Sigiriya Capital Pty Ltd v Scanlon

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.