Case: Lyle &amp; Scott Ltd v Scott's Trustees [1959] AC 763
Outcome: distinguished
applicants submitted that the object of cl 5.1, when considered in the context of the Shareholders Agreement as a whole, was that any shareholder desirous of transferring the legal or equitable interest therein should inform the company and offer the other shareholders an opportunity to participate in the transfer on a pro rata basis. In support of this submission, the applicants relied on Lyle &amp; Scott Ltd v Scott's Trustees [1959] AC 763 , and in particular the passage at 785: "If I may express my view of the article in the most general sense, I think the prohibitory part of the article is the sanction which prevents a shareholder from carrying through a transfer of shares without complying with the machinery of transfers set out in the second part of the article. And I think a shareholder who has transferred, or pretended to transfer, the beneficial interest in a share to a purchaser for value is merely endeavouring by subterfuge to escape from the peremptory provisions of the article. A share is of no value to anyone without the benefit it confers. A sale of a share is the sale of beneficial rights that it confers, and to sell or purport to sell the beneficial rights without the title to the share is, in my opinion, a plain breach of the provisions of article 9." However, that passage must be understood in the context of the findings of fact in that case to which I refer later. The respondents submitted that: (a) The evidence demonstrated that ARC Strang was not desirous of transferring the PrixCar shares, as if it was so desirous it could not achieve the outcome it sought, namely, avoiding triggering the provisions of cl 5.1 of the Shareholders Agreement. Rather, the shareholders in ARC Strang were desirous of selling their shares in ARC Strang. (b) There was no change of control clause in the Shareholders Agreement, that is there was no clause which regulated or related to a sale or transfer of shares in the companies whose assets included shares in PrixCar. The evidence demonstrated that all parties proceeded on the basis that cl 5.1 was not triggered when shares in a joint venturer were sold, as distinct from a sale of shares in the joint venture company, PrixCar, itself. The applicants attempted to achieve a change of control in ARC Strang in favour of themselves previously, but did not proceed when they formed a view about the problematic impact of the trust structure. (c) On the proper construction of cl 5.1 it is concerned only with transfers of legal interests, not beneficial interests. This follows textually from the words of the Shareholders Agreement. It is the sale of the shares that is relevant, not the equitable obligations pursuant to which ARC Strang held its assets. The initial issue to be determined is whether on 30 May 2007 and prior thereto ARC Strang was a person "desiring to transfer" its shares in PrixCar within the meaning of cl 5.1 of the Shareholders Agreement. ARC Strang had withdrawn its transfer notice given in its letter dated 14 July 2006 on 23 November 2006. At that time, ARC Strang's desire to transfer its shares in PrixCar terminated. Was that desire resurrected thereafter? I do not consider that it was. During December 2006, Mr Robert Strang had discussions with Kawasaki and Toll interests about a proposal that the shares in ARC Strang be sold. It does not follow from this fact that ARC Strang was desiring to transfer its shares in PrixCar. Indeed, the proposal that the shares in ARC Strang be sold was for the reason that Kawasaki and Toll did not want the pre-emptive provisions of cl 5.1 of the Shareholders Agreement triggered by any proposal or desire by ARC Strang that its shares in PrixCar be transferred. Although a sale of the shares in ARC Strang would change the ultimate ownership and effective control of the shares ARC Strang held in PrixCar, a desire by the shareholders in ARC Strang to sell the shares they held in it does not, of itself, demonstrate a desire by ARC Strang to transfer its shares in PrixCar. Indeed, if the concern of all relevant parties was to avoid triggering the pre-emptive provisions in cl 5.1 of the Shareholders Agreement, a proposal by the shareholders in ARC Strang to sell the shares they held in it made it clear that ARC Strang did not desire to transfer its shares in PrixCar. The applicants placed particular emphasis upon observations in Lyle &amp; Scott Ltd v Scott's Trustees (supra). In that case the relevant article of association of the company contained pre-emptive provisions which were activated by a shareholder "who is desirous of transferring his ordinary shares". An offer was made to the shareholders in the company offering to purchase their shares for a specified amount. The consideration was payable on receipt of valid and effective transfers of the shares and a general proxy in favour of the purchaser's nominees. Some shareholders in the company accepted the offer by completing and returning the form of acceptance and a form of proxy. In their acceptance they agreed to sell their shares, authorised the use of the proxy, and agreed to deliver up their share certificates and to sign transfer deeds when called on in exchange for the price. The House of Lords concluded that the actions of the shareholders were such that it could be inferred that they were "desirous of transferring" their shares within the meaning of the article containing the pre-emptive provisions. Viscount Simonds said at 774-775: "In my opinion, it is not open to a shareholder, who has agreed to do a certain thing and is bound to do it, to deny that he is desirous of doing it. I wish to make it quite clear, for it goes to the root of the matter, that I regard Scott's trustees as desirous of transferring their ordinary shares unless and until their agreement with Mr. Fraser has been abrogated. ... I have already indicated that a shareholder who has agreed to sell his shares and has received the price is to be deemed to be desirous of transferring them." Lord Reid said at 777-778: "I have come to the conclusion without difficulty that on their own admissions the respondents are in breach of article 9. The purpose of the article is plain: to prevent sales of shares to strangers so long as other members of the company are willing to buy them at a price prescribed by the article. And this is a perfectly legitimate restriction in a private company. But the respondents argue that, whatever may have been the intention, the terms of the article are such that it has only very limited application. They say that 'transfer' and 'transferring' only apply to a complete transfer of the ownership of shares by acceptance and registration of deeds of transfer, and that a shareholder who agrees to sell his shares is quite entitled to do so and to receive the price and vote as the purchaser wishes so long as he is not desirous of having a transfer registered. I see no reason for reading the article in that limited way. Transferring a share involves a series of steps, first an agreement to sell, then the execution of a deed of transfer and finally the registration of the transfer. The word transfer can mean the whole of those steps. Moreover, the ordinary meaning of 'transfer' is simply to hand over or part with something, and a shareholder who agrees to sell is parting with something. The context must determine in what sense the word is used." That case and the reasoning in it is of no assistance to applicants. In that case it was found as a fact that the shareholders were desirous of transferring their shares because of the actions they had taken. The shareholders had entered into an agreement to sell their shares and had received and retained the sale price and had agreed to sign transfer deeds when called on to do so. Their abstaining from delivering executed transfer forms did not displace the finding that they were desirous of transferring their shares. I have made no such finding in this case. Rather, I have found that the evidence does not support such a finding. It may be accepted, as the applicants submitted, that the documentation and transactions entered into on 30 May 2007 delivered to Toll Holdings and its associate Toll (FHL) control of the interest in PrixCar held by ARC Strang as a matter of substance. But it does not follow from such a conclusion that cl 5.1 was triggered by what occurred on 30 May 2007. The applicants submitted that the provisions of cl 5.1 of the Shareholders Agreement would have no substance if the shareholder could transfer its beneficial interest in PrixCar to a third party as was done in this case. In this context, the applicants relied on the observation of Lord Keith in Lyle &amp; Scott Ltd v Scott's Trustees (supra) set out in par [46] above. That observation must be understood in the context of the facts as found, namely that there had been an agreement to sell the shares which were the subject of the pre-emptive provisions. Lord Keith was saying no more than if a shareholder sells its whole interest in a share, which includes its legal interest and its beneficial interest, the withholding of the delivery of an executed transfer of the share, in the circumstances which obtained in that case, does not mean that the shareholder is not desirous of transferring the share as contemplated by the relevant article. The applicability of Lord Keith's observation depends upon the extent to which the provisions of cl 5.1 of the Shareholder's Agreement have been triggered. In Lyle &amp; Scott Ltd v Scott's Trustees (supra) the relevant article was triggered because of the finding that the shareholders were "desirous of transferring" their shares in the company. That is not a finding which I have made in the present case. I am satisfied that on its proper construction cl 5.1 of the Shareholders Agreement does not extend to, or cover, a transfer of shares in a company which includes within its assets shares in PrixCar. Clause 5.1 does not include within its terms, nor is it appropriate to imply into its terms, a change in control of shareholder provision. There is no part of the transactions entered into on 30 May 2007 which falls within cl 5.1 of the Shareholders Agreement or which triggers its operation. Clause 5.1 is not triggered by the sale by Mr and Mrs Strang of their shares in ARC Strang, the shareholder whose assets include shares in PrixCar, nor is it triggered by the deed of assignment whereby ARC Strang as trustee transferred the beneficial interest in the PrixCar shares to itself. The expression "transfer" in cl 5.1 of the Shareholders Agreement refers to a transfer of the legal interest in the shares and not to a transfer of the beneficial interest. I reach this conclusion as result of a textual analysis of cl 5.1 and on the basis of principles found in authorities. My conclusion that in the context in which it appears in cl 5.1 of the Shareholders Agreement the expression "transfer" means a transfer of the legal interest or estate in shares from one person to another person and not a transfer of the equitable or beneficial interest in the shares is supported in a number of cases. Such a connotation or definition of the expression "transfer" is implicit in the reasoning in Safeguard Industrial Investments Ltd v National Westminster Bank [1981] 1 WLR 286; Scotto v Petch [2000] 2 BCLC 211, on appeal [2001] BCC 889; Lyle &amp; Scott Ltd v Scott's Trustees (supra); Coles Myer Limited v Commissioner of State Revenue [1998] 4 VR 728.