Judgement on the interpretation of articles of association

In Syspal Capital Limited v Truman and another [2025] EWCA Civ 469, the Court upheld the judgment of the High Court in relation to the interpretation of the leaver provisions of articles of association.

This judgment confirms the need for clarity when drafting these complex provisions and also shows that, where there is any doubt as to the interpretation of a provision, it will be construed in the favour of the minority shareholder.

Syspal Capital Limited v Truman and another (2025): case summary

The Claimant held 76% of the shares in a company called Syspal Holdings Limited (“SHL”); the remaining 24% of the shares were held by the Defendant.

The articles of association of SHL provided that “If an Employee Member (with Employee Member being defined as a Member who is also an employee, consultant or director of a Group Company) shall cease for any reason…to be employed as an employee, consultant or director of a Group Company (and does not continue in that capacity in relation to any Group Company) than a Transfer Notice shall be deemed to have been served”.

If the Defendant resigned on his 65th birthday, he would get “fair value” for his shares. If a deemed transfer notice was given before his 65th birthday then he would get “market value”, which was the fair value but with a discount applied for the shares being held by a minority. That discount was potentially substantial, so it was very much in the Defendant’s favour to have the shares valued at their fair value.

The Defendant served as an employee of a group company called Syspal Limited (“SL”) until 10 October 2022, when he was dismissed, and remained a director until 3 November 2022. He remained as a director of SHL until 24 May 2023 (his 65th birthday).

The Claimant attempted to acquire the Defendant’s shares under the mandatory transfer provisions of the articles, claiming that they were only required to give the lesser of the market value. The Defendant argued that, given that he had ceased to be an employee of SL before being removed as a director, he had continued “in that capacity” and so the mandatory transfer provisions were not triggered until his 65th birthday. He therefore said that he was entitled to transfer his shares at a fair value.

In the Court of Appeal, Lord Justice Zacaroli (who delivered the lead judgment) noted that the whole case turned on the interpretation of the phrase “does not continue in that capacity” in the article set out above. The Claimant said that the phrase meant the capacity in which the employee was employed at the point that arrangement was terminated. The Defendant said that the article meant the capacity of an employee, consultant or director of a group company, and therefore referred back to the three roles specifically set out in the article cited above.

The Court preferred the Defendant’s interpretation, saying that:

• Given the way it was drafted, the phrase “in that capacity” referred to the three capacities specified earlier in the article
• They believed that must be right, given that it’s not uncommon for a senior director to resign as an employee or a director but then continue as a consultant – if the Claimant’s interpretation was preferred then the effect would be to confer a right on the company to acquire the shareholder’s shares at the lesser value and notwithstanding the shareholder’s continued involvement in the company
• The Claimant’s interpretation also meant that an employee could be dismissed for no reason, simply to trigger the mandatory transfer provisions of the articles (which would be manifestly unfair)
• The Claimant’s interpretation made sense when read against the rest of the articles, namely:
  • The only person who could ever be an “Employee Member” (at least, at the point when the articles were adopted) was the Defendant
  • It made sense for a mandatory transfer notice to be deemed as served when the employee was finally no longer concerned with the company, and not whilst they had preserved some interest in it or its group
  • The fact that the article referred to “consultant” favoured the Defendant’s position that it was envisaged that a shareholder would retain their shares even if they were no longer an employee and/or a director, but preserved some role in the group companies.

Therefore, it was held at first instance and in the Court of Appeal that a deemed transfer notice was in fact given at the latest date (i.e. when he resigned voluntarily from SHL on 24 May 2023 – the Defendant’s 65th birthday), and that therefore he was entitled to fair value for his shares.

Interpreting articles of association in a shareholder dispute – key takeaways

The judgment demonstrates that, when interpreting articles:

• An individual provision will not be read in isolation, but in the context of the wider articles
• Articles are also read in a way so that the outcome they seek to achieve makes commercial good sense
• Clarity in drafting is essential and as a company or group of companies evolve, their constitutional documents ought to be kept under a regular review
• Where there is uncertainty, articles will tend to be construed in the favour of the minority shareholder.

If you have a query about a shareholder dispute, don’t hesitate to get in touch with our specialist team.