In this article, partner Alex Lerner and trainee solicitor Iola Reynolds review the guidance from the Court of Appeal in Syspal Capital Ltd v Truman and another [2025] EWCA Civ 469 on the proper approach to the construction of companies’ articles of association.

Background

Syspal Holdings Ltd (“SHL”) was the holding company and sole owner of Syspal Limited (“SL”), an engineering company. SHL was owned 24% by Mr Truman and 76% by Syspal Capital Limited (“SCL”); SCL was controlled by a Mr Roberjot.

Mr Truman was an employee and director of SL. He was dismissed as an employee on 10 October 2022 and removed as a director on 3 November 2022. Mr Truman also served as a director of SHL until 24 May 2023, when he resigned (upon reaching his sixty-fifth birthday).

SHL’s articles of association (the “Articles”) provided: “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 … on the date of such cessation.”

The key issue in the case was whether a “Transfer Notice” was triggered upon the date of Mr Truman’s dismissal as an employee of SL on 10 October 2022 or whether it was triggered on his resignation as a director of SHL on 24 May 2023. If the former, then the operation of other provisions of the Articles provided for a sale of his shares at “Market Value”, and if the latter, at “Fair Value”. It was common ground between the parties that a Fair Value was likely to be substantially greater than Market Value (because a Market Value approach would incorporate a discount to take into account Mr Truman’s minority interest, whereas a Fair Value approach would not apply any such reduction).

First instance

At first instance, the judge concluded that it was only upon the resignation of Mr Truman as a director of SHL on 24 May 2023 that a Transfer Notice was deemed to be served, and that Mr Truman’s shares should accordingly be priced at Fair Value.

Court of Appeal

SCL appealed, arguing that the Articles should have been interpreted as deeming a Transfer Notice served when an “Employee Member” ceased to be employed in any one of the three capacities identified (ie, as employee or director or consultant).

The appeal turned on the words “does not continue in that capacity”, the meaning of which, the Court of Appeal held, was to be ascertained by:

• reference to the Articles as a whole
• any extrinsic facts about the company or its membership that would be reasonably ascertainable by any reader of the company’s constitution and public filings at Companies House, and
• commercial common sense: Re Euro Accessories Ltd [2021] EWHC 47 (Ch), per Mr Justice Snowden at [34].

The Court of Appeal found that although the use of the singular “that capacity” was capable of referring back to one or other of the specific capacities in which an “Employee Member” might be employed, it was equally capable of referring back to the (single) capacity of being “employed” ie, in the broad sense of the word, whether that be as an employee, director or consultant of a “Group Company”. The Court of Appeal’s view was that the latter interpretation made more commercial sense. It also rendered a sale at Fair Value to be the default position.

By contrast, SCL’s construction of the Articles gave rise to outcomes that made little commercial sense. For example, it would force a sale of shares at a lower valuation for an “Employee Member” (a) who ceased to be a director of any “Group Company”, but who continued to be employed within the “Group” (b) who ceased to be employed full time, but who nevertheless continued to be involved with the day-to-day running of the business as a consultant and (c) who had first been employed as a consultant, but who then moved to full-time employment.

Conclusion

The Court of Appeal’s decision is a reminder of the need for parties to have regard to the natural meaning of the wording of contracts, as well as commercial common sense, when deciding between conflicting interpretations of contractual provisions.

The decision also provides a neat summary of the factual matrix to which parties should have specific regard when interpreting provisions in articles of association under English law.

Notably, however, the Court of Appeal appears to have shied away from expressly commenting on whether articles of association constitute a special category of commercial agreement compared to a private contract (as was the case in the first instance judgment at para [25]).

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