basis, E's share capital was divided between M, who controlled 70 per cent, and F, who retained 30 per cent. Clause 4 of the shareholders' agreement as exercised by M on completion of the purchase of the additional shares was entitled "compulsory transfers", and stipulated that a shareholder who left the employment of the company would be deemed to have exercised a transfer notice of his shareholding in favour of the remaining shareholders. Clause 4 also purported to incorporate article 8 of E's articles dealing with shareholder's pre-emptive rights over a leaving shareholder's stake in the company. Subsequently, F resigned as managing director and chief executive of E, alleging that M had committed repudiatory breaches of contract. As a departing shareholder, F was deemed to have exercised a transfer notice in respect of his shares in M's favour. However, M refused to purchase his shares and F brought the instant claim. F submitted that the actual language of Clause 4 contained several mandatory words, including the term "compulsory", that suggested that the obligation therein was mandatory; on that basis, the only commercially viable interpretation of that clause required M to purchase his shares. M contended that the effect of Clause 4 was to incorporate article 8 of E's articles, which stipulated that M had a right, as opposed to an obligation, to purchase the shares of a departing shareholder.

Held

Words such as "compulsory" in the shareholders' agreement, when taken alone, did indicate words of obligation. However, F's interpretation of Clause 4 in passing an obligation onto other shareholders, pro rata, was hopelessly inconsistent with the express provisions of Clause 4 implementing the pre-emptive rights provisions of article 8 of E's articles. On that basis, Clause 4, considered alongside its sister provision in article 8, provided that M had a right to buy the shares of leaving shareholders and was not under an obligation to do so.

Judgment for defendant

Chancery Division
Sir Donald Rattee
Judgment date
27 November 2008
References

LTL 27/11/2008 

Practice areas