Key Facts
- •DnaNudge Limited (the Company) appealed a High Court decision that the conversion of its Series A Preferred Shares to Ordinary Shares was void.
- •The conversion lacked the written consent of over 75% of Series A shareholders, as required by Article 10.1 of the Company's Articles of Association.
- •Ventura Capital GP Limited (Ventura), holding most of the Series A Shares, challenged the conversion.
- •The Articles defined "Investor Majority Consent" as written consent from holders of a majority of Ordinary and Series A Shares.
- •Article 9.2(a) allowed automatic conversion upon written notice from an Investor Majority.
- •Article 10.1 stipulated that varying or abrogating special share rights required over 75% consent from that share class.
- •A Shareholders' Agreement included a put option for Ventura to require the Company to buy back Series A Shares if a Qualifying IPO didn't happen by November 19, 2023.
Legal Principles
Interpretation of contracts involves ascertaining the meaning a reasonable person would convey, considering all reasonably available background knowledge to the parties.
Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896
Contract interpretation considers: natural meaning, other provisions, overall purpose, known facts/circumstances, commercial common sense, but excludes subjective intentions.
Arnold v Britton [2015] AC 1619
Even with unambiguous language, interpretation is iterative, testing meanings against other clauses and commercial consequences.
Rainy Sky v Kookmin Bank [2011] 1 WLR 2900
In rare cases, despite unambiguous language, corrective construction is used if a mistake is clear and the correction is evident.
Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101
A term can be implied if necessary for business efficacy, clear and obvious, and doesn't contradict express terms.
Marks & Spencer plc v BNP Paribas Securities Services [2016] AC 742
Interpreting articles of association requires limited extrinsic evidence; focus on natural meaning, scheme/purpose, reasonably ascertainable facts, and commercial common sense.
Attorney-General of Belize v Belize Telecom [2009] 1 WLR 1988
Repayment of capital according to preference share rights is performance, not variation or abrogation.
Re Saltdean Estate Co Ltd [1968] 1 WLR 1844
Outcomes
Appeal dismissed.
The court found that Article 9.2(a)'s literal interpretation, allowing automatic conversion without Series A shareholder consent, led to incoherent and irrational results, contradicting other articles protecting those shareholders' special rights.
Article 9.2(a) requires compliance with Article 10.1 (75% consent).
The court employed corrective construction, finding a drafting error in not explicitly making Article 9.2(a) subject to Article 10.1. Alternatively, a term to this effect could be implied to ensure a coherent and rational interpretation of the articles.