Neutral Citation Number: [2006] EWHC 2774 (Comm)

Case No: 2006-769
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 08/11/2006

Before :

MR JUSTICE COOKE
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Between :

	Growth Management Limited (1) and Hillside Apex Fund Limited (2)	Claimants	
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	Ivailo Mutafchiev (1) and Tzeko Minev (2)	Defendants	

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T Ivory QC and M Fealy (instructed by Herbert Smith LLP for the Claimants 
J Gaisman QC and A Choo Choy (instructed by dla Piper LLP) for the Defendant

Hearing dates: 1st + 2nd November 2006
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 Judgment

The Hon. Mr Justice Cooke: 
Introduction

1.	On 11 August 2006 Colman J ordered an expedited trial of a claim for injunctions to stop the defendants from breaching a Shareholders’ Agreement (the SHA) in relation to the listing of shares in a Bulgarian bank, First Investment Bank AD (FIB) on the Sofia Stock Exchange. The claimants are investment funds which originally lent money to the bank and then subsequently became minority shareholders with a 10% holding each in FIB.  The defendants founded FIB in 1993 and each own just under 32% of the shares in it. They therefore control FIB, subject to any minority shareholders’ rights under Bulgarian Law (about which no evidence was adduced).  There is an issue as to whether or not they also exercise control or a degree of control over the two other companies which hold the balance of 16.34% of the equity in FIB.
2.	The defendants wish to convert FIB from a private joint stock company incorporated under Bulgarian law to a public company in order to effect a stock exchange listing in Sofia. The claimants maintain that the defendants are not entitled to do so without their consent by reason of the terms of the SHA. Temporary injunctions were granted until the trial of this action.
3.	During the course of the hearing it was conceded by the defendants that, if they were wrong about construction of the SHA, they would not seek to persuade the court that, in its discretion, injunctions should not be granted. The issues between the parties therefore turn solely on construction of the SHA against the background of any admissible evidence as to its matrix. In relation to the latter, witness statements were served by the claimants and the defendants, together with expert evidence of the law of Bulgaria in relation to listing in Bulgaria, the nature of private joint stock companies and public companies and the differences between the two.  Once the discretion argument was abandoned, neither party considered it necessary to cross-examine the witnesses on their respective statements. 
4.	As matters stand, FIB is a private joint stock company with a share capital of one million shares with a par value of BGN 10.  It is licensed to carry on banking activities in Bulgaria and is one of the largest and fastest developing banks in that country.  It has a remarkable record of growth in the last five years. With the forthcoming accession of Bulgaria to the EU, the value of shareholdings in FIB  has increased rapidly and substantially.
Background:
5.	On 5th June 1997, the defendants entered into an agreement (the EBRD Shareholders Agreement) with the European Bank for Reconstruction and Development (EBRD). Under the EBRD shareholders’ agreement:- 
i)	By Article III, section 3.07, unless EBRD should otherwise agree, FIB and the defendants were to use their best efforts to cause FIB’s shares to be listed on the Sofia Stock Exchange and/or another international stock exchange by 31 December 2000. This deadline was extended by two further agreements to 31 December 2004.
ii)	Under Article VII, EBRD was entitled to sell prior to that deadline but the defendants were given pre-emption rights. When EBRD wished to sell, the defendants sought to exercise those rights but permission to purchase was refused by the Bulgarian authorities which resulted in the suggestion that the claimants, who were already subordinate lenders to FIB, should purchase those shares.
6.	This led to negotiations in early 2005 and to a ‘Term Sheet’ which, although unsigned, is said by the claimants to record the basic terms agreed between the claimants and the defendants.  Whilst the defendants’ evidence was that they could not recall seeing this document ever, it was also their evidence that Mr Harfield who was FIB’s Chief Executive Officer carried out the negotiations on their behalf and they understood from him that he did see this or a similar document. The defendants accepted that the section entitled ‘Exit by the Purchasers’ was broadly consistent with the intentions of the parties. Both parties sought, to some extent, to rely upon this document in relation to the construction of the SHA. It provided for a purchase price of €20m for 20% of the shares of FIB with €19m being paid for EBRD’s shares and €1m being paid as a contribution of 20% of the €5m capital increase to be concluded by FIB during the second quarter of 2005. It referred to an understanding between the defendants and EBRD that EBRD would sell its holding of 200,000 FIB shares to the claimants for €13m and to the use by the defendants of the differential between that figure and the €19m figure to increase the capital of FIB by €4m (as part of the €5m injection in which the Claimants’ €1m was to play a part),
7.	The Clause headed ‘Exit by the Purchasers’ read as follows:-
‘In the event that the Purchasers, or either one of them, shall advise FIB at any time following 31 March 2007 that they perceive an opportunity to sell all or any portion of their FIB shares by means of a public offering of private placement which may require or benefit from a listing of FIB shares on the Sofia Stock Exchange or another European stock exchange, FIB shall agree to co-operate fully in taking all steps necessary to achieve such a listing to facilitate such sale of FIB shares by the Purchasers (or either of them)’.
8.	As recorded in Recital C of the SHA, pursuant to arrangements made by the defendants, the claimants agreed to purchase 200,000 shares in FIB under the terms of a sale agreement of 3 August 2005 with EBRD. Under the terms of that agreement the claimants paid €13m for those shares which had originally been the subject of the EBRD Shareholders’ Agreement. 
The SHA:
9.	Under the terms of the SHA, also dated 3 August 2005, the defendants and claimants undertook obligations in relation to their shareholdings in FIB, which was also a party to the agreement.  ‘Listing’  was defined in the SHA:  
‘Listing means the admission of the Shares to and the trading of the Shares on, the Sofia Stock Exchange or any other recognised investment exchange (as defined by Section 285(1)(a) of the Financial Services Markets Act 2000).’

10.	Section 2.01 provided that, in consideration of the conclusion of the SHA, the claimants would pay the defendants the sum of €7m, split equally between the two defendants, as they duly did.  Section 3.01 consisted of a series of affirmative covenants given by FIB and the defendants in relation to the conduct of FIB’s business.
11.	Section 3.02 consisted of a series of negative covenants and read, so far as relevant, as follows:-
‘For so long as an Investor holds the legal and beneficial ownership of not less than five per cent of the entire issued share capital of the Company, unless each such Investor shall otherwise agree, (i) the Company shall not, and (ii) the Shareholders shall, and at the request of any such Investor, shall use reasonable efforts to procure that the Corporate Shareholders shall, vote their Shares in the Company, and take all other action necessary to ensure that the Company shall not:
(a) prior to Completion, declare or pay any cash dividend, or make any distribution on its share capital, or purchase, redeem or otherwise acquire any shares in the capital of the Company or any option over the same;
(b) issue any share capital without first offering it to the Investors (on identical terms) in proportion to their then holdings of Shares;
(c) make material changes, or permit material changes to be made, to the nature of its business as carried out at the date of this Agreement save as permitted pursuant to paragraph (d) below;
(d) undertake or permit any merger, consolidation, material acquisition (other than an arm’s length acquisition of shares in (i) a financial institution or credit or debit card processing business operating principally in the Balkan region or (ii) any other acquisition of a financial institution where the total cost to the Company is less than 15 per cent of the Company’s combined Tier 1 and Tier 2 regulatory capital) or reorganisation of its corporate structure (save for the purposes of achieving a Listing pursuant to Section 3.06);
…
…
(g) sell, transfer, lease or otherwise dispose of a substantial part of its assets or any rights or interest therein, other than on an arm’s length basis in the normal course of the Company’s business;
(h) enter into any arrangement, contract or transaction outside the normal course of its business or otherwise than on arm’s length terms or (unless this would not result in a Material Adverse Effect) give notice of termination of any arrangement, contract or transaction of a material nature in the context of its business or materially vary such contract or arrangement;
(i) amend the Company’s Charter if such amendment would materially and adversely affect the Investor Shares or the Investors’ investment in the Company;
…
(k) Pass any resolution for its winding up or liquidation or for a similar proceeding analogous to a winding up or liquidation (unless it has become insolvent or as part of a corporate restructuring to achieve a Listing pursuant to Section 3.06);’
12.	Section 3.05(c) provided:
‘(c) The parties shall not seek to change or modify the unfettered Charter of the Company at any time during the term of this agreement in any way which would restrict the present unfettered and independent access enjoyed by members of the Supervisory Board (and, accordingly, the Investor Director) to any and all financial and other information concerning the Company and to its Auditors’. 
13.	Section 3.06 was headed ‘Stock Exchange Listing’ and read as follows:-
‘(a) On or at any time after 31 March 2007, an Investor who holds the legal and beneficial ownership of not less than five per cent of the entire issued share capital of the Company may advise the Company that it is in the Company’s best interests that an application for Listing be made. No undertaking is given by any party that a Listing will occur.
(b) If such an Investor advises that an application for Listing should be made, the parties agree that they shall co-operate fully with each other and the Company and their respective financial and other advisers and assist the Company (and not in any manner seek to prevent or frustrate any actions by the Company) in order to achieve such a Listing in accordance with the rules and regulations of the Sofia Stock Exchange or other recognised investment exchange, as the case may be, to which the application for Listing is made and other applicable laws.
(c) Following Listing, the parties may deal freely in any shares subject to any orderly marketing undertakings recommended by the merchant bank appointed to act as financial adviser to the Company in relation to the Listing.
….’
14.	Article IV dealt with the retention of shares and their transfer and provided for the defendants’ ability to sell shares up to a certain limit and/or in certain circumstances. So far as relevant Section 4.01 read as follows:-
‘(a)  For so long as an Investor holds the legal and beneficial ownership of not less than five per cent of the entire issued share capital of the Company, each Shareholder hereby agrees that he will not, except with the prior written consent of each such Investor, transfer, pledge or otherwise dispose in any way, or enter any agreement for the transfer, pledge or disposal, of any Shares that he or it may own or hereafter acquire or take any other action which (in any such case) would have the effect of reducing below 50.1 per cent the aggregate percentage interest in the Company, or votes in general meeting of shareholders of the Company, represented by the Shares held by the Shareholders, provided that such restrictions shall not apply (I) to any transfer pursuant to Section 4.02, (II) (without prejudice to the provisions of Section 7.09(a)) in the event of the death of any Shareholder when the Shares owned by such Shareholder shall transfer to his estate and the heirs of such Shareholder and successively on the death of such heirs (and each of the parties hereby waives any rights of pre-emption in respect of such Shares), (III) to any transfer as part of a Listing or (IV) to any transfer from one Shareholder (or his estate and heirs) to another Shareholder (and his estate and heirs) (and each of the parties, other than the Shareholders, hereby waives any rights of pre-emption in respect of such Shares); and provided further that it shall be a condition of any transfer of Shares to any person not being an existing holder of Shares (where such transfer has been made pursuant to (II) above or (IV) above or with the consent of the Investors) that the transferee shall enter into a deed of adherence in the agreed form agreeing to become party to and bound by the terms of this Agreement and thereafter any reference to a Shareholder herein shall be deemed to include a reference to such transferee as if named herein as a Shareholder.’
15.	Similarly Article VI set out the claimants’ right to sell shares at any time whether prior to or after the 31 March 2007 date referred to in Section 3.06(a), but gave the defendants a right of pre-emption.
16.	Section 7.09(a) of the SHA provided that the agreement should inure to the benefit of the successors and assigns of the parties except that it would not be binding upon any transferee from the defendants where the consent of the claimants was not required and the transferee was not required to enter into a deed of adherence. By Section 7.09(b), the claimants were expressly permitted to assign, without the consent of the defendants, the benefit of the SHA, provided that such a transferee held not less than 5% of those shares originally held by the claimants (with certain limited exceptions). Such a transferee of the rights of the agreement had to execute a deed of adherence.
17.	Section 7.10 provided as follows:-
‘Unless terminated earlier upon the written agreement of all of the parties hereto, this Agreement shall continue in force until the earlier of (a) the date on which no single Investor (or any person to whom rights and benefits under this Agreement have been assigned or transferred by the Investors pursuant to Section 7.09) holds at least five per cent of the legal and beneficial ownership of the entire issued share capital of the Company and (b) the date of the Listing of the Shares’.
18.	Section 7.11 provided that in the event of any conflict between the provisions of the SHA and FIB’s Charter, the provisions of the SHA should prevail unless that would result in FIB being in breach of any legal requirement with regard to the provisions of its Charter.
The Bye-Laws of FIB:
19.	Section 4 of the Bye-Laws set out the governing bodies of FIB (the Bank):-
‘Article 15 
1. The shares can be transferred freely between shareholders.
2. The transfer of shares to physical and juridical persons who are not shareholders……may be done only by a resolution of the General Meeting taken with a majority of two thirds of the total number of votes.
			……	…..
Article 22 – Types of governing bodies
The governing bodies of the Bank are:
1.  General Meeting of Shareholders;
2.  Supervisory Board;
3.  Management Board 

Article 23 – Composition 
1.  The General Meeting shall consist of the shareholders with a voting right. They shall participate in the General Meeting personally or by proxy.
2.  The members of the Supervisory Board, the Management Board and of the Management Team of the Internal Control Department shall participate in the work of the General Meeting without a voting right unless they are shareholders.
3.  Auditors and experts may be invited to participate in the work of the General Meeting, when the agenda of the meeting requires that.
Article 24 – Competency 
The General Meeting may:
1.  amend and supplement the By-Laws of the Bank;
2.  increase and/or decrease the capital;
3.  transform or terminate the Bank;
4.  transfer or assign use of the whole business undertaking;
5.  dispose of assets the total value of which during the current year exceeded one half of the value of the company’s assets according to the latest audited financial statements;
6.  assume obligations or provide security to a company and/or a group of companies to an amount exceeding during the current year one half of the value of the company’s assets according to the latest audited financial statements;
7.  elect or dismiss the members of the Supervisory Board;
8.  determine the remuneration of the members of the Supervisory Board;
9.  elect or dismiss the Management Team of the Specialized Internal Control Department, and determine their remuneration;
	9.  appoint and dismiss the specialized auditing company;
10. approve the annual financial statements after verification by a specialized auditing company, resolve on distribution of profits, allocation of money to the Reserve Fund, and payment of dividends;
11.  resolve on the issue of bonds and debentures;
12.  appoint liquidators upon termination of the Bank except for in case of bankruptcy;
13.  release from responsibility the members of the Supervisory Board and the Management Board;
14.  solve other issues in its competency as provided for by law.
Article 33 – Majority 
The resolutions of the General Meeting shall be taken by a majority of the present shares; the resolutions under Art. 15, Para 2 and Art. 24, Para 1, 2, 3, 5, 6 and 7 shall be taken by a majority of 2/3, and the resolutions under Art. 24, Para 4 – by a majority of ¾.
20.	It will be seen that, in order to amend the Bye-Laws or change the capital of the Bank or change the constitution of the Supervisory Board, a 2/3 majority of the shareholders was required in general meeting. 
21.	The functions of the Supervisory Board were set out in Article 42A and included the election and dismissal of members of the Management Board and the approval of major decisions by the Management Board in relation to the business of the Bank as set out in Articles 38 and 40.  Under Article 42B, the resolutions of the Supervisory Board had to be unanimous and since the SHA provided at Section 3.05(a) that the claimants were to have the right to appoint one member of the Supervisory Board, the effect was that the claimants had an effective veto at Supervisory Board level in relation to major decisions relating to FIB’s business.  Moreover the claimants were protected by the defendants’ covenant in Section 3.02(i) which prevented the defendants from procuring an amendment to FIBs’ charter, if that amendment would materially and adversely affect the claimants’ shares or investment in FIB.
The proposed resolutions: 
22.	The claimants designated Mr Pinter as their appointee for the Supervisory Board of FIB pursuant to Section 3.05(a)(ii) and he served in that capacity from March 2006 onwards. It appears that his requests for information led to some friction with the defendants. At all events, on or around 29 May 2006, the claimants received an invitation to attend an extraordinary general meeting of the shareholders of FIB, to be held on 15 June 2006. The agenda for the proposed EGM included a proposal to pass a resolution to amend the bye-laws of FIB so that the Supervisory Board could adopt resolutions by a majority rather than unanimously. It was also proposed to dismiss an independent director, Mr David Mathew from the Supervisory Board. Self evidently the effect of these resolutions would be to increase the measure of the defendants’ control over FIB, as the majority shareholders. Exchanges between solicitors resulted in the defendants agreeing that they would not attend or vote at the proposed EGM. 
23.	In June the claimants and the defendants met and the defendants suggested that the parties should ‘divorce’. The defendants made an offer for the claimants’ shares which the claimants thought insufficient. It appeared that the defendants took the view that they could list FIB’s shares on the Sofia Stock Exchange and that the effect of such Listing would be to terminate the SHA. 
24.	By a letter dated 13 July 2006 FIB invited the claimants to attend a further EGM in Sofia on 15 August. Items to be discussed at the meeting were:-
(i)	adopting a resolution to register the Bank as a public company and effect a stock exchange listing of its shares;
(ii)	amending the Articles of Association of the Bank in accordance with the requirements of the Bulgarian Public Offering of Securities Act (POSA).
25.	On asking for further information about the proposed resolutions, the claimants were supplied by FIB with further information:-
‘On Item 1 of the agenda:
The General Meeting of the Shareholders: 
RESOLVES
1.	That the Bank be registered as a public company according to provisions of the Public Offering of Securities Act and all issued shares be registered for trading on a regulated capital market in the register under Article 30(1)(3) of the Financial Supervision Commission Act.
2.	(Listing of shares on a specific stock exchange) to be discussed at the meeting.
3.	Assigns the Managing Board the task of taking any and all appropriate legal and other actions to implement the above resolutions according to the requirements of Bulgarian law and the relevant stock exchange (if such a resolution is adopted).
On Item 2 of the agenda:
The General Meeting of Shareholders:
RESOLVES 
Adopts the following amendments to the Articles of Association of the Bank:
1.	New Article 1(a) - ‘The Bank is a public company as defined in the Public Offering of Securities Act (POSA) and is managed pursuant to the provisions of the POSA, the Commercial Act (CA) and these Articles of Association.’
2.	‘Article 15(1) is amended as follows: - ‘The shares can be transferred freely.’
3.	‘Article 15(2) is deleted.’
26.	There were then exchanges between the claimants and Mr Harfield, the CEO of FIB and between the claimants’ and defendants’ solicitors. The defendants expressed their intention to list the shares of FIB on the Sofia Stock Exchange without any expressed intention to launch a full Initial Public Offering (IPO), with the issue of new shares or the sale of their own shares. The defendants’ viewed this as unsatisfactory because they considered, whether rightly or wrongly, that they would not receive full value for their shares if they chose to trade them following such a restricted listing. In such circumstances there was disagreement as to the listing proposed and the claimants, taking the view that the defendants were not entitled to procure the passing of the resolutions to which I have already referred, sought and obtained a temporary injunction pending this trial.
The effect of the resolutions, if passed:
27.	If FIB becomes a public company, it will then be subject to the provisions of POSA which sets out the regime for such companies. The shares of such companies may be listed on a stock exchange but do not have to be. In practice they almost invariably are listed since it would be unusual to assume the obligations imposed on a public company by POSA without also listing it. Moreover only shares in a public company can be listed. 
28.	Articles 110-120 of POSA impose obligations upon public companies that do not apply to private companies in relation to such matters as shareholder voting, registration of shareholdings, restrictions upon reduction or increase in the company’s capital and rights of acquisition in the event of an increase, together with important restrictions upon the power of the company’s management to enter into high value transactions without the express prior authorisation of the general meeting. There is a requirement that at least 1/3 of the members of the Supervisory Board or the Board of Directors be independent persons and that a director of investor relations be appointed.
29.	More important than any of these is however the need for the shares of a public company to be freely transferable and the imposition of the requirements of POSA regardless of the terms of the bye-laws or Articles of the company in question. In practice, in order to become a public company, the bye-laws have to be changed to be consistent with the provisions of POSA. A general meeting of the shareholders would be held to adopt resolutions authorising amendments to the bye-laws to ensure compliance with POSA and the shares would be registered for trading on a regulated capital market in accordance with Article 30(1)(3) of the Financial Supervision Commission Act. There would be no need for actual trading to take place as long as the existing shares were listed on a stock exchange. 
30.	It is self evident that the passing of the resolutions which would result in amendment of the bye-laws and FIB becoming a public company would impact upon the provisions of the SHA. The SHA contained detailed provisions relating to the retention and transfer of shares. There are express restrictions on the defendants’ right to sell their shares under Section 4.01(a) whilst the rest of that Section and Section 4.02 contain ancillary provisions in respect of sales which do take place.  Section 6.01 set out the defendants’ rights of pre-emption should the claimants wish to sell their shares. Section 7.09(b) enables the claimants to assign the benefit of the SHA with any transfer of 5% of the shares. The existing bye-laws restrict the transfer of shares, requiring a vote in general meeting for any transfer to persons other than shareholders. One of the requirements of being a public company, as expressly set out in the draft resolutions, is that shares can be transferred freely without any restriction whatsoever. Because the requirements of POSA prevail, as a matter of Bulgarian law, the effect of the resolution and the conversion of the company to a public company would be to change the balance of rights between the shareholders as a matter of that law.
31.	Moreover, although the ‘Listing’ in paragraph 7.10 which brings about the termination of the SHA is defined in Section 1.01 as the admission of shares to the Sofia Stock Exchange and the trading of shares on it, the effect of listing on such an exchange would give rise to the possibility of trading by one party or another which would, on the face of the wording of Section 7.10, have the effect of terminating the SHA with all the protection afforded to the defendants as the minority shareholders by the covenants in Section 3.
32.	Furthermore, it appears that the balance of the Supervisory Board or Management Board would be changed by the requirement to have 1/3 of one or other Board constituted by independent directors within the meaning of Article 116(a) of POSA since, although this was the subject of dispute, it appears that Mr Pinter would not qualify as an independent director because of the prior business relationship between the claimants and FIB in the form of the subordinated loan made by the claimants to FIB.
Construction of the SHA:
33.	There was little difference between the parties as to the approach to the construction of the SHA. The SHA had to be construed as a whole and the crucial Section 3.02 fell to be construed in that context. The more un-commercial or unreasonable the construction advanced, the less likely it was that this reflected the intention of the parties. Reference was made to Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1WLR896 at pages 912 and 913, in the speech of Lord Hoffmann.
‘Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.  … The meaning which a document or any other utterance would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax… The rule that words should be given their natural and ordinary meaning reflects the common sense proposition that we do not usually accept that people have made linguistic mistakes particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in… The Antaios [1985] AC 191 at 201 “If a detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense”.’
34.	Similarly, reliance was placed upon the speech of Lord Bingham in BCCI v Ali [2002] 1AC251 where he said:-
‘In construing this provision as any other contractual provision, the object of the court is to give effect to what the contracting parties intended. To ascertain the intention of the parties the court reads the terms of the contract as a whole, giving the words used their natural and ordinary meaning in the context of the agreement, the parties’ relationship and all the relevant facts surrounding the transaction so far as known to the parties. To ascertain the parties’ intentions, the court does not of course enquire into the parties’ objective states of mind but makes an objective judgment based on the materials already identified.’
35.	Both parties accepted that evidence of the negotiations was impermissible but both to some extent relied upon the Term Sheet as constituting an antecedent agreement which could cast light on the intended meaning of the SHA. I did not in fact find the Term Sheet of much assistance since, as is frequently the case, any argument based upon the wording of an earlier document, as compared with a later agreement is of a two-edged nature. Where words in the later agreement are ambiguous or unclear, reference can sometimes be made to an antecedent agreement to ascertain the underlying intention. Where however there are differences in the language used, there may be a number of different reasons for the change made and the parties may have had different reasons in agreeing to the new form of words. The change may or may not reflect a changed intention on the part of the parties and speculation on this aspect is impermissible. 
36.	The only area where assistance could be gained from the Term Sheet flows from the terms of the clause in the Term Sheet headed ‘Exit by the Purchasers’ which was to some degree reflected in the terms of Section 3.06 of the SHA. Once again however there were differences between the two since the former focused upon the means of giving the claimants an opportunity to sell their shares by means of either a public offering or a private placement which might require or benefit from a listing of FIB’s shares whilst the focus of Section 3.06 of the SHA was more directed towards a Listing, on the claimants’ advice, with a view to both parties being free to deal in any shares thereafter, subject to following the recommendations of the merchant bank appointed to act as financial adviser to FIB in relation to that Listing. Nonetheless, what appeared from both agreements was the existence of an option available to the claimants, giving rise to Listing and sale of shares, in which, in one way or another, the defendants were bound to co-operate.
37.	Both parties castigated the other’s construction of Section 3.02(d) and 3.02(i) as commercially absurd. The claimants maintained that if those two sub-sections did not prevent the defendants from unilaterally taking the decision to list the company on the Sofia Stock Exchange, and thereby giving themselves the option to terminate the agreement by trading shares on it, then it would be open to the defendants to take such steps one day after signing the SHA and receiving the €7m by way of consideration for it. In those circumstances it was hard to see what the purpose of the SHA was and what protection would be given to the claimants, as minority shareholders, by it. What, the claimants asked rhetorically, were the claimants paying €7m for? The defendants contend that it would be absurd for them, as the majority shareholders, to be prevented from effecting a Listing of the shares when the purpose of Section 3.06 was merely to allow the claimants an ‘exit option’, should no Listing have occurred prior to 31 March 2007. Why, the defendants asked rhetorically, would they give away their ability to list the company and why should any Listing require them to dispose of some of their shares, as the defendants suggested?
38.	Before turning to the specific provisions, it is necessary to examine the overall structure of the SHA against the commercial background. Both parties were aware at the time of concluding the SHA, of the terms of the EBRD shareholders agreement and the requirement for the defendants to use their best endeavours to achieve a Listing by 31 December 2000, which was extended twice until 31 December 2004. In those circumstances, both EBRD and the defendants agreed that a Listing was not appropriate at that time although, since the obligation was put upon the defendants and FIB, it would appear that the Listing contemplated was for the benefit of EBRD, in order to realise its investment, if it so wished. The SHA would therefore have been concluded against a background where it might well have been perceived that the defendants might wish to drag their heels over a Listing.
Balance of rights:
39.	What the SHA undoubtedly does is to regulate the position as between the defendants, as majority shareholders, and the claimants, as minority shareholders, providing some protection for the latter against the rule of the majority in general meeting. To the extent that a special majority is required in general meeting of 2/3 or 3/4  the claimants would also otherwise be unprotected should the two other corporate shareholders act in concert with the defendants, as previously appeared likely. The SHA protects the claimants against majority, or special majority, rule in a number of ways and it is this for which the claimants gave good consideration – see Section 2.01.
40.	General warranties as to the nature and state of the company’s business and finances were given in Section 2.03. Section 3.01 sets out affirmative covenants on the part of the defendants to maintain and run the business in a prescribed manner whilst Section 3.02 sets out a series of negative covenants which are intended to protect the claimants’ minority shareholding position. 
41.	Section 2.07 shows the intention of the parties to retain the balance of the shareholdings with the claimants’ equity remaining at 20% (as compared with the 80% ascribed to the defendants in the Term Sheet) or the 64% (approximately) which the defendants maintain they currently have. Articles IV, V and VI set out detailed provisions governing the claimants’ and defendants’ entitlements and obligations to sell. In the circumstances there described, there are rights of pre-emption, put options and ‘drag along’ provisions, together with restrictions on the defendants diluting their holding without the claimants’ consent.
42.	It is in my judgment significant that the terms of Sections 3.01, 3.02 and 4.01 all place obligations on the defendants and FIB ‘for as long as an Investor (a claimant) holds the legal and beneficial ownership of not less than 5% of the entire issued share capital of the Company’, which oblige the defendants to carry out certain actions or prevent them from doing so, ‘unless each such Investor shall otherwise agree’ or ‘except with the prior written consent of each such Investor’.
43.	The balance of shareholders rights is struck in such a way that various courses of conduct are prescribed or proscribed, unless the parties agree to a course of action which is in conflict with those activities. 
Section 3.06:
44.	Both parties contended that it was necessary to construe Section 3.02 in the light of Section 3.06. Each maintained that its particular construction of Section 3.06 governed the construction of Section 3.02. Each agreed that Section 3.06 conferred upon the claimants a right which was in the nature of an option so that it could advise FIB that it was in FIB’s best interests to make an application for Listing, whereupon the claimants, the defendants and FIB were obliged fully to co-operate with one another and their respective advisers to assist in achieving a Listing for FIB on the Sofia Stock Exchange or some other recognised exchange. 
45.	The claimants maintained that the form of Listing envisaged was what they described as a “full IPO” which would ordinarily involve the issue of new shares by FIB with a substantial ‘free float’ and a real market which enabled the defendants to sell off their shares in the context of a much wider flotation which would inevitably have the effect of diluting the defendants majority shareholding. The defendants pointed out that Section 3.06 contained no express terms with regard to the form of Listing at all. No distinction was drawn between one type of listing or another. The claimants wavered between saying that the Section obliged or merely contemplated a full IPO. Although ‘Listing’ was defined in Section 1.01 as the admission of shares to and the trading of shares on the Sofia Stock Exchange or any other recognised investment exchange, the claimants pointed to the reference to advice ‘in the company’s best interests’ as suggesting that this must involve the raising of new capital. They also relied on the reference to the ‘financial and other advisers’ of both the claimants, the defendants and FIB and to the ‘merchant bank appointed to act as financial adviser to the Company in relation to the Listing’. These all pointed, the claimants maintained, to a full IPO with an issue of primary (new) and secondary (the sale of existing) shares. 
46.	It is clear that the definition of ‘Listing’ does not fit happily with Section 3.06(c) if that subsection allows any form of listing, since that subsection provides that following ‘Listing’ as defined, namely the admission of the shares to a stock exchange and trading thereof, the claimants and defendants could deal freely in such shares, subject to the proviso there set out. Whilst the claimants did not rely on this particular aspect of the Section, this also, in my judgment, suggested that the parties were contemplating what the claimants referred to as a ‘full IPO’ with trading in new shares issued by FIB preceding a sale by either the claimants or defendants of their own shares. 
47.	I do not have to decide whether the claimants are correct in their contention that Section 3.06 obliged the defendants, at the claimants’ instigation, to launch a full IPO, issue new shares and dilute their own shareholding and there are a number of arguments against that proposition. That obligation is not clearly spelt out by the Section which does not clearly compel the defendants to adopt any particular form of Listing or issue any amount of new capital or compel them to sell any particular amount of shares. Such an obligation would be wholly uncertain in ambit. 
48.	The defendants however maintained that since, on their construction, there was no restriction upon the form of the Listing which was to be undertaken under Section 3.06, this meant that Clause 3.02 could not be read as restricting the defendants’ entitlement to effect a Listing of any kind. I do not consider that this follows from their own construction of Section 3.06. Although Section 4.01 was relied on which entitled the defendants to sell shares which reduced their holding to less than 50% as part of a listing, this did not provide that they could insist on a listing in accordance with the bye-laws, by use of the two thirds majority which they and the other corporate shareholders had. Such a listing might be that provided for in Section 3.06 or one which was agreed between the claimants and defendants. Equally the provision in Section 3.02(b), which required the defendants to offer any issue of new shares to the claimants to maintain the respective proportions of equity held by the shareholders, did not mean that it was a matter for the defendants alone to decide on a listing and whether such an issue should be made in the course of a listing when FIB became a public company.  
49.	It appears to me that what was envisaged by Section 3.06 was a ‘full IPO’ for the reasons given above, but that, on the advice of the claimants that it was in FIB’s best interests to make an application for Listing, the SHA contemplated that the parties would consult with one another and with their various advisers, including those of FIB. They would seek to reach an agreement as to the best form of Listing in the prevailing circumstances. I have no doubt that, as the defendants contended, the primary object was to enable the claimants to have an ‘exit route’ from their investment after 31 March 2007 and that the co-operation provisions required the parties to act in good faith to achieve an appropriate Listing which would enable the claimants to sell. Whether or not there would be any breach of this section after 31 March 2007, if the defendants refused to follow any particular form of Listing, as requested by the claimants, is a matter which I need not decide since it would turn on the evidence of fact as to whether or not there was a failure to co-operate, in the light of the underlying purpose of the Clause. If Section 3.06 provides no obligation on the defendants to promote a full IPO of the kind the claimants suggest after March 2007, it does not follow that Section 3.02 (d) does not prevent the defendants from listing, in much the same way that, if Section 3.06 does give the claimant that entitlement to insist on a full IPO at that stage, Section 3.02 then falls to be read as meaning that the defendant is prevented from seeking a listing of any particular kind prior to that date. 
50.	In my judgment whilst Section 3.06 sheds some light on Section 3.02, it does not ultimately assist overmuch in construing the words used there.
Section 3.02(d):
51.	Section 3.02 prevents FIB and the defendants from procuring, under sub-section (d), unless the claimants agree, a reorganisation of FIB’s corporate structure, except for the purpose of achieving a Listing pursuant to Section 3.06, which is initiated by the claimants’ advice that it is in FIB’s best interests to do so, such advice being given on or after 31 March 2007. In the period prior to 31 March 2007 or indeed in the period after it, does Section 3.02(d) prevent the defendants from Listing FIB shares on the Sofia Stock Exchange without the claimants’ express consent?
52.	Arguments centred on the words ‘corporate structure’ with the defendants maintaining that this referred only to what might be described as the skeleton or construction of the company and the arrangement of its various parts or organs – namely, its shareholders, the Supervisory Board and the Management Board – the geometrical form of which could be graphically represented. As a matter of ordinary language, it was said that the ‘corporate structure’ of FIB referred to its shareholding structure or the overall combination of its shareholding and organisational structure. In consequence a reorganisation of the corporate structure of FIB would require something as radical as the removal of one of the levels in the structure or the interposition of a new level within the structure so as to change the arrangement of the constituent parts, or an alteration which was sufficiently radical as to amount to a reorganisation of share capital. The examples put forward were the creation of a new holding company of which FIB would be a subsidiary, the creation of a new subsidiary of which FIB would be a holding company or the removal of one of the two tiers of management structure such as the replacement of the Supervisory Board and Management Board by a single Board of Directors; alternatively an alteration which was sufficiently large to amount to a reorganisation of the nature or extent of the share capital of FIB. None of those, it was said, were involved in the proposed resolutions. It was, said the defendants, astonishing if the subsection prohibited listing when the word was not used in the context of the prohibition but was to be found in the passage in parentheses at the end of the subsection. Had it been the intention to proscribe listing, the parties would have used that word, instead of the phrase in issue.
53.	The claimants accepted that the concept of ‘reorganisation of its corporate structure’ included the matters suggested by the defendants but contended that the phrase covered much more. They drew attention to the fact that the clause did not expressly refer to changes in the shareholding structure. In particular, the claimants submitted that it covered the conversion of FIB from a private company into a public company because that was a change in the very nature and status of the company as a corporate entity. Only such a company could, as a matter of Bulgarian law, list its shares on a stock exchange. Public companies were subject to the obligations imposed by the POSA and were subject to onerous requirements under that statute. It was not however simply the regulatory effect of the statute which was relied on. The claimants said that what was proposed was a fundamental change to FIB, which turned it from a private company owned and controlled by the two defendants with small minority shareholders, with detailed provisions regarding the transfer of shares under the 	SHA, into a public company which was listed on the stock exchange where the shares were to be freely tradable and could be owned by anyone in circumstances where, once trading commenced, there would be no further protection for the defendants under the shareholders’ agreement. That was such a fundamental change in the whole framework or structure of the company as a corporate entity which meant that there was ‘a reorganisation of its corporate structure’.
54.	It did not seem to me to help much to say that the SHA could have included wording which would more clearly have accorded with the other party’s submission. I am left with the words the parties did use and the construction of them. 
55.	I was also not much impressed by the argument that each of the examples of reorganisation given by the defendants was one which was adequately covered by some other negative covenant such as Section 3.02(b), in the case of increases in share capital and 3.02(a) in the case of decreases, particularly since the latter only applied prior to completion. It is true that alterations of rights attaching to shares would be made by alterations to the bye-laws and would require the Investors’ consent under Section 3.02(i) if they materially and adversely affected the Investors’ shares or the Investors’ investment in the company but it is clear that the individual sub-sections of Section 3.02 are not mutually exclusive and that an event could easily fall within the compass of two or more sub-sections of it. The fact that a reorganisation of the share capital might fall within other sub-sections does not mean that it falls outside Section 3.02(d) so that Section 3.02(d) must be given some other meaning.
56.	Section 3.05 of the SHA sets out the claimants’ right to designate a director for the Supervisory Board and, even if it was not expressly accepted by the defendants, it is clear, in my judgment that a change to amend the company’s charter to exclude the claimants’ right to make such an appointment would materially and adversely affect the claimants’ shares or the value of those shares (their investment in the company) because of the loss of their veto on the Supervisory Board. That would be a change in management structure and hence its organisational structure at the level of its charter. It would thus also, in my judgment, amount to a reorganisation of FIBs’ corporate structure since it would change the balance of rights between the parties in the constitution of the Supervisory Board. So also would any amendment of the bye-laws which permitted the Supervisory Board to adopt measures by simple resolution in place of Article 42B.4 or the removal of the independent director for which the SHA provided, both of which were proposed in the letter of 29 May 2006 for an Extraordinary General Meeting to be held on 14 June 2006. The defendants resiled from this position following correspondence but I consider that those resolutions would have fallen foul of Section 3.02(d) and 3.02(i).
57.	The defendants argued that the last words in Section 3.02(d) were a ‘catch all’ provision intended to complement the earlier wording of the sub-section. They also maintained that the wording should be given an ‘ejusdem generis’ construction with mergers, consolidations and material acquisition of shares in the institutions referred to. Once however it is recognised that a change to the structure of the Supervisory and/or Management Boards is covered by the phrase, the genus which is said to relate to shareholdings alone disappears. Moreover, the preceding words involve some element of external change whereas reorganisation of corporate structure can, self evidently, entail merely internal changes in structure. It is in my judgment not possible to say that changes to the essential management structure are not included in the phrase ‘reorganisation of its corporate structure’. 
58.	It does appear that the registration of FIB as a public company and the registration of its issued shares for trading would impact upon the membership of the Supervisory Board or Managing Board. There would be a need for one third of one or other body to consist of independent directors, which is not currently the case. That would change the corporate structure but whether it would amount to a reorganisation is much more doubtful. 
59.	What listing as a public company would do however, is to make the shares in the company freely transferable. This would effect a fundamental change in the delicate balance struck by the parties in the SHA with regard to the retention and transfer of shares in it. Detailed provisions appear in the SHA in Articles IV – VII which would be automatically negatived as a public company cannot have any such restrictions on share transfers. Furthermore, if FIB became a public company without any issue of new shares and such Listing were permitted under Section 3.06, ‘Listing’ in Section 3.06(c) would have to be construed merely as the admission of shares to a recognised stock exchange, since otherwise the freedom given by that clause to the claimants and defendants thereafter to deal freely in the shares would be rendered meaningless. As Section 7.10 provides that the agreement should continue in force until, inter alia, ‘the date of the Listing of the Shares’, it would then lie in the hands of the defendants to bring about the termination of the SHA by trading its own shares (if ‘Listing’ was given the defined meaning in Section 1.01) or, if ‘Listing’ was given its ordinary meaning, the Listing itself would terminate the SHA.
60.	On any view of the inter-relationship between Section 7.10 and Section 3.02(d) there is a clear change in the balance of the majority and minority shareholders’ rights in the event that FIB becomes a public company. The inter-relationship of the shareholders is changed either by the Listing itself (if this means admission of shares to a stock exchange) or at least prospectively by the Listing (if trading is also required), because it then lies in the hands of the defendants alone to bring about the termination of the agreement. In my judgment, this constitutes a reorganisation of FIBs’ corporate structure within the meaning of Section 3.02(d). It is not possible to say that important changes in the rights of shareholders are not changes in the corporate structure in the same way as changes in the management structure. If they are significant enough they would constitute a reorganisation of the corporate structure of the company. Here they meet that level of significance, since it is hard to see what could be more important than the interference with the shareholders’ rights which flows from the change from a private to a public company.
61.	Whilst a change in status might not necessarily fall within the provision as such, the parties clearly envisaged that some changes in status would, as is shown by the terms of section 3.02(k) which prohibits resolutions to wind up the company, save in the event of insolvency or ‘as part of a corporate restructuring to achieve a Listing pursuant to section 3.06’. The words “reorganisation of its corporate structure” cannot be less wide than the words in Section 3.02(k) and the latter in my judgment would also include a variation of the shareholders’ rights in that context. It is accepted that a change from one type of company to another or to a partnership would fall within the wording of Section 3.02(d) and such a fundamental change in ownership rights is not far removed from significant changes in shareholder rights. 
62.	The words in parenthesis at the end of Section 3.02(d) fortify this conclusion. Those words expressly exclude from the scope of Section 3.02(d) a ‘reorganisation of its corporate structure’ which is undertaken ‘for the purposes of achieving a Listing pursuant to Section 3.06’. Whilst it is possible to envisage a number of changes in the structure of the company with a new holding company or a ‘hive-down’ of FIB’s business to a subsidiary, before Listing, I do not consider that the parenthesis is limited to such a situation. The parties contemplated that a Listing would involve a ‘reorganisation’ of FIB’s corporate structure although the wording itself does not carry the meaning that such a Listing inevitably must involve such a reorganisation. In practice, the change of the status of the company, from that of a private company to a public company inevitably involves a fundamental change in the shareholders’ rights under the SHA which in itself amounts to a reorganisation of the corporation structure of FIB. 
63.	The defendants also sought to rely upon the principle of ‘contra proferentem’ in relation to the wording in parenthesis at the end of Section 3.02(d). The defendants wished to say that the words were added by the defendants’ lawyers in the course of negotiation and to compare these words with the word ‘reorganisation’ which appeared in Section 3.02(d) of the EBRD shareholders’ agreement. It was then suggested that not only was this evidence admissible, by analogy with the contra proferentem rule and cases where the court had been prepared to look at deleted words when construing the remaining words in printed or standard form agreements, but that the court should conclude that, since the words were added on behalf of the defendants, it was most unlikely, from an objective standpoint that those words were intended to prohibit the defendants from applying for a Listing.
64.	I can see no basis upon which evidence of the negotiations and of the identity of the proponent of any form of words is admissible in this context. Nor do I accept the conclusion which the defendants would wish to put upon that evidence, if it was admissible. Moreover, for the reasons already given, the wording in parenthesis is not decisive of the issue which turns upon the meaning, in the context, of the words ‘reorganisation of its corporate structure’. The words in parenthesis were plainly added in order to make it clear that a reorganisation for the purpose of achieving the aims set out in Section 3.06 was not prohibited and what this shows is that both parties anticipated that such a Listing would be likely to involve such a reorganisation if not inherently bound to do so.
Section 3.02(i):
65.	Section 3.02(i) does advance the matter independently of Section 3.02(d), despite the defendants’ submissions to the contrary effect.  In order to become a public company, the bye-laws would have to be changed to bring about the free transferability of shares. There is evidence before me that the value of the claimants’ shares, as would be expected, is enhanced by the existence of the SHA and the protections afforded to the minority shareholders thereby. If the admission of the shares to the stock exchange effects termination of the SHA or if it is open for the defendants to terminate the SHA by trading a small number of their own shares, in order to trigger Section 7.10, any purchaser of the claimants’ shares is left unprotected or potentially unprotected by the SHA and at the mercy of majority rule. It is self evident that in those circumstances not only are the claimants’ shares affected by the admission to the stock exchange but that the claimants’ investment, represented by the value of those shares, is also affected, regardless of whether or not the admission to the stock exchange actually terminates, or merely gives the defendants the option to terminate, the SHA.
66.	The defendants submitted that any argument based upon Section 3.02(i) was circular. If Section 3.02(d) did not prevent Listing then there could be no material adverse affect upon the claimants’ shares or investments in the company by an amendment to the bye-laws. A transferee of the claimants’ shares could take the benefit of the SHA under Section 7.09(b) of the SHA. This however ignores the free transferability of shares in a public company which means that any restriction upon the defendants’ ability to transfer shares, as provided by the SHA, would be ineffective, regardless of termination of the SHA per se and that is a valuable right, which would thus be lost on Listing. 
67.	Nor does the defendants’ argument based upon Alghussein Establishment v Eton College [1988] 1WLR 587 avail them. Self evidently, if as the defendants say, they are entitled to seek a Listing, there is no general principle of law that a party to a contract cannot deliberately and purposefully take advantage of its own acts to avoid its obligations or to defeat the other party’s rights under the contract, unless that amounts to a breach of duty owed to the other party – see Thompson v ASDA – MFI [1988] CH 241 at pages 251A-251D and 266D-267B. It is also no answer to say that, should the defendants act in breach of contract in achieving the admission of FIBs’ shares to the stock exchange and/or trading them, that the termination would be an unlawful one or would not be regarded by the courts as a termination because a party is unable to rely upon its own wrongdoing, since the effect on the claimants’ shareholding would be materially adverse since no purchaser of the claimants’ shares would wish to purchase litigation, regardless of the true meaning and effect of the SHA in English Law. Whatever the compass of minority shareholders’ rights under the law of Bulgaria, on which no evidence was adduced, it goes without saying that the protection of the SHA adds value, both because of the restrictions on transferability of the defendants’ shares and the other obligations laid upon the defendants prior to termination, quite apart from the inability to procure Listing to bring about termination, if I am correct in my decision on the effect of Section 3.02(d). 
Conclusion:
68.	I have come to the conclusion that the SHA does operate to prevent the defendants from converting FIB into a public company and procuring the Listing of its shares on the Stock Exchange without the claimants’ consent. The object of the SHA was to prescribe and proscribe various actions on the part of FIB and the majority shareholders and to require them to obtain the consent of the claimants as the minority shareholders before embarking upon courses of action which were proscribed. There is nothing uncommercial about this since the Listing of a company and its conversion into a public company are fundamental matters which affect all the shareholders. The claimants, when investing in a minority shareholding would wish to have that protection, whilst the defendants could be prepared to accept it in return for the investment and premium paid under the SHA, both parties considering that they ought to be able to agree on what was in the best interests of all for the maximisation of their respective investments in the company. Section 3.06 gave the claimants an option after 31 March 2007 which required co-operation between the parties and prior to that, if there was to be a Listing it of necessity involved not only co-operation but agreement between them as to the timing, location and form of any Listing which was to take place.
69.	As there is no remaining argument about discretion and I have decided that the passing of the resolutions would amount to a breach of the SHA by the defendants and FIB, it must follow that the claimants are entitled to an injunction. The parties may address me on the exact form of words of it but it would presumably follow, to a greater or lesser extent, the form of words of the existing interlocutory injunction.
70.	Subject to any particular features of which I am unaware, it would seem that the ordinary rule should apply and that costs should follow the event. This again is something upon which the parties can address me.