Case No: A3/2002/1098
Neutral Citation Number: [2003] EWCA Civ 105 
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM MR LESLIE KOSMIN QC
(SITTING AS A DEPUTY HIGH COURT JUDGE IN THE 
CHANCERY DIVISION)
Royal Courts of Justice
Strand, 
London, WC2A 2LL

Tuesday 11th February  2003 
Before :

LORD JUSTICE PILL
LORD JUSTICE WALLER
and 
LORD JUSTICE MUMMERY

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Between :

	MONECOR (LONDON) LIMITED	Appellant	
	- and -		
	EURO BROKERS HOLDINGS LIMITED	Respondent	

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(Transcript of the Handed Down Judgment of
Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040,  Fax No:  020 7831 8838
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Mr Terence Mowschenson QC (instructed by Denton Wilde Sapte) for the Appellant
Mr Edward Bannister QC & Mr Andrew Twigger (instructed by Marriott Harrison) for the Respondent

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Judgment
As Approved by the Court

Crown Copyright ©

Lord Justice Mummery : 

Introduction

1.	This is an appeal from Mr Leslie Kosmin QC (sitting as a Deputy High Court Judge in the Chancery Division). By his order dated 9 May 2002 he decreed specific performance of the obligation of Monecor (London) Limited (Monecor) to sell to Euro Brokers Holdings Limited (Euro Brokers) its entire shareholding in Euro Brokers Finacor Limited (EBFL) in accordance with clause 11(2) of a written agreement dated 31 December 1998 (the Shareholders’ Agreement) made between Monecor, Euro Brokers, EBFL and others. The contractual obligation of Monecor to sell all of its shares in EBFL to Euro Brokers was held to have arisen from the exercise of an option by Euro Brokers to buy Monecor’s shares in EBFL in the event of the failure of Monecor to meet a call to provide further capital needed in the business of EBFL.
2.	The Deputy Judge granted Monecor permission to appeal and ordered a stay of parts of his order until determination of the appeal or earlier order of the Court of Appeal.
The Parties
3.	The appellant, Monecor, is a wholly owned subsidiary of a French company, Finacor, which was in turn owned by a State controlled entity, CDR Enterprise SA (CDR). Finacor is no longer owned by CDR (see para 22 below).
4.	The respondent, Euro Brokers, is an English company ultimately owned by a Delaware Corporation, Maxcor Financial Group Inc (Maxcor).
5.	EBFL (formerly called Euro Brokers International Limited) is a joint venture company, in which Monecor and Euro Brokers were equal shareholders pursuant to a Share Sale agreement dated 21 December 1998. Monecor agreed to subscribe for 50% of the share capital of EBFL and to transfer to EBFL the shares in an English Company, Finacor Limited, and the assets and undertaking of its branch in Paris. EBFL was established in December 1998 to operate in the capital market currency and interest swap business in the City of London, where it is subject to the regulation of the Financial Services Authority (FSA).  The FSA rules require brokerage companies, such as EBFL, to report to it, on a monthly basis, the amount of their capital base at the last working day of each month in order to meet the “minimum regulatory capital requirement.” The minimum is broadly equivalent to two months of the company’s recurring expenditure.  In the year 2000 that figure was £3,825,000. In fact, the Finance Director of EBFL, Mr Pask, sought to maintain a buffer of £500,000 over the required minimum amount. Monecor accepts that the buffer had been agreed by the shareholders in EBFL.
The Shareholders’ Agreement
6.	This dispute arises out of the Shareholders’ Agreement made between Monecor and Euro Brokers to regulate the relationship between them as shareholders in EBFL and certain aspects of the affairs of EBFL.  As reflected in the Articles of Association the share capital of EBFL was equally divided into A shares, both ordinary and preference, held by Euro Brokers, and B shares, both ordinary and preference, held by Monecor.  
7.	By clause 6 the parties agreed to procure that there should at all times be three A directors and two B directors comprising the Board of EBFL, the A directors being appointed in writing from time to time by Euro Brokers and the B directors being appointed in writing from time to time by Monecor. These provisions are reflected in Articles 14 and 15 of the Articles of Association.
8.	Clause 6(2) provides
“The Shareholders shall procure that meetings of the Directors are held at least four times a year and that a notice of each such meeting and, when practicable, an agenda of the business to be transacted at the meeting and all papers to be circulated at or presented at the meeting, are given or sent to all Directors entitled to receive notice of the meeting and to each Shareholder at least 3 days before the meeting and a copy of the minutes of the meeting are sent to such persons within 3 days after the meeting. Notwithstanding this, if agreed by an A Director and a B Director the Directors may also convene meetings of the Board ad hoc, on such shorter notice and with such lesser documentation (if any) as may be necessary or appropriate in the context of the particular circumstances.”

9.	Clause 11 of the Shareholders’ Agreement is central to the case. It concerns the future funding requirements of EBFL.  The material parts are as follows-
“(1) All further funding requirements of the Company shall be provided by the Shareholders on an equal basis, but it is agreed that neither Shareholder shall be obliged to provide any form of further funding or capital to the Company
(2) If at any time further funding shall be required by the Company in order to satisfy such capital adequacy requirements as are applicable to the Business at the relevant time or for the purpose of enabling the Company to pay its debts as they fall due, the Board shall issue a notice to each Shareholder specifying the amount required, the reasons there for and the necessary timing of such payment (a “Capital Call”). If either Shareholder does not respond to the Capital Call within the time period set out therein or responds that it will not meet such  Capital Call, (“the Declining Shareholder”), the other Shareholder shall have the right to provide the whole of the relevant funding itself and if it does so, it may within 90 days following the date on which it provides such funding, require the Declining Shareholder to sell to it the entire shareholding in the Company of the Declining  Shareholder……”
10.	Clause 11(2) then spells out detailed provisions for the ascertainment of the purchase price of the Shares by EBFL’s auditors.
11.	The principal issues in the case are (a) whether a “Capital Call” within the meaning of clause 11(2) of the Shareholders’ Agreement was made and, if so, (b) whether Euro Brokers is entitled to specific performance of the Shareholders’ Agreement in respect of the shares held by Monecor in EBFL, Monecor having failed to meet the Capital Call.  As this issue turns in part on the formal procedural requirements for making the Capital Call, it is necessary to refer briefly to other provisions in the Shareholders’ Agreement.
12.	Clause 1(1) defines the “Board” as meaning “ the board of directors at the relevant time of the Company”; the “Directors” as meaning “the A Directors and the B Directors”; the “ A Directors” as meaning “ the directors appointed from time to time by the A Shareholder”; and the “B Directors” as meaning “the directors appointed from time to time by the B Shareholder.”   
13.	Clause 2 provides that the agreement
“is being entered into in order to regulate the relationship of the Shareholders as members of the Company…..”
14.	Clause 26(2) states that the provisions of the agreement prevail in the case of any conflict between them and the Memorandum and Articles of Association. Clause 27 provides that
“(1) This agreement and the documents referred to in it…contain the whole agreement between the parties relating to the transactions contemplated by this agreement and supersede all previous agreements between the parties relating to these transactions.”
15.	It is also necessary to refer briefly to the Articles of Association of EBFL which, in respect of the Board, reflect the terms of the Shareholders’ Agreement.  The Articles concerned with the “Proceedings of Directors” provide that
  “22. The quorum for a meeting of the directors shall throughout the meeting be at least one A Director and one B Director…
“23. Except as otherwise agreed by all the members, a committee of the directors shall include at least one A Director and one B Director and the quorum for a meeting of any such committee shall throughout the meeting be at least one A Director and one B Director….
“24. (1) Except as otherwise agreed by all the members, in the case of an equality of votes at any meeting of the directors or a committee of the directors the chairman of the meeting shall not have a second or casting vote…
(2) Except as otherwise agreed by all the members, questions arising at any meeting of the directors or of any committee of the directors shall be decided by a majority of votes….”
The Issues, Arguments and Decision in Outline
16.	The basis of Euro Brokers’ claim for specific performance of clause 11(2) of the Shareholders’ Agreement is that a “Capital Call” was made in an e-mail sent by the Finance Director of EBFL, Mr William Pask, on 31 October 2000 requiring additional capital of £500,000 to be paid by 30 November 2000.  It is accepted that Monecor agreed to pay £250,000 to EBFL, that on 30 November 2000 Monecor in fact paid £100,000 to EBFL and that it failed to pay the further sum of £150,000 within the time agreed for payment.
17.	Monecor denies, however, that any “Capital Call” within the meaning of clause 11(2) was made by EBFL’s Board, as, at the material time and as Euro Brokers well knew, EBFL had no properly constituted Board. It was inquorate, as there were no B directors on the EBFL Board. None had been appointed by Monecor to replace B directors, who had resigned.  Monecor had not realised that it could appoint new B directors. So, even though EBFL was still functioning without a properly constituted Board, there was at most only a request to Monecor and Euro Brokers for money to be paid to EBFL. The request fell outside clause 11(2) as it was not made in a notice issued by EBFL’s Board, which would have had access to all the relevant information. An agreement by all the shareholders in EBFL to pay monies to the company pursuant to a request by Mr Pask was not the equivalent of a decision by EBFL’s Board.  Monecor’s shares were not, therefore, shares of a “Declining Shareholder,” subject to an option exercisable by Euro Brokers. Monecor had not by its conduct waived its right to insist on compliance with the requirements of clause 11(2).
18.	It is also contended by Monecor that the call for an additional buffer of £500,000 was not a “Capital Call” within clause 11(2), as it was in excess of the actual minimum regulatory capital requirement set by the FSA; that clause 11(2) was only intended to operate when EBFL fell below that minimum set by the FSA; that the directors of Monecor were unaware that the request for further funding was made under the Shareholders’ Agreement; that Monecor has not waived its right to maintain that the request for payment was not a “Capital Call” within clause 11(2); and that the court should exercise its discretion to refuse specific performance on the grounds that Euro Brokers had behaved “in a tricky fashion” in failing to procure the appointment of Monecor’s Nominated B Directors to the Board of EBFL, knowing that Monecor did not understand how to procure the appointment of its nominees to the Board and that the Board of EBFL was inquorate at all material times.  
19.	Euro Brokers, on the other hand, contends that such a call was made; that, applying the Duomatic principle, matters decided upon by all the members of a company are as effective as a decision by its Board, as the formal organ of the company; that the right to make a “Capital Call” was not confined to circumstances in which EBFL fell below the FSA’s minimum regulatory requirements; that the directors of Monecor were aware that the request for further funding was made under the Shareholders’ Agreement; that Monecor has waived the right to maintain that the request for £500,000 was not a “Capital Call” within clause 11(2); and that it was right to order specific performance against Monecor, as, on 28 December 2000, Euro Brokers purported to exercise its right under clause 11(2) to acquire Monecor’s shares in EBFL on the grounds that Monecor was “a Declining Shareholder”.
20.	The Deputy Judge found in favour of Euro Brokers. Applying the Duomatic principle, he held that Monecor and Euro Brokers agreed to treat the notice of 31 October 2000 as a “Capital Call” under clause 11(2).  The right of Euro Brokers to purchase Monecor’s shareholding EBFL was triggered by Monecor’s failure to pay in full in due time the amount of the Capital Call requested.  Euro Brokers was entitled to purchase Monecor’s shares in EBFL.  He further held that, by its conduct, Monecor had waived any procedural defect in the making of the Capital Call and that it would be unjust and unconscionable for Monecor to resile from its position and claim that the procedure adopted by EBFL for the making of the Capital Call was a nullity. Any suggestion that Euro Brokers had sought to exercise its rights under clause 11 in bad faith or for an improper purpose, such as the exclusion of Monecor from EBFL, was rejected by the Deputy Judge. He also rejected any suggestion that EBFL had failed to exercise reasonable care and skill in calculating the amount of the Capital Call or that EBFL had acted otherwise than in good faith in making and maintaining the Capital Call. In those circumstances he ordered specific performance.
21.	Before considering the grounds of appeal advanced by Mr Terence Mowschenson  QC on behalf of Monecor, and resisted by Mr Edward Bannister QC, on behalf of Euro Brokers, it is necessary to examine in more detail the facts found by the deputy judge in his careful reserved judgment.
The Relevant Facts
22.	In March 2000 Euro Brokers and Monecor agreed to inject further capital of £200,000 each into EBFL pursuant to calls made on them by the Finance Director, Mr Pask. The call was made so that EBFL could meet regulatory capital adequacy requirements. A subordinated Loan Agreement was entered into by Monecor in respect of that call.
23.	In about July 2000 Monecor’s parent company, Finacor, was the subject of a take over offer by another company, Viel et Cie, which had entered into a conditional agreement with CDR.  The consequent upheaval had repercussions in the composition of the board of directors of EBFL.  On the takeover the activities of Finacor were transferred to a new company and shares in the new company were transferred to Viel et Cie in exchange for shares in Vie et Ciel. The sale agreement was signed on 2 August 2000, conditional on obtaining the approval of the French regulatory authorities.  In the meantime there were was a major change in personnel.  Two representatives of Viel et Cie, Mr Guido Boehi and Mr Robin Houldsworth, were appointed to the Board of Finacor on 3 August 2000 and Mr Francis Bibian became chairman. On 6 and 7 August 2000 six of the existing directors of Monecor resigned. Their replacements included Mr Boehi, who became the Chairman of Monecor, and Mr Houldsworth, who became its Managing Director. They both represented the interests of Viel et Cie. The two new representatives of CDR on the board of Monecor were Mr Bibian and Mr Daniel Jessula.
24.	In the meantime on 31 July 2000 the two B directors of EBFL (Mr Giraud and Mr Lasserre) appointed by Monecor resigned. On 8 August 2000 they also resigned as Directors of Monecor.  The result was that there were no B Directors left on the board of EBFL. There were only the three A Directors appointed by Euro Brokers – Mr Scharf, Mr Clark and Mr Pask, the Finance Director.
25.	These personnel changes coincided with a request on 8 August 2000 for further funding from Mr Pask in the light of revised trading projections.  He calculated that an extra £400.000 was required from each shareholder in order to provide a cushion of £500,000 excess capital.  Mr Pask’s request was discussed at the board meeting of Monecor on 25 August 2000, at which it was explained by Monecor’s Chief Finance Officer, Mr Pareg Parekh, that if the additional £400.000 was required for EBFL it would be necessary to raise new capital for Monecor to comply with its own regulatory requirements.  A decision for the provision for new capital increase of Monecor was postponed pending receipt of further information on EBFL’s financial position.
26.	On 5 September 2000 there was a meeting of the directors of EBFL in London attended by the three A Directors and also, by invitation, by two nominees of Monecor, Mr Boehi, its new Chairman, and Mr Bibian, one of the replacement directors of Monecor. (Both had attended the Monecor board meeting on 25 August). At the meeting the A Directors objected to the appointment of Monecor’s nominees to the board of EBFL on the basis that there had been a change of control within Monecor, requiring the execution by Viel et Cie of a confidentiality agreement and a Deed of Undertaking in accordance with the terms clause 15 of the Shareholders’ Agreement.  The A Directors insisted that one or other of these documents was required before detailed confidential information relating to the business of EBFL could be released.  As no agreement was reached on this, the matter was adjourned for further discussion. 
27.	On 8 September 2000 a Supplemental Agreement was made between Euro Brokers, Monecor, EBFL and others confirming the form of confidentiality agreement and deed of undertaking required by the Shareholders’ Agreement. 
28.	On 14 September 2000 a board meeting of Monecor took place in Paris, at which it was confirmed that, as discussed in August, Monecor would grant EBFL a subordinated loan for £300,000 as of September 30, the terms being the same as applied to the loan on 31 March 2000.  On 27 September 2000 a further meeting of the board of EBFL took place in London attended by the three A Directors.  Mr Bibian and Mr Boehi, who requested to be appointed to the board of EBFL, and another representative of Finacor were in attendance by telephone. There was continuing disagreement on the question of  their appointment and of the confidentiality agreement and Deed of Undertaking.  At the end of the meeting Mr Boehi said he would sign the subordinated loan agreement with a further funding of £300,000 by Monecor the following day in terms similar to the agreement of 31 March 2000.
29.	As noted by the judge, at neither of the Board meetings of EBFL in September 2000 nor at any subsequent meeting did Monecor utilise its powers under Article 15(3) of the Articles of Association to appoint its nominees as B Directors for EBFL. The result was that at none of the meetings of the Board of EBFL from August 2000 onwards was there a quorum.
30.	On 31 October 2000 Mr Pask sent an e-mail to Monecor’s Chief Finance Officer, Mr  Parekh, to Mr Bibian, and to Mr Arnaud Cornudet, a Director of Finacor, on the subject of EBFL’s October results and its funding position.  It stated that, because of deteriorating trading conditions, a further cash call of £250,000 minimum would be required from each shareholder by 1 December 2000.  He asked for confirmation that the further cash funding would be made available to EBFL on 30 November 2000.
31.	In a letter dated 2 November 2000 Mr Houldsworth replied that Monecor was unable to agree any further funding until it had seen EBFL’s accounts and asked  Mr Pask to supply the relevant figures for Monecor’s consideration. A similar request for further information was made by Mr Bibian by e-mail on 2 November.  On the same day Mr Pask replied.  He sent to Mr Houldsworth a summary of the projected regulatory capital showing that there was likely to be a deficit of £258,000 in December 2000 below the “ desired cushion” of £500,000.  He repeated his earlier request for immediate payment in case the market should decline dramatically and suddenly.  He pointed out the difficulties of providing more detailed information, as Finacor had failed to gain Viel et Cie’s agreement to the Deed of Undertaking required by the Shareholders’ Agreement.  In another e-mail to Mr Bibian Mr Pask suggested that the extra £250,000 be made available by Monecor to EBFL immediately to ensure that there was no breach of the FSA rules in November.
32.	On 3 November 2000 the next Board meeting of EBFL took place in London.  Mr Bibian and Mr Boehi participated by telephone link. There was further discussion at that meeting about the non-appointment of the Monecor nominees as directors of EBFL, about the alleged “ change of control” in Monecor and the absence of a signed Deed of Undertaking and the supply of additional information to justify the call. According to the minutes it was agreed that
“(iii) Monecor, subject to receipt of the Company level figures, would confirm its willingness to timely meet the Capital Call.”
33.	The deputy judge heard a considerable amount of oral evidence about what occurred in the meeting on 3 November.  He accepted the evidence of Mr Boehi, who attended the meeting by telephone, that he indicated that, provided that Monecor got the figures and was satisfied with them, Monecor would meet the call. He found that Monecor’s representatives made it clear in the meeting that, subject to their receiving and being satisfied with the further information they had requested, Monecor would meet the Capital Call in order to ensure that EBFL continued to comply with the requirements of the FSA.  The Deputy judge also found that at no time during the meeting did Monecor’s representatives object to the principle of the Capital Call or question the procedure being adopted by EBFL.  The discussion on this topic simply concerned  whether a Capital Call was necessary to EBFL at that time.
34.	On 3 November 2000 Euro Brokers advanced to EBFL the sum of £250,000 in answer to its share of the Capital Call.  The transfer was made at that stage in case November’s trading weakened dramatically and the funds were urgently required.  The money was placed on deposit initially pending the completion of the proper documentation.  
35.	On 6 November 2000 Mr Pask sent to Mr Bibian the company  profit and loss account, regulatory capital projections in the FSA format and a summary of the capital projections as previously sent on 2 November 2000.  On the same day Euro Brokers’ solicitors, Allen & Overy, wrote to Monecor’s solicitors, Baker & McKenzie, about a number of matters, including a request for confirmation that the confidentiality agreement would be executed by Viel et Cie by 10 November.  The final paragraph of the letter dealt with the Capital Call:
“12. Connected to this issue, we understand that at the meeting of 3rd November, Monecor representatives indicated that they would like to see some further financial information about the Capital Call that the Company had recently made to the shareholders, pursuant to clause 11(2) of the Shareholders’ Agreement. Although the Company has already provided sufficient details about this Capital Call, and complied with the terms of Clause 11(2), the EB Directors agreed to provide the Monecor representatives with some further details about the “top level” numbers involved in the Call. In this context, however, our clients would stress that this type of demand is an example of the operating difficulties caused by your client’s failure to procure Viel’s agreement to the requisite confidentiality agreement. ”
36.	The deputy judge observed that this was the first time an express reference was made in communications between the parties to clause 11(2) of the Shareholders’ Agreement.  On 14 November 2000 Baker & McKenzie replied to Allen & Overy’s letter. They did not dispute that a Capital Call had been made under Clause 11.
37.	On 9 November 2000 a meeting of Monecor’s directors (Mr Bibian, Mr Boehi, Mr Houldsworth and Mr Jessula) took place.  The request from EBFL for further funds was discussed.  The request from EBFL was noted.  A decision was made to postpone the transfer of funds to EBFL until “ final information on EBFL needs have been received.”
38.	Also on 9 November Mr Pask, who had heard nothing from Monecor, sent an e-mail to Mr Parekh asking for details of any progress.  Having received no reply he sent e-mails on 14 November both to Mr Parekh and Mr Bibian, asking what had happened to the money and noting that EBFL needed it that month to retain compliance with the FSA rules. Mr Parekh replied that he had heard nothing and that the matter was being handled by Mr Bibian.
39.	On 15 November Mr Bibian wrote to Mr Pask stating that there had been some difficulties about understanding the “spreadsheet on the Projected Funding Requirements” sent by Mr Pask with his letter of the 6 November and sought clarification.  The letter concluded 
“I would like to underline that as soon as we agree on this second point[clarification of the spreadsheet], we will send the cash through Monecor and sign the subordinated loan, and we understand that Maxcor will contribute to the same amount.”
40.	The Deputy judge observed that the letter from Mr Bibian indicated that he must have seen the correspondence which had taken place between the two firms of solicitors, including Allen & Overy’s letter of 6 November 2000 containing the reference to the Capital Call under clause 11(2)..
41.	Late in the afternoon of 15 November Mr Pask replied to Mr Bibian by e-mail pointing out that EBFL’s Capital Call was based on the same basis as previous cash calls made to each shareholder, namely to provide a buffer of £500,000.  Mr Pask enclosed details of his August call.  The e-mail concluded with a renewed request for the £250,000 to be forwarded immediately.  On 16 November Mr Pask was telephoned by Allen & Overy conveying a message from Baker & McKenzie that the Capital Call would not be met until further information had been provided.  Mr Pask responded by sending another e-mail to Mr Bibian telling him that he was not aware of any information still outstanding.  He requested confirmation that Mr Bibian had all the information that he required and that the money would be paid shortly.  He concluded
“I am concerned as you know that we will default with FSA’s capital requirements on 1 December since we are required to remain in excess throughout the month, and not just at month end”
42.	Mr Pask continued to press Monecor for payment.  He was told by Mr Jessula in a telephone conversation on 17 November that Finacor remain committed to funding EBFL, but that the provision of further capital to EBFL had caused friction between Finacor and Viel et Cie, who were in disagreement over which of them was responsible for making the payment. Mr Jessula proposed a compromise whereby Finacor would pay £100,000 in November with the balance of £150,000 paid in the first week of December. Mr Pask replied that he would let Mr Jessula know whether the proposal was acceptable.
43.	On 20 November Mr Pask e-mailed Mr Jessula saying that he was agreeable to the proposed instalment payments, if Monecor paid £100,000 now and the balance of £150,000 on 1 December, but this arrangement would necessitate two separate subordinated loan agreements in the standard form.  A copy of Mr Pask’s e-mail was sent to Mr Bibian, Mr Parekh and Mr Cornudet.  No reply was sent to Mr Pask confirming or denying the existence of an agreement in those terms.  The deputy judge held that it was apparent from what then ensued that Monecor acted on the basis that an agreement had been concluded.
44.	Mr Pask continued to press for payment of the Capital Call in accordance with the terms agreed to ensure continuing FSA compliance. In a telephone conversation on 22 November Mr Bibian confirmed to Mr Pask that the monies would be paid. There were further reminders by Mr Pask to Mr Bibian on 24 and 29 November.   On 30 November Euro Brokers completed the documentation  for the provision of  capital to EBFL by way of a subordinated loan facility in the sum of £250,000. On the same day Monecor paid the sum of £100,000 to EBFL under a Subordinated Loan Agreement, which recited that the loan was being advanced to put EBFL “in a position to meet certain regulatory capital adequacy requirements.”  Mr Pask e-mailed Mr Parekh suggesting that the additional sum of £150,000, which was due on the 1 December, could wait until the 4 December, if Mr Parekh was waiting for Finacor to transfer the funds.  Mr Parekh..replied that he agreed to transfer the equivalent of £100,000 in Euros, but stated that he needed the agreement of Mr Bibian for a further £150,000 to be transferred.  
45.	EBFL did not receive the balance of £150,000 by 4 December.  Mr Pask e-mailed Mr Parekh asking him for an explanation. He was told that the further £150,000 was waiting approval.  The balance was not paid to EBFL during the remainder of December 2000. 
46.	The judge found on the evidence that the responsibility for the failure to pay EBFL the remaining £150,000 by the extended deadline of 4 December was that of Mr Boehi.   He did not accept Mr Boehi’s protestations of ignorance as to why the payment was not made.
47.	In fact, EBFL’s trading was better than anticipated in November and revived during December 2000.  The judge accepted that Mr Pasks honestly believed until about 8 December that a £500,000 Capital Call was required and that there was a danger that EBFL could fall into breach of the capital adequacy requirement during the relevant period.  That evidence was supported by two expert accountants.  By letter to Mr Bibian dated 28 December 2000 Mr Pask referred to Monecor’s inexplicable failure to contribute the second payment of £150,000 notwithstanding repeated written requests and notified Monecor that it had become a “Declining Shareholder” and was obliged under clause 11(2) to sell all its shares to Euro Brokers.  On 5 January 2001 a letter signed by Mr Houldsworth was sent protesting that it was not its wish to transfer any of its shares in EBFL. The letter referred to a number of possible defects in the procedure adopted by EBFL in relation to Capital Call and sought clarification. Monecor transferred the sum of £150,000 to EBFL, who accepted it without prejudice to the purported exercise of the Declining Shareholder provisions in clause 11(2).  
48.	Proceedings were commenced on 26 February 2001 following a letter before action of 9 January 2001.  
The Capital Call Point
49.	The main ground of appeal is against the judge’s conclusion at para 69 that
“…Monecor and Euro Brokers agreed to treat Mr Pask’s notice of 31 October 2000 as a Capital Call under clause 11(2) of the Shareholders’Agreement. It then followed that the clause necessarily applied with all its incidents, including the right to purchase the shareholding of the "Declining Shareholder”in the event that payment of the full sum was not made by one of the shareholders in due time.” 
50.	On the appeal Monecor submitted that the deputy judge was incorrect to hold that the call made by Mr Pask on 30 October 2000 was a “Capital Call” within clause 11(2), because Monecor agreed to pay it and that the call, having been agreed to by the shareholders of EBFL, was an act of the Board of EBFL.
51.	Monecor repeated its contention that the Shareholders’ Agreement had provided a contractual mechanism, which required the Board of EBFL, and not the company or anyone else, to issue the notice making the Capital Call. The Shareholders’ Agreement provided for the composition of the Board of EBFL and the manner in which the Board was to be managed. A particular procedure was prescribed for making a Capital Call: there had to be a Board of EBFL, as defined by the Shareholders’ Agreement, which made a determination that a Capital Call was required and issued a notice to each shareholder specifying the amount required, the reasons and the timing. EBFL did not have a board constituted in accordance with the Articles or with the terms of the Shareholders’ Agreement, as there were no B directors appointed by Monecor on the EBFL Board at the material time. Monecor failed to appreciate that it could appoint B directors under Article 15(3). The A directors had incorrectly represented that they were entitled to prevent an appointment of B Directors until the Deed of Undertaking had been signed. 
52.	The contractual requirements had not been satisfied. A “Board resolution” to make a call was a condition of clause 11(2). There was no properly constituted Board of EBFL at the relevant time. The decision of an inquorate Board is a nullity. Mr Pask was not entitled to make the decision for the Board or to represent the Board.  It was essential that the decision to make a call should be by persons having directors’ access to all the company’s information. No audited figures had been produced. In brief, in the absence of a notice issued by the Board, no Capital Call had been made and Euro Brokers was not entitled to exercise the right in clause 11(2) to acquire the shares of Monecor in EBFL  
53.	In my judgment the deputy judge was entitled to reach the conclusion stated in paragraph 47 above.
54.	Under Article 15(3) of the Articles of Association Monecor had power to appoint its nominees as B directors of EBFL. So, if Monecor wished to have a formal resolution of the Board and a notice issued by it making a Capital Call, it was in their power to remedy that position. It did not do so. The failure to exercise the power was the result of Monecor being unaware of its entitlement and not as the result of any representation by the A Directors that they were entitled to prevent the appointment of B Directors until the Deed of Undertaking had been signed by Viel et Cie following a change of control.  
55.	By the time that the call was due for payment Mr Pask had supplied to Monecor all the information which had been requested on its behalf and which was reasonably needed to decide whether the call was justified or not. There was no contractual requirement that the making of the call was dependent on the production of audited figures.
56.	It was open to the deputy judge to hold that Monecor had agreed with Euro Brokers to pay £250,000 to increase the capital of EBFL, in order to meet its capital adequacy requirements, and that, by their conduct, Monecor and Euro Brokers agreed to treat the notice given by Mr Pask in his e-mail of 31 October 2000 as complying with clause 11(2). The parties had by their conduct agreed to proceed as if a “Capital Call” had been made by the Board of EBFL, as had been the course adopted in proceeding with the earlier capital calls and treating it as if there had been compliance with the contractual procedures. The October call could either be met by making the payment in full or it could be ignored. If it was ignored, the consequences stated in clause 11 would follow, even if Monecor failed to appreciate that. The requirement that the notice must be issued by the Board of EBFL arose from the Shareholders’ Agreement made between Monecor and Euro Brokers to regulate their relationship in EBFL.  There is nothing in the Shareholders’ Agreement or in the Articles of Association, which also constitute a contract regulating the relationship between the two shareholders in EBFL, to prevent the court from giving effect to the agreement reached between the parties. It was open to the parties to vary clause 11(2) so as to dispense with the requirement that the notice should be issued by the Board of EBFL. 
57.	The deputy judge applied the Duomatic principle, so called because its formulation by Buckley J in Re Duomatic [1969] 2 Ch 365 at 373C-D, following a review of the authorities, is familiar to Company Law practitioners in the context of the validity of actions by, or on behalf of a company, without formal authorisation by a resolution of a properly constituted and duly convened board meeting-
“…where it can be shown that all shareholders who have a right to attend and vote at a general meeting of the company assent to some matter which a general  meeting of the company would carry into effect, that assent is as binding as a resolution in general meeting would be.”
58.	 As Oliver J said in Re New Cedos Engineering Co Ltd [1994] 1BCLC 797 at 814f-h-
“ …the ratio of Buckley J’s decision is that where that which has been done informally could, but for an oversight, have been done formally and was assented to by 100% of those who could have participated in the formal act, if one had been carried out, then it would be idle to insist upon formality as a pre-condition to the validity of the act which all those competent to effect it had agreed should be effected.”   
59.	It is submitted by Monecor that the Duomatic principle only applies to internal corporate governance and to whether an act can be described as an act of the company. The acts of the would-be Monecor directors of EBFL could not be validated by applying the principle, as the issue is whether a contractual requirement (i.e. clause 11(2) ) has been satisfied. The contract provides that the Capital Call is to be made by the issue of a notice by the Board of EBFL, not by an individual employee, such as Mr Pask, or by a group of individuals, such as the A directors and some directors of Monecor. A contract had been made that a particular decision had to be taken in a certain way.
60.	The response of Euro Brokers is to point out that the Articles of Association regulating the internal governance of a company are themselves a contract between the members, under section 14 of the Companies Act 1985 and that the Shareholders’ Agreement together with the Articles, over which it takes precedence under clause 26(2), regulate the kind of acts with which the Duomatic principle is concerned.
61.	In my judgment, the deputy judge correctly applied the Duomatic principle to this case. It is true that, in the absence of any B directors on the Board of EBFL, there could be no quorum at a meeting of the Board and so the Board could not issue a notice to each shareholder under clause 11(2). In the case, however, of a Board which is unable to exercise its powers, “there must be some power in the company to do itself that which under other circumstances would be otherwise done”: see Barron v. Potter [1914] 1 Ch.895 at 903 per Warrington J. That power is exercisable by the agreement of all the shareholders.
62.	I see nothing in the circumstances of the present case to exclude the Duomatic principle. It is a sound and sensible principle of company law allowing the members of the company to reach an agreement without the need for strict compliance with formal procedures, where they exist only for the benefit of those who have agreed not comply with them. What matters is the unanimous assent of those who ultimately exercise power over the affairs of the company through their right to attend and vote at a general meeting. It does not matter whether the formal procedures in question are stipulated for in the Articles of Association, in the Companies Acts or in a separate contract between the members of the company concerned. What matters is that all the members have reached an agreement. If they have, they cannot be heard to say that they are not bound by it because the formal procedure was not followed. The position is treated in the same way as if the agreed formal procedure had been followed.  The particular context for the application of the principle in this case is that clause 11(2) of the Shareholders’ Agreement requires the notice to be issued by the Board. That is a formal corporate procedure. It is irrelevant that the requirement is in a separate agreement entered into by the shareholders in EBFL, rather than in the Articles. The shareholders entered into that agreement for the very same purpose as the contract between them constituted by the Articles, namely to regulate the relationship between the shareholders in the governance of EBFL. As Neuberger J said in Re Torvale Group Ltd [2000] BCC 626 at 636C-D-
“ The articles constitute a contract, and if the parties to that contract, or if the parties for whom the benefit of a particular term has been included in that contract, are happy unanimously to waive or vary the prescribed procedure for a particular purpose, then…..it seems to me that there is no good reason why it should not be capable of applying.” 
63.	I fail to see why the agreement of the only two shareholders in EBFL to meet a call for capital without the need for a notice issued by the Board of EBFL should not be as binding on them as if the call were made pursuant a notice issued by the Board, which would have happened had there been communication between the directors appointed by the members at a formal meeting and resolution of a properly constituted Board. When the members of EBFL decided to respond to the Capital Call it did not matter to them that it had been communicated by Mr Pask rather than by the Board.   
Call in excess of Minimum Regulatory Capital Requirement
64.	Another ground of appeal criticises the deputy judge’s conclusion in para 56 that
“….the buffer of £500,000 agreed by the directors and the shareholders of EBFL constituted part of the capital adequacy requirements applicable to the business operations of EBFL at the relevant time within the meaning of Clause 11(2). The Board had power to issue a notice under the clause if at any time funding was required to maintain the buffer.”
65.	It is contended by Monecor that clause 11(2) was only intended to operate when EBFL fell below the FSA’s minimum regulatory capital requirement.
66.	The deputy judge rightly rejected this contention. There is no reference in clause 11(2) to the FSA or to its requirements or to limiting the amount of the Capital Call to the difference on any particular date between the actual and the required regulatory capital of the company.
67.	There was evidence before the deputy judge that it is standard practice for companies in this industry to provide a buffer above the minimum regulatory capital  to enable the company to continue to operate the business, to absorb losses which might occur and to avoid becoming commercially insolvent. It is necessary to maintain the capital above the stipulated level in order to ensure that the regulatory requirements are not breached. For that purpose it is necessary to make the kind of predictions and forecasts made by Mr Pask before deciding whether to issue a “Capital Call.”  There was also evidence that the parties had accepted the buffer of £500,000 as a reasonable figure. 
Awareness of Request for Further Funding  
68.	 Monecor appeals against the judge’s conclusion in para 67 that 
	“..on the facts there is no credible evidence that the parties were intending to make a Capital Call outside the Shareholders’ Agreement. Clause 11 was the only basis for making a Capital Call under the Shareholders’ Agreement. Accordingly, notwithstanding Mr Mowschenson’s arguments, I do not consider that the agreement between the two shareholders to proceed to raise additional funds for the purposes of meeting EBFL’s capital adequacy requirements can amount to anything other than a Capital Call within the meaning of the Shareholders’ Agreement. All the relevant information which had been requested by Monecor to enable it to decide whether the Call was needed had been supplied by about 16 November even though it may not have been seen by Mr Boehi. I find as a fact that both Mr Boehi and Mr Houldsworth were aware that the request for further funding was being made under the Shareholders’ Agreement…Mr Bibian reached a similar understanding.”

69.	It is contended by Monecor that, although it was agreeable to contributing 50% of a call in response to Mr Pask’s email, it never treated the call as a Capital Call made under clause 11(2) of the Shareholders’ Agreement.
70.	I would reject this submission. Monecor in fact paid the first tranche of £100,000 to EBFL when the call was made and agreed to pay the balance requested to make up the total of £250,000, being Monecor’s half share. There was ample evidence both from the witnesses and in the contemporaneous documents to support the judge’s findings of fact and his overall conclusions that Monecor was aware that the request was a “Capital Call” being made under clause 11(2), attended by all the consequences stated  in that sub-clause in the event of a failure to comply with the call.   
Waiver and Estoppel
71.	The deputy judge concluded in para 80 that, if he was wrong in the views he had expressed on the application of the Duomatic principle, by its conduct Monecor waived the procedural defect in the Capital Call and the right to insist on strict compliance with the issue of the notice by the Board of EBFL. It thereby lost the right to challenge the validity of the notice. No objection was in fact raised until after Euro Brokers had exercised its rights under clause 11(2).
72.	He also held that Monecor was estopped from taking any formal objection to the validity of the Capital Call by the detrimental reliance of Euro Brokers, in making its payment of £250,000 to EBFL, on the conduct of Monecor  leading it to believe that it was not insisting on strict compliance with clause 11(2) and so did not procure the Board to issue a Capital Call free from technical defects. In his view it would be both unjust and unconscionable for Monecor to resile from its position and claim that the procedure adopted by EBFL was a nullity.
73.	It is unnecessary to express any view on the arguments under this head as, for the reasons given above, I agree with the conclusion that a valid and effective Capital Call was made by EBFL under clause 11(2).
Exercise of Discretion
74.	In my judgment, there are no grounds for interfering with the deputy judge’s exercise of his discretion to order specific performance of the obligation to transfer the shares in EBFL to Euro Brokers. He was entitled to conclude that there was no tricky or unconscionable conduct on the part of Euro Brokers in relation to the making of the Capital Call which disentitled it to a decree of specific performance. That is the remedy which would ordinarily be available to compel the performance of an obligation to transfer shares in these circumstances. There was no error of principle in the exercise of his discretion. It is impossible to say that he was plainly wrong in ordering specific performance.
Conclusion
75.	I would dismiss the appeal
Lord Justice Waller
76.	I agree
Lord Justice Pill
77.	I also agree.
Order:	appellant's appeal from order of Mr Leslie Kosmin QC dated 9.5.02 dismissed;  order affirmed save that stay provided for in para 15 be lifted forthwith;  leave to appeal to the House of Lords refused;  appellant to pay respondent's costs of the appeal on the standard basis, to be assessed if not agreed.
(Order does not form part of the approved judgment)