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Which of multiple breaches of the proper purpose rule matters?

Case briefing: Éclair Groups Ltd V JKX Oil & Gas plc

Facts

Company articles allowed directors to issue a notice to shareholders interested in its shares asking if they were acting in concert (to conduct a corporate raid).

Shareholders denied they were in concert but directors disbelieved them and suspended rights enjoyed by their shares. Shareholders sued, claiming directors had broken the proper purpose rule and were trying to stifle a vote for a change in management.

Decision

Suspending rights of shares was allowed for just one purpose, to ensure an honest reply to the directors’ notice so even directors’ honest belief shareholders were planning to depress share value before buying more of them, did not make that suspension a proper purpose.

Principle

Judgment is controversial in its treatment of directors with multiple purposes, some proper and some not. Is the issue which was the causative purpose of the challenged action or which was its primary purpose? Two Law Lords supported the causative test but three the primary test. Causation is expected to prevail.

Court confirmed shareholders have no duties to anyone and can exercise their rights as they wish, for good reasons or bad.

If you need help or advice on the proper purpose rule please contact Christopher on: +44 (0) 1534 632255 or email commercial@viberts.com.

 

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