This interesting and detailed case involved a company in the petroleum industry, JKX Oil & Gas plc. Eclairs and Glengary were two of the shareholders.
The directors of JKK took the view that Eclairs and Glengary were engaged in activities that were detrimental to the success of JKX. As a result, they issued notices on them under section 793 of the Companies Act 2006. The shareholders responded, but JKX then relied on a clause in its Articles (which a number of companies have) that if the company believes the shareholders have responded to the notice in a way that is incorrect or false, the company could then restrict their voting rights. This meant Eclairs and Glengary could not vote at the AGM.
When JKX did this, Eclairs and Glengary brought an action alleging a breach of section 171(1) of the 2006 Act, alleging that the directors had breached their duty to only use their power for the purposes for which they were conferred.
In particular, the shareholders alleged that JKX had taken this action so as to prevent them from voting at the AGM. The power under section 793 should have been limited to obtaining information about the shareholding, they alleged.
The High Court decided it in favour of the shareholders; the Court of Appeal reversed that decision. In the House of Lords, this decision was again reversed and the Court found in favour of the shareholders. Lord Sumption used a "but for" test in looking at the situation; if it had not been for the desire to restrain the shareholders, the company would not have issued the notices. As a result, the Court decided that the company had breached the "proper purpose" duty under section 171.
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