As 2017 begins to find its feet, we examine this week's decision by the Takeover Panel to cold-shoulder two individuals, and our Litigation colleagues reflect on key cases we highlighted last year to draw out trends in contractual interpretation.


The Takeover Panel has issued a cold shoulder to Mr Bob Morton and Mr John Garner for intentionally providing false and inaccurate information in connection with an investigation by the Panel.

Cold-shouldering is the most severe form of sanction available to the Panel. This is only the third time the Panel has coldshouldered an individual.

Legal background

Rule 9.1 of the City Code on Takeovers and Mergers (the "Code") states that, when a person (along with his or her concert parties) acquires an interest in shares carrying more than 30 per cent of a company's voting rights, he or she must make an offer for the rest of the company's shares (a "Rule 9 offer").

Section 9(a) of the Introduction to the Code sets out the standard expected of persons dealing with the Panel. In particular, it requires people to:

  • deal with the Panel in an open and co-operative way;
  • disclose any information known to them that is relevant to the matter the Panel is considering; and
  • take all reasonable care not to give incorrect, incomplete or misleading information to the Panel.

Rule 9 is a fundamental protection for target shareholders, and section 9(a) sets out a core duty to act transparently. Contravention of either provision is a serious breach of the Code.

The Panel has the power to impose various sanctions for breaches of the Code. These include a private censure (where the breach is made public but the offending party is not identified) and a public censure (where the offending party is publicly identified).

The Panel's most severe sanction is to issue a statement that an individual is not likely to comply with the Code, known as cold-shouldering. FCA-regulated firms and other professional advisers are generally barred from acting for a cold-shouldered person on a transaction to which the Code applies.

What happened

Mr Morton is a successful investor. Until July 2013, he and his family companies appeared to own just under 30 per cent of Hubco Investments plc ("Hubco"), a company listed at the time on PLUS (now ISDX).

In July 2013, a Morton company ("Groundlinks") bought more shares in Hubco through Mr Morton's broker. This took the combined holding to more than 30 per cent and appeared to trigger Rule 9. The broker realised this in February 2015 during a historic review. He advised Mr Morton to consult the Panel.

Mr Morton told his broker that Groundlinks had bought the shares on behalf of someone else, later revealed to be Mr Garner (a friend of his son, Robert). Following a phone call with Mr Morton, Mr Garner sent an email corroborating Mr Morton's response, which Mr Morton forwarded in due course to his broker. Contrary to his broker's advice, Mr Morton did not contact the Panel.

Around two weeks later, in mid-March 2015, Mr Morton's solicitors drafted a promissory note to ratify the arrangement and emailed it to Mr Garner for him to sign. In April, Mr Garner sent the solicitors a scanned copy of the same promissory note, signed by Mr Garner but dated back to July 2013.

In the meantime, it became clear that Mr Morton was not going to consult the Panel, so his broker did so. The Takeover Panel Executive launched an investigation, questioning Mr Morton and Mr Garner.

Although the facts continued to morph, the two gentlemen gave essentially the same explanation to the Executive on various occasions during the investigation, namely:

  • Groundlinks acquired the shares in July 2013 on behalf of Mr Garner; and
  • as he did not have funds to pay at the time, Mr Garner issued a promissory note to Groundlinks.

On one occasion, the Executive even drew the individuals' attention to section 9(a), but Mr Morton and Mr Garner once again confirmed the response they had previously given the Executive.

The Executive concluded the two individuals had fabricated the story. It brought proceedings against them before the Panel Hearings Committee for breach of section 9(a) of the Introduction to the Code.


The Hearings Committee agreed that the individuals had invented the arrangement. More significantly, it found they had lied to the Executive and fabricated evidence, including backdating the promissory note as evidence of that arrangement.

The Committee imposed a cold shoulder on Mr Morton for six years. The Panel had already censured Mr Morton privately on two occasions and, as recently as February 2015, censured him publicly for failing to comply with Rule 9 and two other rules. It was the combination of his record of non-compliance and lying to the Executive that culminated in the severity of the sanction.

The Committee was more sympathetic to Mr Garner, who was less experienced than Mr Morton. However, it said Mr Garner had played an equally prominent role in misleading the Panel, including providing it with a deliberately misdated document. It imposed a cold shoulder on him for two years.

As it turns out, the combined Morton family holding in Hubco had been more than 50 per cent all along and there had been no breach of Rule 9. However, this did not affect the Committee's decision to impose stringent sanctions for deliberately misleading the Executive.

Practical implications

The Panel has only imposed a cold shoulder twice before (in 1992 and 2010). It is a sanction reserved only for the most serious breaches of the Code.

Rule 9 breaches can occur by mistake when a party fails to identify its concert parties. The Panel has various options in these circumstances, including suspending the voting rights attaching to the shares and ordering a sell-down back to a holding of 29.9 per cent.

However, in this case the individuals deliberately tried to circumvent Rule 9 (albeit retrospectively) and mislead the Panel. Mr Morton, in particular, had a history of not complying with Rule 9 or consulting the Panel. This led to the severe sanctions that were ultimately imposed.

Apart from the obvious point of not deliberately misleading the Panel, this case reinforces two things. First, advisers and investors must be aware of Rule 9 at all times and should take advice to identify their concert parties. If there is any doubt, it is important to consult the Panel.

Second, in an investigation with the Panel, it is critical to be transparent and offer up all relevant information. Failure to do so is likely only to aggravate matters and lead to more stringent sanctions.


In our last few updates of 2016, we covered several recent cases relevant to the M&A sector in which the courts interpreted various contractual provisions commonly used in contracts. These included:

  • Rush Hair Ltd v Gibson-Forbes, in which the court had to interpret the scope of non-compete and non-solicitation covenants in a share sale agreement;
  • Millen v Karen Millen Fashions Limited and another, in which the court had to look at various clauses in a share sale agreement, including whether a non-compete covenant protects the state of the business as at the date of the sale agreement or as at the date of the competitive activity;
  • Idemitsu Kosan Co Limited v Sumitomo Corporation, in which the court had to decide whether warranties in a share sale agreement could also amount to precontractual representations; and
  • Lehman Brothers (International) Europe (in admin.) v ExxonMobil Financial Services B.V., in which the court had to decide the meaning of the phrase "close of business".

Some of these cases indicate a trend towards a much more flexible approach to interpretation than the courts have previously been willing to take. Our Litigation colleagues have produced a detailed round-up of these cases, which can be found here.