Case No: A3/2016/0780
Neutral Citation Number: [2017] EWCA Civ 324
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE CHANCERY DIVISION
Mr Richard Spearman QC sitting as a Deputy Judge of the Chancery Division
Lower Court NC No: [2015] EWHC 3718 (Ch)
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 05/05/2017
Before:

LORD JUSTICE BEATSON
LORD JUSTICE LINDBLOM
and
LORD JUSTICE HENDERSON

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Between:

	(1) COSMETIC WARRIORS LIMITED
(2) LUSH COSMETICS LIMITED	Appellants
	
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	(1) ANDREW GERRIE	Respondents	
(2) ALISON HAWKSLEY

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Mr Robin Hollington QC and Mr Mark Vinall (instructed by Lewis Silkin LLP) for the Appellants
Mr Simon Salzedo QC and Mr Kyle Lawson (instructed by Taylor Wessing LLP) for the Respondents

Hearing date: 22 March 2017

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Judgment
Lord Justice Henderson: 
Introduction 
1.	This appeal concerns the true construction of shareholders’ rights of pre-emption contained in the Articles of Association of the two claimant companies, Cosmetic Warriors Limited and Lush Cosmetics Limited.  The Articles of each company are in materially identical form.  Article 5 states that no share in the company may be transferred except in accordance with the provisions which it lays down.  In short, the other shareholders are given the opportunity to purchase the relevant shares at a “prescribed price”, which is to be determined in default of agreement by two independent chartered accountants.  To the extent that the shares are not taken up at that price by the other shareholders, or sold at that price by the company to external purchasers of whom or which it approves, the vendor then has a 90-day period during which he may transfer them “to any person at any price (not being less than the prescribed price)”. 
2.	The defendants, Andrew Gerrie and his wife Alison Hawksley, are minority shareholders in each company.  Mr Gerrie is the sole owner of 11.62% of the ordinary shares in each company, while he and Ms Hawksley own a further 10.38% of such shares jointly.  Thus their combined stake in each company is 22%. 
3.	The other main shareholders in each company are Mark Constantine and his wife Margaret Constantine, with holdings of (approximately) 38% and 24% respectively.  There are also four other shareholders with much smaller holdings, ranging from about 6% to under 1%.  Accordingly there is no single majority shareholder, although Mr and Mrs Constantine between them own approximately 62% of the shares.  
4.	The total number of ordinary shares in issue in each company is 8,219. There are no other classes of shares.  In numerical terms, the principal shareholdings are as follows:
Mark Constantine       	3,131	
Margaret Constantine 	2,000	
Andrew Gerrie	955	
Andrew Gerrie and Alison Hawksley	853	
5.	Mr and Mrs Constantine were the founders of the Lush Cosmetics business in 1994. It originally operated from a shop in Poole, Dorset.  Mr Gerrie joined the then operating company in August 1994, initially as an investor, but within a few months he also became a full time executive. The business grew and prospered, and in 2001 a corporate re-structuring took place as a result of which the first claimant became the owner of the intellectual property rights associated with the “Lush” brand of cosmetics, while the second claimant became the new holding company of the retail section of the wider group.  The Lush group manufactures and retails hand made cosmetics, with an emphasis on the use of natural ingredients and the avoidance of animal testing.  It currently has more than 100 outlets in the UK and approximately 800 overseas, in 49 countries.  
6.	In 2014, relations between Mr Constantine and Mr Gerrie deteriorated, and for various reasons Mr Gerrie decided that it was time for him to leave the group. On 10 October 2014, he and Ms Hawksley served a single combined transfer notice in respect of their shareholdings in the first claimant, and a similar notice in respect of their holdings in the second claimant.  It is accepted by the companies that these notices were validly given, and triggered the pre-emption provisions of Article 5. No point is taken that separate notices should have been served by Mr Gerrie for his sole shareholdings, and by him and Ms Hawksley for their joint holdings.  In each letter, they gave notice of their desire to sell the entirety of their shareholdings, and also gave notice pursuant to Article 5B(a) that, unless all of the transfer shares were sold pursuant to Article 5, none should be so sold. 
7.	Four days later, on 14 October 2014, Mr Gerrie received a letter which purported to terminate his employment with all companies within the Lush group with immediate effect.  Mr Gerrie subsequently began proceedings for unfair dismissal, and on 23 July 2015 the Southampton Employment Tribunal found (by consent) that he had been unfairly dismissed, and ordered Lush Limited (a subsidiary of the second claimant) to pay him the statutory maximum of £87,710 by way of compensation. 
8.	The parties were unable to agree the “prescribed price” for Mr Gerrie and Ms Hawksley’s shares, or the basis upon which that price was to be determined by the independent accountants appointed pursuant to Article 5C. This disagreement led to the issue by the claimants of a Part 8 claim in March 2015, seeking determination of a number of agreed questions arising from the pre-emption provisions in Article 5.  By the date of the trial, which took place before Mr Richard Spearman QC, sitting as a deputy High Court judge of the Chancery Division, on 27 November 2015, the parties had reached agreement on a summary list of six issues for determination.  In his thorough and careful reserved judgment, which he handed down on 18 December 2015, the judge found in favour of the defendants on all issues, with the exception of issue 2 which did not arise if they were successful on issue 1.  
9.	The claimants now appeal to this court, with permission granted by David Richards LJ, in respect of the (original) issues 1 and 5.  If they succeed on issue 1, the claimants also ask this court to decide issue 2 in their favour. 
10.	In outline, the three live issues are as follows:
(1)	Issue 1: whether the accountants are required to conduct their valuations of the shares to be transferred on the basis of (a) a pro rata proportion of the value of the whole equity of each company, or (b) the price that might be achieved for the Transfer Shares as between a willing buyer and a willing seller of that block of shares, having regard in particular to its status as a minority shareholding; 
(2)	Issue 2: if the answer to the first question is (b), whether the accountants are required to value the shares owned by Mr Gerrie alone, and those owned by him and Ms Hawksley jointly, (a) separately; (b) together; or (c) in accordance with such basis of valuation as they consider appropriate; and 
(3)	Issue 3 (the original Issue 5): whether the “any person” to whom the vendor may transfer shares, if they are not taken up by the other shareholders, is (a) restricted to natural persons (so as to exclude a corporate transferee); or (b) not so restricted.
The provisions of Article 5
11.	Each claimant company adopted new Articles of Association on 18 May 2001.  Article 1(a) provides that the Regulations contained in Table A in the Schedule to the Companies (Tables A to F) Regulations 1985, as amended, shall  apply to the company “save in so far as they are excluded or varied hereby”.
12.	Article 5 provides, in material part, as follows:
“5. A. No share in the Company shall be transferred except in accordance with the provisions of this clause …
B.(a)  any member who desires to sell, transfer or otherwise part with any share or shares or any interest therein (the vendor) shall give to the Company notice in writing of such desire (a Transfer Notice) which shall constitute the Company the Vendor’s agent for the sale of the share  or shares specified therein (the Transfer Shares) in one or more lots at the discretion of the Directors at the prescribed price (as hereafter defined) and which may, (except in the case of a Transfer Notice given or deemed to have been given under Articles 5B(b) below) contain a provision that unless all the Transfer Shares are sold pursuant to this Article none shall be so sold and any such provision shall be binding upon the Vendor and any applicant for Transfer Shares.
(b) If any member shall die or become bankrupt or go into liquidation or being an employee of the Company shall cease to be so employed for any reason the Board of Directors will have an option, exercisable at their discretion, to give notice that on the happening of that event the member shall be deemed to have given a Transfer Notice in respect of the whole of his or its shares in the Company to which the provisions of this clause shall apply and be deemed the Vendor in respect thereof.
C. The “prescribed price” shall be such sum per share as shall be agreed between the Vendor and the Company failing which it shall be the median price of the prices as determined and certified in writing by two independent chartered accountants as being in their opinion the fair value thereof as between a willing buyer and a willing seller valuing the Company on a going concern basis such accountants to be nominated by agreement between the Vendor and the Company or in default of such agreement by the President for the time being of the Institute of Chartered Accountants in England and Wales and if so nominated the said chartered accountant when determining and certifying the fair value of the Transfer Shares as aforesaid shall act as an expert and not as arbitrator but without incurring liability to the Vendor or any Member and his certificate shall be final and binding on the Vendor and the other Members.
D. Upon the prescribed price being either agreed upon or determined in accordance with Article 5C above (as the case may be) the Company shall forthwith upon receipt of written notice inform the Vendor and other Members of the number of the Transfer Shares as specified in the Transfer Notice and the prescribed price thereof and invite each such Member to apply in writing to the Company within 180 days of the date of that notice (the Application Period) for such maximum number of the Transfer Shares (being all or any thereof) as he shall specify in such application.
E. With [sic] the Application Period the Vendor may by written notice to the Company (save where the prescribed price has been agreed by the Vendor or a Transfer Notice has been given or is deemed to have been given under Article 5B(b) above) withdraw the Transfer Notice. 
F. Immediately after the Application Period the Company shall allocate the Transfer Shares (or so many of them as shall be applied for as aforesaid) to and amongst those Members who have made applications as aforesaid and in the case of competition pro rata between them according to the number of shares of which they are registered as holders save that no applicant shall be obliged to take more than the maximum number of shares applied for by him as aforesaid and the Company shall within five working days after the Application Period give notice of such allocations (the Allocation Notice) to the Vendor and to those Members to whom the shares have been allocated …
G. The Company shall also be entitled to sell to any person or Company of whom or which in its absolute discretion it shall approve within the said period of five working days after the Application Period at the prescribed price any of the Transfer Shares for which Members shall not have applied as aforesaid and any shares so sold shall for the purposes of this Article be deemed to have been included in an Allocation Notice.
H. The Vendor shall be bound to transfer the shares comprised in the Allocation Notice to the purchasers named therein at the time and place therein specified … 
L. During a period of ninety days after the expiry of the time for service of an Allocation Notice the Vendor shall be at liberty to transfer to any person at any price (not being less than the prescribed price) any of the Transfer Shares which he has not become obliged to sell under the foregoing provisions.”
13.	Before proceeding further, a number of preliminary points about the structure and wording of Article 5 may be noted.  
14.	First, the effect of serving a Transfer Notice under Article 5B(a) is to constitute the Company the Vendor’s agent for the sale of the Transfer Shares, and it is for the Board to determine at its discretion whether the shares are to be offered in one or more lots. Furthermore, unless the Transfer Notice contains a provision (as it did in the present case) that all of the Transfer Shares must be sold, it is open to the Board to sell only some of them.  Apart from the ability to specify that all of the shares, or none of them, must be sold, the Vendor has no control over the lots in which they are offered for sale by the Board.
15.	Secondly, because Mr Gerrie served his Transfer Notice shortly before the termination of his employment, the provisions of Article 5B(b) do not apply. If they had applied, the Board would have had the option of triggering a forced sale of all of Mr Gerrie’s shares (including his joint interest in the shares he owned with Ms Hawksley), and he would have been unable to prevent a sale of only part of his holdings (because of the words of exception in Article 5B(a)).
16.	Thirdly, the “prescribed price” is defined in Article 5C as such sum “per share” as the two independent chartered accountants shall (in the absence of agreement) determine and certify “as being in their opinion the fair value thereof as between a willing buyer and a willing seller valuing the Company on a going concern basis”. As a matter of grammar, the “fair value thereof” must in my opinion be the fair value “per share” which the accountants have to ascertain.  That value must be ascertained “as between a willing buyer and a willing seller”, with the Company as a whole being valued “on a going concern basis”. 
17.	Fourthly, once the prescribed price has been fixed, the other members have a period of 180 days within which to apply to purchase all or any of the Transfer Shares at that price, and it is also open to the Vendor to withdraw the Transfer Notice. In the event of over-subscription for the shares, the applications will be scaled down pro rata to the applicant members’ existing shareholdings. In the event of under-subscription, the Company has the right (but not the duty) to sell any of the surplus shares at the prescribed price to any person or company of its choice. 
18.	Finally, if any shares are left unsold at the end of the foregoing process, the Vendor may during a further period of 90 days transfer any of the remaining shares “to any person” for a price which is not less than the prescribed price.
Principles of construction
19.	There is no disagreement between the parties about the principles which the court should apply in construing the articles of association of a company. The articles are a statutory contract between the members, and between each member and the company.  They must therefore be construed in accordance with the ordinary principles that apply to the interpretation of any written contract.  Those principles have been discussed and refined in many cases at the highest level, to which it is unnecessary to make detailed reference.
20.	Like the judge, I find it helpful to refer to the approach endorsed by Lord Neuberger PSC in Arnold v Britton [2015] UKSC 36, [2015] AC 1619, at [15] (omitting citations):
“When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to “what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean”, … And it does so by focusing on the meaning of the relevant words … in their documentary, factual and commercial context.  That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provision of [the contract], (iii) the overall purpose of the clause and the [contract], (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party’s intentions.”
21.	More recently, in Wood v Capita Insurance Services Limited [2017] UKSC 24, [2017] 2 WLR 1095, in which judgment was delivered on 29 March 2017, one week after the hearing before us, the Supreme Court has confirmed that the principles of contractual interpretation stated in Arnold v Britton did not involve any departure from the guidance previously given by the Supreme Court in Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900: see the judgment of Lord Hodge JSC (with whom the other members of the court agreed) at [8] to [15]. 
22.	With reference to the “unitary exercise” of interpretation referred to by the Court in both Arnold and Rainy Sky, Lord Hodge said this:
“12. This unitary exercise involves an iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated: the Arnold case, para 77 citing In Re Sigma Finance Corpn [2010] 1 All ER 571, para 12, per Lord Mance JSC. To my mind once one has read the language in dispute and the relevant parts of the contract that provide its context, it does not matter whether the more detailed analysis commences with the factual background and the implications of rival constructions or a close examination of the relevant language in the contract, so long as the court balances the indications given by each. 
13. Textualism and contextualism are not conflicting paradigms in a battle for exclusive occupation of the field of contractual interpretation.  Rather, the lawyer and the judge, when interpreting any contract, can use them as tools to ascertain the objective meaning of the language which the parties have chosen to express their agreement.  The extent to which each tool will assist the court in its task will vary according to the circumstances of the particular agreement or agreements.”
23.	As to admissible extrinsic facts of which it is legitimate to take account when construing the articles of the claimant companies, the judge at [26] and [27] noted that Mr Salzedo QC for the defendants accepted that reliance could only be placed on matters which were public knowledge derived from the companies’ annual returns.  On this footing, regard could be had to the fact that each company is essentially a small company, that it has always had only one class of share, and that there has only ever been a small number of shareholders since its creation.  Mr Hollington QC for the companies agreed with this approach, and so do I. 
24.	Against this background, I now turn to the three issues which we have to determine.
Issue 1: the correct basis of valuation 
25.	The judge discussed this issue at [63] to [81] of his judgment, deciding that the accountants were required to conduct their valuations as it is put in paragraph 1.1 of the order under appeal, that is to say “on the basis of a pro rata proportion of the value of the whole equity of each company”. 
26.	The first step in the judge’s reasoning was that the definition of the “prescribed price” in Article 5C is concerned with fixing a price per share, by reference to “the fair value thereof”. The subject matter of the “thereof” in this wording is an individual share, and not the Transfer Shares as a whole. The words “the fair value per share” could be substituted for “the fair value thereof” without any significant alteration of meaning, whereas the same would not be true if the words substituted were “the fair value of the Transfer Shares”.  Nor did the judge see any tension between this interpretation and the wording of the later part of Article 5C which provided that when “determining and certifying the fair value of the Transfer Shares as aforesaid” the accountants were to act as experts, because the exercise of determining and certifying the fair value of each share would produce a result which could sensibly be described (compendiously) as “the fair value of the Transfer Shares”. What this wording contemplates is simply that the fair value of the Transfer Shares “can be derived by adding up the fair value of each individual share”: see the judgment at [66]. The judge added that if, contrary to his view, there was an inconsistency between the first and third parts of Article 5C, precedence must be accorded to the first part (which he regarded as substantive) in comparison to the third part (which he regarded as ancillary or subordinate): see the judgment at [67]. 
27.	The judge next said that he found no assistance in the requirements that the “fair value” should be (i) that which applies “as between a willing buyer and a willing seller”, and (ii) derived from “valuing the Company on a going concern basis”.  Effect could be given to these expressions whether what had to be valued was each individual share, or the Transfer Shares as a block. In the judge’s view, their purpose was to make clear that, in conducting the valuation exercise, the notional sale should not be approached on the basis that it is a forced sale, or on the basis that what is being sold is a shareholding in a company that is being broken up: see the judgment at [68].
28.	The judge then turned to what I would regard as an important point, namely that when the accountants are required to calculate the prescribed price “they will not know the size(s) of the block(s) that will ultimately be transferred or what significance they will or may have in the hands of the transferee (e.g. by creating a majority shareholding)”. The judge accepted (as would I) that this result follows from the wider provisions of Article 5 in clauses 5B(a), 5D, 5F, 5G and 5L: see the judgment at [70]. 
29.	The judge continued:
“71. In this regard, it is important to bear in mind that Article 5(C) must be interpreted in such a way that it can be applied to the range of circumstances which are contemplated by those provisions.  In the event that the Accountants are called upon to perform a task, it must be one that they can sensibly be expected to carry out.  One possibility is that the Vendor does not choose to specify in the Transfer Notice that unless all the Transfer Shares are sold none shall be sold. Another possibility is that the Directors of the Company decide that the Transfer Shares should be sold in a number of lots.
72. It seems to me that it would be difficult, if not impossible, to require the Accountants to fix a price for “the Transfer Shares”, when, in circumstances such as these, they would not know how many shares are ultimately going to be transferred, or in what lots, or in respect of how many shares the offer of sale may be taken up, or when, or by whom.”
30.	The judge then dealt with certain arguments about the possible existence of different classes of shares, commenting at [74] that this could add an additional layer of uncertainty to those already discussed about the eventual destination of the Transfer Shares, thereby providing some extra weight to the defendants’ case on construction.
31.	The judge accepted that, at least in some circumstances, the prescribed price might well differ depending upon whether it is calculated on a pro rata basis, or on what he termed “the block basis”, i.e. on the basis of the price that might be achieved for all the Transfer Shares as between a willing buyer and a willing seller of that block of shares.  If, for example, the Transfer Shares comprised a minority shareholding, calculation of the prescribed price on the pro rata basis might well be higher than if it were calculated on the block basis. Conversely, if the Transfer Shares comprised a majority shareholding, the opposite might well be true: see [76].  
32.	The judge also accepted (at [77]) that the effect of using the pro rata basis in relation to a minority shareholding might be to hinder or prevent the vendor from disposing of any remaining shares at the end of the process under Article 5L, because he could not offer them for less than the (artificially high) prescribed price per share. The judge continued (ibid): 
“Again, however, it seems to me that this is only part of the picture, because, on that premise, the Prescribed Price will have been fixed at a level which is higher than the price that the Vendor could expect to obtain on the open market, such that anyone who wishes to exercise the pre-emption rights for which those antecedent paragraphs make provision will have been obliged to pay a price for any Transfer Shares that they wish to buy that is higher than the open market price. One possibility is that this will be to the advantage of the Vendor, because the persons who enjoy those pre-emption rights will wish to exercise them notwithstanding the level of the Prescribed Price.  To the extent that this advantage does not materialise, that is not the end of the matter, because if the Vendor still wishes to dispose of his or her shares, the Article 5 process can be repeated.”
33.	It may reasonably be objected that the possibility of repeating the Article 5 process would be unlikely to alleviate the problem identified by the judge at the end of [77], because the accountants would again be obliged to value the Transfer Shares on the same pro rata basis as before. On the other hand, it is always possible that, in the light of experience, the parties might be able to reach agreement on a price second time round, and it is also possible that there might be some scope for different instructions to be given to the accountants on matters which they are to take into account.  A further answer might be that the real purpose of Article 5L is not so much to provide the vendor with an opportunity to dispose of unsold shares to an outsider, as to provide an incentive for the other shareholders to purchase all of the Transfer Shares at the prescribed price, thereby ensuring that they remain in friendly hands.  And finally, even if the Transfer Shares were valued on the block basis, similar problems might be caused if the vendor were a majority shareholder, but he was left with a small residue of unsold shares worth less than the prescribed price.  As the judge said in [78], “no solution is perfect”.  Whichever basis of valuation is adopted under Article 5C, it is “likely to produce an element of swings and roundabouts for each side”.  
34.	Although the judge was referred to a number of decided cases on differently worded articles of association, and he reviewed them at some length at [29] to [48], he reached his ultimate conclusion in favour of the defendants without having to rely on authority.  He did, however, consider the reasoning of Lloyd J in Pennington v Crampton [2003] EWHC 2691 (Ch), [2004] BCC 611, and the observations of Oliver LJ in Re Bird Precision Bellows Ltd [1986] Ch 658, to be helpful, because in his view they related to provisions which are comparable to Article 5.
35.	In the Bird Precision Bellows case, the question arose in the context of an order fixing the fair price at which the majority shareholders were to buy the petitioners’ shares after the hearing of an “unfair prejudice” petition under section 75 of the Companies Act 1980.  It is common ground that such cases give rise to different considerations from those which apply to a provision in the articles of association such as Article 5. In the course of his judgment, however, Oliver LJ discussed, obiter, a point on the articles of the company in that case which had been taken by counsel for the petitioners.  The articles contained a pre-emption provision in ordinary form, save that the auditor was required to fix the fair value of any share to be transferred, and there was a specific provision that “The transfer notice may include two or more shares, and in such case shall operate as if it were a separate notice in respect of each”. 
36.	In relation to that unusual wording, Oliver LJ said at 675:
“It is of course true that in the instant case the articles … did have this extraordinary provision for each share to be treated separately, as if it had been comprised in a separate transfer notice.  As I have said, one does not have an express provision to value the company’s shares as a whole, but one has an express provision that, if a transfer notice is given in respect of more than one share, it is to be treated as a separate notice in respect of each.  So the valuer has, theoretically, to go through the process of ascertaining the value separately in relation to each share concerned, and I am bound to say that it is difficult to see then how there could be any room for any account to be taken of whether the shares comprised in a transfer notice as a whole formed a minority or a majority holding.  Without expressing any concluded view on the matter, I am very much inclined to the view that the valuation of a share under the pre-emption articles in this case ought to be on the same basis as that held by this court to be appropriate in Dean v Prince [1954] Ch. 409, and that if the valuer was unwise enough to give his reasons for valuation, and to indicate that in those reasons he had taken into account the fact that all the shares which were being offered by all the deemed separate transfer notices together constituted a majority or minority holding, I think his valuation could be upset.”
37.	In Pennington v Crampton, the wording of the relevant article referred consistently to the transfer of “any share” or “a share” or “the share” in the singular, and Lloyd J was influenced by this fact “above all” in concluding that the fair value to be fixed by the auditors was “a value per single share”, thereby producing a figure which applied consistently “whether the block offered is over 50%, is between 25 and 50%, or is less than 25% of the issued share capital, whatever may be the size of the holding of any likely buyer and whatever may be the number of shares that the buyer chooses to take up”: see the judgment at [129] to [130].
38.	In arguing that the judge reached the wrong conclusion on this issue, Mr Hollington submitted that in construing articles of the present kind English law starts with a presumption in favour of a construction which puts a value on the shareholding which it would have in the real world, i.e. a value which takes into account its status as a minority shareholding, over a construction which puts an artificial value on it based solely on the value of the company as a whole.  He submits that this is no more than common sense, because in a business context parties do not usually envisage artificial exercises.  So, for example, in Howie v Crawford [1990] BCC 330, where the managing director of a company held 40% of the shares, and when he ceased to work full time for the company a clause of his service agreement took effect which required his shares to be offered to the existing members in the proportions of their shareholdings who would then have to pay for such shares “a fair market price”, to be determined by arbitration in the event of disagreement, Vinelott J held on an appeal against the award of the arbitrator that he had erred in law in holding that on the true construction of the agreement the expression “the fair market price” meant 40% of the fair value of the net assets of the company.  
39.	At 332-333, Vinelott J said:
“The market price of an asset is the price which that asset will fetch in the open market between a willing vendor and a willing purchaser.  If the asset is a holding of shares in a private company the market price will normally, if not invariably, depend upon the proportion of the shares of the company comprised in the holding and on any special rights or restrictions contained in the articles of association of the company as well as on the value of the net assets of the company and its profit and dividend record.  The addition of the word “fair” adds nothing except to remind the valuer that the market value must be ascertained on the assumption that there is a willing vendor and a willing purchaser, that there is a fair market and that no one would be excluded from bidding in it.”
40.	Turning to the language of Article 5, Mr Hollington emphasises that in Article 5B(a) it is “the Transfer Shares” which are to be sold by the company at the prescribed price. Consistently with this, in the latter part of Article 5C, the task of the chartered accountants is described as “determining and certifying the fair value of the Transfer Shares”.  These are strong indications, he submits, that the shares have to be valued as a block, and not on a pro rata basis derived from the value of the company as a going concern. He explains the words “such sum per share” in the definition of the “prescribed price”, at the beginning of Article 5C, on the basis that once the fair value of the block of shares has been ascertained, it then needs to be expressed as a value per share precisely because there is no certainty that the entire holding will be sold to the same purchaser.  As to the words “the fair value thereof”, in the same definition, Mr Hollington was at first inclined to accept, in answer to a question from the Bench, that the word “thereof” read in isolation referred back to “such sum per share”, but in his submissions in reply he argued that  the word “thereof” should be taken as referring to “the Transfer Shares” because it was describing the process of valuation by which the prescribed price was to be arrived at, rather than the prescribed price itself.  Only thus, he submitted, would there be harmony between “the fair value thereof” in the definition, and “the fair value of the Transfer Shares” later in Article 5C.  Mr Hollington further submitted that the direction to ascertain the fair value “as between a willing buyer and a willing seller valuing the Company on a going concern basis” reads more naturally, and is easier to apply, if that which has to be valued is the Transfer Shares as a block rather than each individual share. 
41.	Mr Hollington also drew our attention to the compulsory transfer provisions in Article 5B(b), arguing that the parties were unlikely to have intended a pro rata valuation of the shares in a situation where the sale might have been triggered by, for example, the dismissal or bankruptcy of a member.  That would, indeed, have been the position in the present case, if Mr Gerrie had not served his Transfer Notice before his employment was terminated.  Mr Hollington referred us to Re Castleburn Ltd (1989) 5 BCC 652, where a similar provision had to be construed by the court in a context where the holder of 44% of the issued shares in the company was removed as a director after falling out with the other shareholders, and he complained that the company’s auditors had wrongly valued his shares as a block, with a discount for his minority holding.  I found this case of little assistance, however, because the relevant article required the auditors to ascertain “the fair value in respect of such shares”, notwithstanding anything to the contrary contained in the articles. As His Honour Judge Paul Baker QC said, at 656:
“It is true that there may be an issue as to the precise mode of valuation where each share is to be regarded singly, but in a case where the sale notice covers all the relevant shares and it is all such shares which are to be valued, it is the block, in my judgment, which has to be valued.”
42.	Mr Hollington developed his submissions attractively, but on balance I find them unconvincing and consider that the judge reached the right conclusion on this issue.  
43.	In the first place, I do not think it is right to start with any presumption one way or the other.  Particularly in the case of a private company with few members, where the relationship between the key shareholders may well be one of quasi-partnership, it is far from obvious that valuation of the shares to be transferred as a block, rather than on a pro rata basis, would accord with business common sense. The parties may well have intended that the valuation should reflect the value of the selling member’s proportional stake in the business as a whole, regardless of the size of his shareholding. The circumstances in which a member may wish, or be compelled, to transfer some or all of his shares are likely to vary enormously, and whatever basis of valuation is prescribed the result may (depending on the precise circumstances in which the question arises) appear to prejudice one side or the other.  In the end, there is in my judgment no substitute for looking at the language which the parties have actually used, in accordance with the principles of construction which are common ground, in order to ascertain what they objectively intended. As the cases show, the issue is one which frequently arises and is often difficult to answer, but the guidance which the authorities can give is limited because ultimately everything turns on the wording of the articles in question.  
44.	With regard to the wording of Article 5, the starting point in my view has to be the definition of the “prescribed price” in Article 5C.  This is the only place where the nature of the exercise to be performed by the independent accountants is stated.  It takes the form of a definition, as the signpost words “(as hereafter defined)” in Article 5B(a) indicate.  Unambiguously, the prescribed price is to be such sum “per share” as the accountants shall determine and certify, and in performing this exercise they are to value “the Company on a going concern basis”.  Valuation of the company on a going concern basis can only be a valuation of the company as a whole, and when that value has been found it must follow that the price per share has to be ascertained on a pro rata basis.  The language of the definition in my judgment points clearly away from valuation of the Transfer Shares as a block, and only makes sense if the value per share is derived from the value of the company as a whole. This conclusion gains further support from, but does not depend on, the simple grammatical point that the words “the fair value thereof” are naturally read as referring back to “such sum per share”. 
45.	A further strong indication in favour of the pro rata construction, to my mind, is the potential illogicality of valuing the Transfer Shares as a block when it may be wholly uncertain who the ultimate purchaser or purchasers of the shares will be, or to what extent they may be prepared to pay a special price for the shares, whether in order to bring their own holdings above a specified level or simply to prevent the risk of the Transfer Shares passing to an outside purchaser under Article 5L. 
46.	In their skeleton argument, counsel for the defendants refer to the relevant provisions of Articles 5B(a), 5D, 5F, 5G and 5L, and then say:
“The upshot of these provisions is that, even if the block which a vendor wishes to sell initially represents (or appears to represent) a majority shareholding, the Accountants will not know whether the block will subsequently be broken-up and sold off in lots of smaller sub-blocks; they will not know how many shares from the block will ultimately be taken up by the existing members; or whether the block will be divided between the existing members and, if so, in what proportions. Likewise, even if the block is a minority shareholding, the Accountants will not know by whom it (or any part of it) will be purchased and whether, alone or in combination with other shareholdings, it could give the purchaser a controlling stake, or a 75% majority, in the relevant company.”
47.	I respectfully agree. Another way of making essentially the same point is to say that the parties are unlikely to have intended the accountants to apply a potentially substantial discount or premium, depending on the initial size of the block of the Transfer Shares, without regard to the sizes of the lots in which the shares may in fact end up being transferred, or to any special value they may have in the hands of any transferee.  It is true that, in the present case, the parties have apparently agreed that no special characteristics should be attributed to the “willing buyer” of the Transfer Shares, but that does not affect the general force of the point, given the multifarious circumstances in which Article 5 may fall to be applied.
48.	For these reasons, I would dismiss the appeal on Issue 1.
Issue 2: tranches of shares
49.	This issue needs to be determined only if the appeal on Issue 1 succeeds.  The judge did not determine it, for that reason.  I too prefer to leave the question open since it does not arise. 
Issue 3: the meaning of “any person” in Article 5L
50.	The short question here is whether the words “any person” in Article 5L, construed in the context of the Article as a whole, restrict the class of transferees to natural persons, or whether “person” has its normal legal meaning and therefore includes corporate transferees. 
51.	If it were not for the provisions of Article 5G, there could be little doubt about the answer to this question.  Not only is the legal meaning of “person” well known and generally understood, but section 61 of the Law of Property Act 1925 expressly provides that:
“In all deeds, contracts, wills, orders and other instruments executed, made or coming into operation after the commencement of this Act, unless the context otherwise requires -
…
(b) “Person” includes a corporation;
…”
Similarly, section 5 of the Interpretation Act 1978 provides that in any Act, unless the contrary intention appears, the word “Person” includes “a body of persons corporate or unincorporated”.
52.	Article 5G gives the company the right to sell “to any person or Company of whom or which in its absolute discretion it shall approve” any of the Transfer Shares for which members have not applied.  This wording therefore appears to differentiate between a “person” and a “company”. (I agree with the judge that the initial capital C of “Company” is an obvious typographical error, of a kind which can be paralleled elsewhere in Article 5). Furthermore, it is clear that this differentiation was intentional, because the ensuing words “of whom or which” show that the draftsman had the position of inanimate corporations in mind.  Is it therefore correct to carry this distinction forward into Article 5L, so that the words “any person”, which would normally be unrestricted, are by implication confined to natural persons?  Mr Hollington argues that this is the natural interpretation, given the distinction clearly drawn by the draftsman in Article 5G, and that the distinction serves an obvious purpose: if the vendor were free to transfer any residual shares to a corporate transferee, the provisions of Article 5 could then be circumvented with ease by simply transferring the shares in the corporate purchaser, thereby effecting a change of control without triggering any rights of pre-emption.  
53.	In common with the judge, I would reject this argument.  Much clearer language would in my view have been needed to restrict the normal legal meaning of “any person” in Article 5L, particularly bearing in mind the general principle that shares, as items of personal property, are prima facie freely transferable: see Greenhalgh v Mallard [1943] 2 All ER 234 at 237 per Lord Greene MR.  Nor is there any compelling commercial justification for construing Article 5L restrictively, given that it is a default provision that only comes into operation if all of the Transfer Shares have neither been taken up by the other existing members under Article 5D nor sold by the Company under Article 5G. The members and the company therefore have the ability to prevent the vendor’s residual power in Article 5L from becoming exercisable, and to that extent the remedy lies in their own hands. Furthermore, where the draftsman wishes to make express provision in relation to a corporate transferee, he does so: see the provisions of Article 5G, and the reference in Article 5B(b) to the position of a member which goes “into liquidation”, whereupon a Transfer Notice may be given by the Board in respect of “the whole of … its shares”.  The Article therefore clearly contemplates that there may be corporate members of the company, and deals expressly with their position.  Against that background, I can find no warrant for a restrictive interpretation of “person” in Article 5L.
54.	For these short reasons, which are essentially the same as those given by the judge, I would reject the appeal on this issue.
Conclusion
55.	If the other members of the court agree, it follows that this appeal must be dismissed.

Lord Justice Lindblom:
56.	I agree.
Lord Justice Beatson:
57.	I also agree.