Cosmetic Warriors Limited & Lush Cosmetics Limited v Andrew Gerrie [2017]

Cosmetic Warriors Limited & Lush Cosmetics Limited v Andrew Gerrie [2017] EWCA Civ 324 addressed the interpretation of Articles of Association in the context of a shareholder dispute involving share transfer provisions and company share valuation.

A prolonged shareholder dispute led to an 11% shareholder leaving the company, triggering share transfer provisions and the need for a Company Share Valuation. The Articles allowed the company to purchase the shares at an agreed price or fair value, determined by the median of two valuations certified by independent chartered accountants on a going concern basis.

The company contended that fair value should be discounted for a minority holding, reflecting the lack of control and marketability. It was argued that the Articles did not set an artificial value on shares, and the going concern basis referred to valuing the shares as part of the ongoing business.

The Court of Appeal ruled against the company's arguments. Fair value, as per the Articles, did not include a discount for a minority holding. The relevant transfer provisions did not distinguish between minority and majority shareholders. The Articles constituted a statutory contract, and its provisions prevailed over the company's interpretation. Despite a distinction in one part of the Articles, "person" was interpreted to include both individuals and body corporates.

Shareholders are reminded of the importance of understanding Articles of Association as a contractual agreement. The decision underscores the need for careful reading of Articles, as they define the rights and obligations of shareholders.

The case may be subject to further appeal, considering the Supreme Court's emphasis on interpreting contracts in a manner consistent with business common sense in Wood v Capital Insurance Services Ltd [2017].

Cosmetic Warriors v Andrew Gerrie highlights the significance of clear and precise drafting in Articles of Association, emphasising that they constitute a binding contractual framework for shareholders. The decision also reflects the courts' commitment to interpreting contracts in a manner aligned with commercial reasonableness.
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