Sigiriya Capital Pty Ltd v Scanlon - [2013] NSWCA 401

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation: Sigiriya Capital Pty Ltd v Scanlon [2013] NSWCA 401
Hearing dates: 23 October 2013
Decision date: 29 November 2013
Before: Meagher JA at [1];
Leeming JA at [7];
Sackville AJA at [54]
Decision:
(1) Appeal allowed.
(2) Orders 3, 4 and 5 made on 30 April 2013 be set aside, and in lieu thereof make the following orders:
(a) Declare that the notice from Sigiriya to Mr Scanlon dated 5 February 2013 constituted a valid and effective exercise by Sigiriya of its powers under cl 11.2 of the Loan Agreement and thereby required Mr Scanlon to deliver the entirety of the 7,499,850 ordinary shares in Sirius Minerals Plc to Sigiriya.
(b) Order that Mr Scanlon immediately take such steps as are necessary so as to cause the entirety of the 7,499,850 ordinary shares in Sirius Minerals Plc, which had been acquired by Mr Scanlon pursuant to the terms of the Loan Agreement, to be transferred and/or delivered to Sigiriya (or to such other person or entity as nominated in writing by Sigiriya) and that such delivery and/or transfer be completed within seven days.
(3) Order that Mr Scanlon pay Sigiriya's costs both in the Court below and of this appeal.
(4) The notice of cross-appeal is dismissed.
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords: CONTRACT - construction and interpretation - loan to employee to take up parcel of shares - loan not repayable for three years and interest capitalised so long as no "early termination" of employment - shares not to be assigned or transferred - whether transfer of legal title of shares to obtain uncertificated holding an event of default - construction of terms - role of internal coherence in construction - meaning of "assign, transfer or take any economically similar action" - whether borrower ought reasonably to have become aware that transfer of legal title was event of default - whether implied term to act reasonably or in good faith - whether consensual termination of employment contract amounted to "early termination" for the purposes of loan agreement
Cases Cited: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99
Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349
Chapmans Ltd v Australian Stock Exchange Ltd [1996] FCA 474; (1996) 67 FCR 402
Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184
Fitzgerald v Masters (1956) 95 CLR 420
Harding v Anton's Wire Products Pty Ltd [2013] NSWCA 258
Perpetual Custodians Ltd as custodian for Tamoran Pty Ltd as trustee for Michael Crivelli v IOOF Investment Management Ltd [2013]…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2013] NSWCA 401
Decision Date: 29 November 2013

CaseChat Overview and Summary

Sigiriya Capital Pty Ltd (Sigiriya) appealed to the Court of Appeal of New South Wales against orders made by the primary judge concerning a loan agreement with Mr Scanlon. The dispute centred on whether Mr Scanlon had breached the loan agreement by transferring the legal title of shares he acquired with the loan funds to obtain an uncertificated holding, and whether his consensual termination of employment constituted an "early termination" under the agreement.

The Court of Appeal was required to determine several legal issues. These included the proper construction of the loan agreement, specifically whether the transfer of legal title to obtain an uncertificated holding constituted an "assign, transfer or take any economically similar action" that would trigger an event of default. The court also considered whether Mr Scanlon ought reasonably to have become aware that such a transfer would be an event of default, and whether there was an implied term that he would act reasonably or in good faith in relation to the agreement. Finally, the court had to decide whether a consensual termination of his employment contract amounted to an "early termination" for the purposes of the loan agreement.

In its reasoning, the Court of Appeal emphasised the importance of internal coherence in contractual construction. The court found that the transfer of legal title to obtain an uncertificated holding did not fall within the prohibition against assigning or transferring the shares, as it was a necessary step to hold the shares in a dematerialised form and did not involve a change in beneficial ownership or a disposition of the shares in the ordinary sense. Furthermore, the court held that the consensual termination of employment did not constitute an "early termination" as contemplated by the agreement, which referred to termination by the employer for cause or by the employee without good reason. Consequently, the appeal was allowed, and the previous orders were set aside, with declarations and orders made requiring Mr Scanlon to transfer the shares to Sigiriya and pay costs.

Orders

Orders of the court

(1) Appeal allowed.

(2) Orders 3, 4 and 5 made on 30 April 2013 be set aside, and in lieu thereof make the following orders:

(a) Declare that the notice from Sigiriya to Mr Scanlon dated 5 February 2013 constituted a valid and effective exercise by Sigiriya of its powers under cl 11.2 of the Loan Agreement and thereby required Mr Scanlon to deliver the entirety of the 7,499,850 ordinary shares in Sirius Minerals Plc to Sigiriya.

(b) Order that Mr Scanlon immediately take such steps as are necessary so as to cause the entirety of the 7,499,850 ordinary shares in Sirius Minerals Plc, which had been acquired by Mr Scanlon pursuant to the terms of the Loan Agreement, to be transferred and/or delivered to Sigiriya (or to such other person or entity as nominated in writing by Sigiriya) and that such delivery and/or transfer be completed within seven days.

(3) Order that Mr Scanlon pay Sigiriya's costs both in the Court below and of this appeal.

(4) The notice of cross-appeal is dismissed.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Full text does not contain this section.

Medium Neutral Citation:	Sigiriya Capital Pty Ltd v Scanlon [2013] NSWCA 401
Hearing dates:	23 October 2013
Decision date:	29 November 2013
Before:	Meagher JA at [1]; Leeming JA at [7]; Sackville AJA at [54]
Decision:	(1) Appeal allowed. (2) Orders 3, 4 and 5 made on 30 April 2013 be set aside, and in lieu thereof make the following orders: (a) Declare that the notice from Sigiriya to Mr Scanlon dated 5 February 2013 constituted a valid and effective exercise by Sigiriya of its powers under cl 11.2 of the Loan Agreement and thereby required Mr Scanlon to deliver the entirety of the 7,499,850 ordinary shares in Sirius Minerals Plc to Sigiriya. (b) Order that Mr Scanlon immediately take such steps as are necessary so as to cause the entirety of the 7,499,850 ordinary shares in Sirius Minerals Plc, which had been acquired by Mr Scanlon pursuant to the terms of the Loan Agreement, to be transferred and/or delivered to Sigiriya (or to such other person or entity as nominated in writing by Sigiriya) and that such delivery and/or transfer be completed within seven days. (3) Order that Mr Scanlon pay Sigiriya's costs both in the Court below and of this appeal. (4) The notice of cross-appeal is dismissed. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
Catchwords:	CONTRACT - construction and interpretation - loan to employee to take up parcel of shares - loan not repayable for three years and interest capitalised so long as no "early termination" of employment - shares not to be assigned or transferred - whether transfer of legal title of shares to obtain uncertificated holding an event of default - construction of terms - role of internal coherence in construction - meaning of "assign, transfer or take any economically similar action" - whether borrower ought reasonably to have become aware that transfer of legal title was event of default - whether implied term to act reasonably or in good faith - whether consensual termination of employment contract amounted to "early termination" for the purposes of loan agreement
Cases Cited:	Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 Chapmans Ltd v Australian Stock Exchange Ltd [1996] FCA 474; (1996) 67 FCR 402 Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184 Fitzgerald v Masters (1956) 95 CLR 420 Harding v Anton's Wire Products Pty Ltd [2013] NSWCA 258 Perpetual Custodians Ltd as custodian for Tamoran Pty Ltd as trustee for Michael Crivelli v IOOF Investment Management Ltd [2013]…