Dixon & Anor v Blindley Heath Investments Ltd & Anor

Factual and Procedural Background

This case concerns a dispute over control of Company A and the transfer of 200 shares by the first to seventh Defendants ("the vendors") to a corporate entity registered in the British Virgin Islands, now called Company B ("the Claimant"), pursuant to a share purchase agreement dated 7 October 2011 ("the SPA"). The Appellants, comprising Plaintiff Dixon and Company A, contend that the transfer breached valid pre-emption rights and seek to unwind the transaction to regain control of the Company.

The trial before Judge Anderson QC lasted ten days. The Judge found that valid pre-emption rights existed but held that Plaintiff Dixon and his co-directors were estopped by convention from enforcing those rights to prevent the transfer. Alternatively, the Judge found that the Board of Directors had unanimously, though informally, approved the transfer at an October 2011 meeting, and a subsequent purported revocation at a November 2011 meeting was invalid.

The Appellants appealed with permission, challenging the Judge's findings on estoppel by convention, the effect of the October Board Meeting, and the validity of the November Board Meeting decision. Company B cross-appealed against dismissal of claims for misrepresentation and breach of warranty under the SPA, contingent on the Appellants' success. The appeal was heard over two days, with further directions given for cross-appeals on costs.

The factual background involves the incorporation of Company A in 2000 to acquire a 125-year lease of a business centre. The Company had 600 shares issued by 2001, held by various family groups and individuals including Plaintiff Dixon and his late brother. Over time, Plaintiff Dixon and his associates sought to acquire control of the Company, culminating in agreements in 2010 and the disputed transfer in 2011 to Company B.

Key events include the existence of shareholders' letters in 2001 containing pre-emption rights restricting share transfers, the death of Plaintiff Dixon's brother in 2009, subsequent share acquisitions, and a series of Board Meetings in 2010 and 2011 involving contested share transfers and approvals. The dispute crystallized after the November 2011 Board Meeting declined to register the transfer of shares to Company B.

Company B initially sought damages and declarations relating to the share transfer and pre-emption rights, with various parties joining the proceedings. The Judge's decision affirmed the validity of pre-emption rights but found estoppel by convention and informal Board approval prevented their enforcement to block the transfer. Claims for misrepresentation and breach of warranty failed. The appeal focuses on these findings and related issues, including costs.

Legal Issues Presented

1. The applicability and scope of estoppel by convention in relation to the enforcement of pre-emption rights in share transfers.
2. Whether the October 2011 Board Meeting constituted unanimous approval and agreement to the share transfer to Company B.
3. Whether the November 2011 Board Meeting could validly revoke the prior decision and refuse registration of the share transfer.
4. The powers and duties of directors concerning share transfers subject to pre-emption rights contained in shareholder agreements rather than Articles of Association.
5. The legal effect of a mis-description of the transferee company in the share purchase agreement and stock transfer forms.
6. Issues concerning costs and the appropriateness of various cost orders made by the Judge.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court analysed the doctrine of estoppel by convention as binding parties to a shared, even mistaken, assumption, provided that assumption is communicated and it would be unconscionable to depart from it. The Court agreed with the Judge that the parties had conducted themselves on the basis of a common assumption that no valid pre-emption rights existed, supported by multiple instances of conduct crossing the line of mere forgetfulness or acquiescence.

The Court rejected the Appellants’ argument that estoppel by convention could not arise from mutual forgetfulness, holding that forgetfulness is legally indistinguishable from a mistaken assumption. It emphasized the evidential burden to show that the party sought to be estopped assumed responsibility for the assumption, which was met here given the parties’ mutual dealings and reliance.

The Court upheld the Judge’s conclusion that it was unconscionable for Plaintiff Dixon and others to rely on pre-emption rights after benefiting from the assumption and related transactions. It further agreed that the October Board Meeting constituted unanimous approval not to object to the share transfers, and that this sufficed to entitle Company B to registration upon presentation of proper documentation.

Regarding the November Board Meeting, the Court noted that while it might be open to the Board to change its mind before registration, this issue was not fully argued and was unnecessary to decide due to the estoppel finding. The Court also rejected the Appellants’ contention that the mis-description of the transferee company invalidated the transfer forms, treating it as a harmless misnomer.

On costs, the Court acknowledged the general reluctance to interfere with costs decisions but found sufficient arguable grounds to grant Company B permission to appeal certain cost orders, particularly those relating to indemnity costs and the allocation of liability among Defendants.

Holding and Implications

The Court DISMISSED THE APPEAL, affirming the Judge's findings that the parties were estopped by convention from enforcing pre-emption rights to block the share transfer to Company B, and that the October Board Meeting's unanimous approval entitled Company B to registration of the shares.

Consequently, Company B is entitled to be registered as a member of Company A in respect of the Sale Shares. The cross-appeal by Company B against dismissal of claims for misrepresentation and breach of warranty is rendered redundant.

The Court granted Company B permission to appeal certain aspects of the costs orders made by the Judge, recognizing potential injustice in the allocation of costs and indemnity orders, thereby allowing further scrutiny of those matters.

No new legal precedent was established beyond the application and affirmation of established principles of estoppel by convention, directors' powers regarding share transfers, and costs discretion. The decision primarily resolves the parties’ dispute and clarifies the application of these principles in the context of shareholder disputes involving informal approvals and pre-emption rights contained in shareholder agreements.