A&L Goodbody LLP
  November 1, 2005 - Ireland

Company Law – Shareholder Voting Agreement – Agent Shareholder – Fiduciary Duty of Agent Shareholder

Halton International Inc (Holding) SARL and another v Guernoy Limited [2005] EWHC 1968 In this case, the UK High Court held that where a voting agreement conferred absolute discretion on an agent shareholder as to how to raise finance for the company and vote the shares of the other shareholders, on a share issue to raise funding, the agent did not owe fiduciary duties to the other shareholders in relation to the selection of investors. Additionally, he could exercise the votes to effect a waiver of pre-emption rights. Facts: The parties were shareholders in an airline company that was negotiating a franchise agreement with British Airways and needed more money to finance the deal. It was agreed that the defendant shareholder would source the funding and underwrite the financing. The shareholders entered into a voting agreement, under which the defendant was given a power of attorney enabling it to act as agent of and to vote for the other shareholders for the purposes of arranging the financing. The agreement stated that the defendant could raise funding in any matter in which it, in its absolute discretion, considered fit. The defendant intended to source funding through the issue of shares (which it planned to acquire itself). The defendant wrote to all the shareholders asking them if they intended to take up their pre-emption rights (which give existing shareholders “first dibs” on a new issue of shares) and received no responses. The plaintiff claimed that he did not receive this correspondence. At the EGM of the company, the defendant took up a fresh issue of shares itself, after passing a special resolution dis-applying the pre-emption provisions. The plaintiff argued that the defendant, in exercising powers under the voting agreement, owed a fiduciary duty to exercise the powers in good faith: in particular, a duty not to obtain a secret profit and not allot any of the new shares to the defendant company before offering them to all existing shareholders. Held: The Court, placing great emphasis on the wording of the voting agreement in question, held that the agreement did not impose any fiduciary duty on the defendant in relation to the selection of investors and the share issue. The Court stated that there is no clear authority which recognises agent shareholders as having a fiduciary relationship with their principals. Under the terms of the voting agreement, the defendant was given a free hand in its choice of investors, which could include itself. The defendant did not use its powers under the power of attorney for any purpose other than the purposes for which it was granted.


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