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What does it mean to nominate someone? The Court of Appeal has provided an answer.
A storm brewing
Magic Investments subscribed for around 100 shares in Greater Good Fresh Brewing, a home-brewing company co-founded by Mr Broadbent, for just shy of GBP1,000,000. The day before the purchase, the company wrote to Magic confirming that Magic would be entitled to ”nominate someone to the board”. Magic nominated Mr Meyer, who decided less than four months later that he was not in a position to be a director.
Magic believed it was entitled to a “Magic Board seat”. Mr Broadbent believed that while Magic could put forward a candidate for the vacant position, there was no obligation that Magic’s candidate be successful.
The lower courts were persuaded by Mr Broadbent’s position. Distinguishing between a right to “nominate” and a right to “appoint”, the lower courts concluded that Magic held a one-off right to nominate a candidate, but not a right to appoint a member.
What’s in a nomination?
The Court of Appeal was not so convinced. Emphasizing that words in contracts must be interpreted in context, the court looked not just at dictionary definitions, but also to the “factual matrix” and to “business common sense”. Four reasons were given in concluding that Magic had a right to have a person of its choosing on the board.
First, to the Oxford English Dictionary, whose definitions of nominate include both “to propose or formally enter as a candidate” and “to appoint (a person) by name to hold an office”. This meant that even on a strictly textual understanding, Magic’s right was at least ambiguous.
Secondly, to the text itself. The letter stated that Magic’s right was to “nominate someone to the board”. To have intended to grant a right only to nominate a candidate for the position would have required different wording – say, ”nominate someone to be considered”.
Thirdly, to the value of the letter. On Mr Broadbent’s interpretation, the letter would have given Magic nothing beyond what it was entitled to as a shareholder. Only if the words were construed as giving Magic more than a mere right to nominate a candidate could the letter have any value at all.
Fourthly, to the factual matrix. Magic contended that certain South African regulations required it to have a seat on the board where it invested in an overseas company, and that this was why the right had been given. The court concluded that the original intention of the letter must have been to give Magic a right to have someone of its choosing on the board, rather than just an ability to suggest someone. Only this interpretation could have satisfied the South African regulations, which was central to the parties' original intention.
Judgment: Magic v Broadbent
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