This is a commercial case that has significant implications related to arbitration and contractual restrictions (Magee & Ors v Crocker & Anor EWHC 1723 (Ch)) centring on clauses in an agreement preventing assignment of the benefit of the agreement, and in the context of the background to this case its bearing on restrictions on share transfers and voting rights during takeover bids.
In this case, the court examined the enforceability of certain clauses within agreements, especially focusing on arbitration clauses and their interaction with statutory provisions. The judgment clarified that arbitration agreements must comply with specific statutory requirements to be enforceable. For instance, under the Employment Rights Act 1996, an arbitration agreement is only valid if it pertains to a dispute covered by a scheme under section 212A of the Trade Union and Labour Relations (Consolidation) Act 1992 and is submitted in accordance with that scheme.
According to the Companies Act 2006, any agreement that restricts the transfer of shares or voting rights during an offer period is invalid. This includes agreements made between shareholders or between shareholders and the company, regardless of the applicable law (Companies Act 2006 (2006 c 46)).
Overall, the ruling in Magee & Ors v Crocker & Anor underscores the necessity for clauses in agreements to align with statutory provisions to ensure their enforceability.
Key Legal Findings
The transfer of shares from Camelot to the Fitzpatrick Family Discretionary Settlement (FFDS) in 2014 was valid and effective, and not impeachable on grounds of fraud or misrepresentation by Mr. Fitzpatrick.
There has been an effective novation of the 2010 Shareholders' Agreement (2010 SHA) such that the FFDS trustees are now entitled to rely upon and enforce its terms against Mr. Crocker.
Material Facts
The Company was incorporated in 1994 to operate a golf course on land owned by Mr. Crocker.
Shares in the Company were initially held by Mr. Crocker and by VGC, a company associated with Mr. Fitzpatrick, with later acquisitions by the Nisma Settlement, purportedly established for the benefit of Mr. Fitzpatrick's brother-in-law, Mr. Murray.
In 2010, a restructuring occurred whereby Mr. Crocker and the Nisma Settlement (via trustee Camelot) became 50:50 shareholders, governed by the 2010 SHA.
In 2014, Camelot transferred its shares to the FFDS, established by Mr. Fitzpatrick, without serving required transfer notices under the Company's Articles.
Mr. Fitzpatrick claims he discussed the share transfer with Mr. Crocker beforehand and obtained his consent for the FFDS to step into Camelot's position under the 2010 SHA, which Mr. Crocker denies.
The Law
Principles of fraudulent/negligent misrepresentation
The Company's Articles of Association (including pre-emption provisions)
Law on novation of contracts
Doctrine of promissory estoppel
Contractual interpretation principles
Submissions of the Parties
The Fitzpatrick Parties contended that Mr. Crocker consented to the share transfer to the FFDS and the novation of the 2010 SHA, or was estopped from denying the validity of those events. They denied any fraudulent misrepresentation by Mr. Fitzpatrick.
Mr. Crocker argued the share transfer was in breach of the Articles and procured by Mr. Fitzpatrick's fraudulent misrepresentation that the Nisma Settlement was a Fitzpatrick family trust. He denied consenting to a transfer or novation.
Court Rationale
The court found Mr. Fitzpatrick credible in his account of discussing the share transfer with Mr. Crocker and obtaining his consent, which was corroborated by other evidence. Mr. Crocker's recollection was deemed unreliable.
No fraudulent misrepresentation was proved, as Mr. Fitzpatrick likely believed and presented the Nisma Settlement as effectively a Fitzpatrick family trust following Mr. Murray's death.
The terms of the 2010 SHA and Mr. Crocker's conduct (e.g. signing share certificates) gave rise to a promissory estoppel and/or novation, binding him and the FFDS trustees to the 2010 SHA.
Relevant no-assignment and no-oral-variation clauses in the 2010 SHA did not prevent a novation on the facts.
The Decision
The court granted declarations that the 2014 share transfer to the FFDS was valid, and that the 2010 SHA was novated in favour of the FFDS trustees, binding them and Mr. Crocker to its terms. Mr. Crocker's counterclaims were dismissed.
PW-La are able to advise on issues presented by this case for companies and directors in ensuring commercial agreements are valid and do not contradict statutory provisions.
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