UK: High Court Considers How To Interpret A Right Of First Refusal In A Shareholders' Agreement

Last Updated: 1 February 2019
Article by David Collins, Richard Barham and Candice Chapman

The High Court has considered whether any special principles of contractual interpretation apply to the interpretation of a right of first refusal in a shareholders' agreement. It found that usual principles of contractual interpretation should apply, not the narrow so-called Greenhalgh principle. 


Under the so-called Greenhalgh principle, established in the context of construing pre-emption provisions in a private company's articles, there is an assumption that a share (being personal property) should be transferable. If the intention is to take away or somehow regulate that inherent right of transfer, the language imposing any such restriction must be written with sufficient clarity to make it clear that was the intention. Any ambiguity in transfer restrictions should be resolved in favour of the selling shareholder.

This contrasts with the usual rules of contractual interpretation under which the court must identify the objective meaning of the language of a contract. The court should consider the contract as a whole and, depending on the nature, formality and quality of the drafting of the contract, give more or less weight to elements of the wider context in determining that objective meaning. 


United Company Rusal PLC (Rusal), Whiteleave Holdings Limited (Whiteleave) and Crispian Investments Limited (Crispian) were the major shareholders of PJSC MMC Norilsk Nickel (NN), a substantial Russian-listed company.

In 2012 Rusal, Whiteleave and Crispian entered into a shareholders' agreement governing their rights and obligations regarding any proposed transfers of their NN shares. In broad terms that agreement included a right of first refusal mechanism (ROFR) whereby Crispian was prohibited from selling any shares unless it offered them first to Rusal and Whiteleave at the price proposed by a "bona fide third party purchaser" or  an average weighted market price. 

In 2018 Bonico Holdings Co Limited (Bonico), which was a subsidiary of Whiteleave, made an offer  to buy 3.99% of Crispian's shares in NN. Crispian accepted the offer and initiated the ROFR mechanism by serving a notice on Rusal and Whiteleave offering them its NN shares at the price offered by Bonico. Rusal then commenced proceedings, seeking a declaration that the ROFR notice was invalid.

Rusal's arguments concerning the validity of the notice included that:

  • the ROFR could only be triggered by an offer (and at a price) made by a "bona fide third party purchaser". As Bonico was an affiliate of Whiteleave, it was not a "third party" for the purposes of the ROFR. Furthermore the offer price itself was not bona fide as it had resulted from discussions between Whiteleave and Crispian (or their owners);
  • the ROFR was a single right which must be offered to Whiteleave and Rusal in relation to the shares being sold by Crispian and must therefore be exercised by both of them or not exercised at all.

In their defence, an argument made by Crispian and Whiteleave was that the ROFR should be construed in line with the Greenhalgh principle. They argued that the Greenhalgh principle, had subsequently been applied by the Court of Appeal to provisions in a shareholders' agreement in the recent case of Re Coroin Ltd [2013] EWCA Civ 781.


The court agreed with Rusal and held that the ROFR mechanism had not been properly commenced.  Crispian was therefore precluded from disposing of its shares pursuant to the invalid notice. 

Rules of interpretation

The shareholders' agreement was to be interpreted according to the usual principles of contractual interpretation and should not be subject to any special principles of interpretation. 

A company's articles of association are a contract between all shareholders (including new ones from time to time who will not have been involved in settling the articles) forming part of the company's constitution which defines the rights and restrictions applicable to the shares. Therefore, sufficiently clear language must be used if any transfer rights are to be cut down. However, a shareholders' agreement does not affect the intrinsic rights attached to shares but is simply a private, voluntary and commercial agreement as to how such rights will or will not be exercised. Parties should be free to agree whatever they wish in respect of their property rights in their shares in their own commercial interests, and narrow rules of interpretation would not therefore be appropriate.  

Distinguishing Re Coroin on its facts, the court held that:

  • the Coroin shareholders' agreement was entered into by all of the initial shareholders and all new shareholders had to become party to it;
  • the transfer provisions in the Coroin agreement mirrored those in the articles and were merely explanatory of the articles; and
  • the Coroin shareholders' agreement was drafted to prevail over any inconsistency with the articles.

Therefore, the Coroin shareholders' agreement was "effectively synonymous" with the Coroin articles and performed the same function, meriting application of the Greenhalgh principle. By contrast, the shareholders' agreement in this case was between just three shareholders and included transfer provisions not replicated in the articles.  

Applying the usual principles of construction

Applying usual rules of interpretation, the court then went on to hold that, as a matter of construction, the ROFR was a single joint right in favour of Rusal and Whiteleave. As such, it was incapable of exercise by only one of them (as Whiteleave had purported to do). Even had the ROFR been granted on a several basis, as a subsidiary of Whiteleave, the offeror (Bonico) was not a bona fide third party purchaser as required by the ROFR mechanism, nor could the offer be said to be a genuine bona fide offer - it had not been agreed on an arm's length basis and was instead an inflated price conditional on or related to other agreements or understandings between Crispian and Whiteleave.


The case is of interest for various reasons:

  • the decision suggests that by limiting the application of the narrower rules of interpretation just to articles of association (or effectively synonymous documents), the court will continue to interpret bespoke transfer restrictions in private agreements by reference to usual interpretation principles. This may make it more likely that such restrictions will be found to be enforceable (notwithstanding any textual uncertainty), although drafting around complex mechanisms should always be as clear as possible. Even without the Greenhalgh principle, vague or inconsistent wording in transfer provisions may favour a selling shareholder;
  • when drafting both articles and a shareholders' agreement for the same entity, care should be taken to ensure that the risk of the Greenhalgh principle being applied to the latter (and thereby threatening the enforceability of any transfer restrictions in a private agreement) is minimised as far as possible. Simply replicating the provisions of one document in the other is likely to increase that risk; and 
  • in the context of ROFR or other pre-emption mechanisms, if there is a risk that a potential offeror might not be a bona fide third party, consider whether to include express language so that the parties are clear as to how the mechanism is to work.

United Company Rusal Plc v. Crispian Investments Limited and another [2018] EWHC 2415 (Comm)

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