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Halton International Inc (Holding) Sarl and Mohtaram Kaddoura v Guernroy Ltd (2005)


Where a voting agreement had given a shareholder an absolute discretion in the manner in which it chose to raise funds, on a new issue of shares the shareholder had a right to choose investors including itself and others and a right to waive pre-emption rights in the company's articles. The voting agreement imposed no fiduciary duties on the shareholder in relation to the selection of investors and the subsequent issue of shares.


The claimants (H) alleged that the defendant company (G) was in breach of its fiduciary duties as an agent in relation to an offer of new shares. All the parties were shareholders in a company. The company needed to raise capital. The parties entered into a voting agreement enabling G to act as the agent of and to vote the shares of the other shareholders for the purposes set out in the agreement. The agreement provided that G should procure funding to obtain working capital and that G had absolute discretion to do so in any manner that it sought fit including by way of a fresh issue of shares. The voting agreement was sent to shareholders under cover of a memorandum which stated that G would ensure that all existing shareholders in the company would be given the opportunity to participate on a pari passu basis in all proposed financing. Subsequently, G authorised the issue of new shares which were taken up by G and friends and associates of G's controller. H argued that the manner in which G had exercised its powers under the voting agreement breached its fiduciary duties to them and that as a result they had had no proper opportunity to take up the new share issue. In particular, G had duties not to obtain a secret profit or advantage for the controller of G; not to allot any new shares to G or to its controller or his friends and associates without first offering them to existing shareholders in accordance with pre-emption provisions in the company's articles; and to comply in substance with the undertaking in the memorandum with regard to participation.


The voting agreement had not given rise to the fiduciary duties alleged. There was no clear authority which recognised agents as having a fiduciary relationship with their principals, Phipps v Boardman (1967) 2 AC 46, considered. A critical and usually determinative feature of any fiduciary relationship was the agreement of the fiduciary to act in the interests of the principal in the exercise of the power which had been granted or in relation to the principal's business or property affairs. In the absence of any such express agreement, it was always necessary to look at the terms of the contract between the parties in order to discover whether the powers conferred on the agent were circumscribed in that way. In the instant case, the voting agreement gave G an absolute discretion in the manner in which it chose to raise funds. Those powers gave G a right to choose investors including itself and others and a right to waive the pre-emption rights in the articles. To require G to give effect to the pre-emption rights and to require disclosure of information as part of that process would fundamentally alter the express terms of the contract which the parties had made. It could only be achieved in contractual terms by the implication of terms to qualify the scope of the express powers giving an absolute discretion. G did not regard itself as being under any duty of care to H, or as acting as their agents on terms which required G to put H's interests before its own commercial considerations. G had not behaved like a fiduciary or trustee because it was not one.

Judgment for defendant.

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09 Sep 2005

Chancery Division
Patten J

LTL 14/9/2005 : (2006) 1 BCLC 78