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Certainty provided for investors wishing to enter into a shareholders' agreement in a recent High Court decision

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If you are considering entering into a shareholders’ agreement, the recent judgment of United Co Rusal Plc v Crispian Investments Ltd (United) clarifies that the court will generally respect the commercial nature of share transfer provisions by applying the usual rules of contractual interpretation.  

The Facts

United Company Rusal plc (Rusal), Whiteleave Holdings Limited (Whiteleave) and Crispian Investments Limited (Crispian) were the major shareholders of PJSC MMC Norilsk Nickel, a Russian company listed on the Moscow and St Petersburg stock exchanges. 

Since December 2012, all three companies were party to a shareholders’ agreement (Agreement), which governed their relationship and rights regarding the transfer of their shares. The Agreement included a right of first refusal mechanism (ROFR), which provided that Crispian, in the event that it received an offer from a “bona-fide third party purchaser”, was obliged to offer its shares to Rusal and Whiteleave at the same price.  

In early 2018 Crispian initiated the ROFR after receiving an offer from Bonico Holdings Co Limited (Bonico) of £1.5 billion for almost 4% of its shareholding. Crispian subsequently served notice on both Rusal and Whiteleave for the purchase of its shares, on the same terms offered by Bonico. On receipt of the notice, Rusal commenced proceedings, and sought a declaration that the notice was invalid.

The court held that Bonico (as a subsidiary of Whiteleave) was not a “bona-fide third party purchaser”, as required by the ROFR, nor was the offer a genuine offer at an arm’s length price.

This case is notable for the useful commentary provided by the court on the interpretation of transfer rights in shareholders’ agreements.

Constructing a Contract and the Greenhalgh Principle

When interpreting a commercial contract, the court follows an objective test. The Supreme Court summarised this recently in Wood v Capita Insurance Services Limited. The contract must be considered “as a whole”, and in doing so the court continually checks and interprets both the language used and the commercial context surrounding it to find the interpretation most consistent with “business common sense” and the intention of the parties. 

The construction of share transfer rights is less clear. It is an established principle of company law that shares are private property and therefore freely transferable; this right may only be removed or restricted if the “language” governing the transfer is “of sufficient clarity” (Greenhalgh v Mallard). If the language is not clear, the court is more likely to decide in favour of the shareholder wishing to sell their shares. This is known as the Greenhalgh principle.

Until recently this has not had a sizeable impact on the construction of shareholders’ agreements, as the court has generally only applied the Greenhalgh principle to transfer rights in a company’s articles of association. However, in the recent case of Re Coroin Limited, Arden LJ held that the Greenhalgh principle was capable of being applied to shareholders’ agreements. This creates uncertainty for shareholders because it raises the possibility of transfer provisions in shareholders’ agreements being potentially circumvented for lack of “sufficient clarity” in reliance on the Greenhalgh principle.

Fortunately, some clarification was offered in United and the court demonstrated that it will generally respect transfer restrictions included in shareholders’ agreements, particularly if they are negotiated by commercially sophisticated shareholders. Although the defendants in United relied heavily on Re Coroin, the court rejected this argument and considered there to be a clear difference between a company’s articles and a shareholders’ agreement.  A company’s articles of association govern its constitutional framework and set out the rights of all shareholders, whether they played a role in incorporating the Company or not, and articles should consequently be narrowly interpreted. By comparison, a shareholders’ agreement is a voluntary agreement entered into by shareholders wishing to govern their relationship, and therefore a more commercial approach is appropriate. 

Additionally, the facts in Re Coroin were unique. The shareholders’ agreement was entered into by all of the company’s shareholders on incorporation and new shareholders were required to become a party to it. In addition it was drafted to prevail over the company’s articles and the provisions relating to the transfer of shares mirrored those in the articles making them “effectively synonymous”. This is unlike the Agreement in United, which was only entered into between some of the company’s shareholders, and was clearly intended to govern and restrict such shareholders’ rights to transfer their shares.  


Overall, the decision in United provides some comfort for investors wishing to enter into a shareholders’ agreement on a commercial basis. Nonetheless, it must be remembered that this was a High Court decision, and a higher court may consider the Greenhalgh principle differently. Parties and their advisers should not be complacent, and any restrictions included in a shareholders’ agreement should be carefully considered and of “sufficient clarity” to avoid any risk posed by the possible application of the Greenhalgh principle.

This article was written by Rachel Hayward, Associate, Corporate, with assistance from Remy Ormesher-Hussein, Trainee Solicitor.

This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.