Syspal Capital Ltd v Mr Christopher John Truman
| Jurisdiction | England & Wales |
| Judge | Mr Justice Roth |
| Judgment Date | 24 June 2024 |
| Neutral Citation | [2024] EWHC 1561 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CR-2023-005376 |
[2024] EWHC 1561 (Ch)
THE HONOURABLE Mr Justice Roth
Case No: CR-2023-005376
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Robert Mundy (instructed by George Green LLP) for the Claimant
Alexander Heylin (instructed by Fieldfisher LLP) for the First Defendant
The Second Defendant did not appear and was not represented
Hearing date: 14 May 2024
Approved Judgment
This judgment was handed down remotely at 14.00pm on [24 th June 2024] by circulation to the parties or their representatives by e-mail and by release to the National Archives
THE HONOURABLE Mr Justice Roth
This is a Part 8 claim. It concerns the correct interpretation of a provision in the Articles of Association (“the Articles”) of the Second Defendant (“SHL”).
SHL, as its name suggests, is a holding company. It carries out no trading activity and has no employees but holds 100% of the share capital of Syspal Limited (“SL”). SL is an engineering company, specialising in the design and fabrication of stainless steel and aluminium products for various industries and sectors. Since the early 2000s, it has expanded into the veterinary and healthcare sectors.
The First Defendant, Mr Christopher Truman, had been, since 1980, an employee of SL. He became managing director of SL in 2000 and was closely involved in the running of the business. He was accordingly also a director of SL.
On 10 October 2022, Mr Truman was dismissed as an employee of SL. He has brought proceedings in the Employment Tribunal concerning the circumstances of his dismissal. Subsequently, on 3 November 2022, Mr Truman was removed as a director of SL. Mr Truman at the time challenged the lawfulness of his removal. However, nothing turns on that for the purpose of the present proceedings and Mr Truman accepts that he then ceased to be a director of SL.
The Claimant, Syspal Capital Limited (“SCL”) owns 76% of the shares of SHL which is therefore its subsidiary. The financial statements of SHL for the year ended 31 March 2014 noted that SCL was in turn controlled by Mr Anthony Roberjot. The remaining 24% shareholding in SHL is held by Mr Truman.
Mr Truman was a director of SHL until he resigned on 24 May 2023, his 65 th birthday. The only other director was Mr Anthony Roberjot.
The Articles
The Articles of SHL with which this case is concerned were adopted in December 2015. They replaced the previous articles when a group restructuring took place.
Like the articles of association of many private companies, the Articles provide that in circumstances where one shareholder wishes to sell any of their shares, another shareholder shall have the first right to purchase those shares, and the Articles set out a mechanism for the price to be determined.
Hence, section 10 of the Articles is headed “Pre-emption” and art. 10.1 provides for the service of a notice, called a “Transfer Notice”, in specified terms by any person wishing to transfer any of their shares in SHL. Art. 10.4 then states:
“10.4 Unless agreed by the Board and the Proposing Transferor not later than 15 days from receipt of the Transfer Notice, the Sale Price for the Sale Shares shall
10 4 1 in the event that a Transfer Notice is deemed served in respect of the Shares held by Mr C Truman (and for the avoidance of doubt his Family members and trustees of his Family Trusts) pursuant to Article 11.1 and/or Article 11.3 as a result of his death prior to 10 April 2024, be the higher of Fair Value and £3,000,000,
10 4 2 in the event that a Transfer Notice is deemed served pursuant to Article 11.3 as a result of any reason other than the Employee Member's death, permanent incapacity or retirement at 65 years of age, be Market Value,
10 4 3 save as provided in Articles 10.4.1 and/or 10.4.2, be Fair Value.”
I was told that the significance of the date of 10 April 2024 is that this was the date when ‘key man’ insurance cover held by SHL over the life of Mr Truman expired.
“Fair Value” and “Market Value” are defined terms under art. 1.1. The essential difference between them is that Fair Value values the shares on a pro rata basis by reference to the value of SHL, whereas Market Value constitutes a valuation that takes account of a minority discount as appropriate.
Art. 11.3 is at the core of this dispute. It states:
“If any Employee Member shall cease for any reason (including but not limited to death or termination of employment by the Employee Member or Company) to be employed as an employee, director or consultant of a Group Company (and does not continue in that capacity in relation to any Group Company) then a Transfer Notice shall be deemed to have been served in accordance with Article 10 1 on the date of such cessation.”
“Employee Member” is defined in art. 1.1 as follows:
“Employee Member” means a Member who is also an employee, consultant or director of a Group Company (with the exception of Mr A Roberjot), …”
“Member” is further defined to mean any shareholder in SHL. SCL, SHL and SL are Group Companies.
Accordingly, if Mr Truman's resignation on his 65 th birthday on 24 May 2023 triggered a deemed Transfer Notice under art. 11.3, he is entitled to be paid “Fair Value” as the price for his shares pursuant to art. 10.4.3. However, if, on its correct interpretation, art 11.3 had previously been engaged on his dismissal as an employee of SL on 10 October 2022, then pursuant to art. 10.4.2 the price which he can receive for his shares is “Market Value”, i.e. it incorporates a minority discount. The difference between “Fair Value” and “Market Value” in the circumstances of this case is very significant.
The Competing Submissions
The case has been well argued by Mr Mundy for SCL and Mr Heylin for Mr Truman.
Mr Mundy submitted, in summary, that the wording “in that capacity” in the second part of art. 11.3 refers to the capacity in which the Employee Member ceased to be employed, so that when Mr Truman ceased to be employed by SL (as he was not employed by any other Group Company) the terms of the provision were engaged and a Transfer Notice was deemed to be served. He contended that this was the natural reading of the language and, further, that it accorded with commercial common sense.
Mr Heylin submitted that art 11.3 was addressing three different ways in which an Employee Member might be engaged to work for a Group Company, and that the wording “in that capacity” was a reference back to any of those alternatives, so that when Mr Truman ceased to be employed by SL, the terms of the provision did not apply since he continued to be a director of SHL. He argued that this was the more natural reading, and for his part submitted that it was the interpretation that accorded with commercial common sense.
In the alternative, Mr Heylin contended that there should be an implied term in art. 11.3, on the basis of the well-known ‘officious bystander’ or business efficacy tests, such that the clause should read:
“If any Employee Member shall cease for any lawful reason .. to be employed as an employee, director or consultant…”
He said that it cannot have been the intention that by dismissing an Employee Member on wholly impermissible grounds, e.g. on account of their sex or race, there could be triggered a Transfer Notice whereby they could be compelled to sell their shares at the lower of the two stipulated values. In response to question from the Court, Mr Heylin accepted that on this alternative case the word “lawful” might more appropriately be implied before “termination of employment”, with the implication that an unlawful termination of employment would not come within the provision. But the result in practical terms would be the same.
In the further alternative, Mr Heylin submitted that if in the Employment Tribunal proceedings SL were to be ordered to reinstate Mr Truman, then his earlier dismissal should not be held to fall within art. 11.3.
Mr Heylin accepted that on either of these alternative cases, the determination of the basis on which Mr Truman's shares were to be valued would have to await the outcome of the Employment Tribunal proceedings.
I should note that both sides agreed that on either interpretation the removal of Mr Truman as a director of SL in November 2022 did not engage 11.3. That was because at that time he remained a director of SHL, another Group Company.
Legal principles
There was no real issue between the parties on the governing approach to interpretation. In his recent judgment in Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd [2023] UKSC 2, Lord Hamblen (with whose judgment Lords Hodge DP, Kitchin and Sales agreed) summarised at [29] the principles of...
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