Scanlon v Sigiriya Capital Pty Ltd [2013] NSWSC 227 (26 March 2013)

Last Updated: 20 November 2013

Supreme Court New South Wales

Case Title:	Scanlon v Sigiriya Capital Pty Ltd
Medium Neutral Citation:	[2013] NSWSC 227
Hearing Date(s):	25 & 26 February 2013
Decision Date:	26 March 2013
Before:	YOUNG AJ
Decision:	Plaintiff seeks declaration in relation to shares
Catchwords:	CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - construction and interpretation of contracts - whether defendant entitled to seek delivery up of shares pursuant to contract - whether breach of contract by plaintiff CONTRACTS - EMPLOYMENT - REPUDIATION/TERMINATION - where termination by agreement admitted - whether termination either a termination by the plaintiff or a termination by the defendant for breach of contract by plaintiff CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - construction and interpretation of contracts - implied terms of good faith and reasonableness - whether excluded CRIMINAL LAW - PARTICULAR OFFENCES - offences relating to the administration of justice - perjury and false statement - where defendant swears amended defence inconsistent with original sworn defence - explanation required
Legislation Cited:	Duties Act 1997
Cases Cited:	Tullett Prebon (Australia) Pty Ltd v Purcell [2008] NSWSC 852
Texts Cited:	Chitty on Contracts, 29th ed (2004)
Category:	Principal judgment
Parties:	Plaintiff: Alexander Witrak Scanlon Defendant: Sigiriya Capital Pty Ltd (ACN 136 058 369)
Representation
- Counsel:	Counsel: Plaintiff: Mr P Kite SC with Mr G Boyce Defendant: Mr V Bedrossian
- Solicitors:	Solicitors: Plaintiff: Kardos Scanlan Lawyers Defendant: Hunt & Hunt Lawyers
File Number(s):	2012/00047100
Publication Restriction:	None

JUDGMENT

1. YOUNG AJ: These proceedings, between a former employer and employee in the finance industry, are brought to determine which party is entitled to own a valuable parcel of shares.

2. Those shares were placed with the plaintiff defeasibly. The placement was, on the plaintiff's evidence, a bonus being compensation for the alleged fact that he was being paid a salary below his market worth.

3. The parties fell out. The shares concerned rocketed in value due to factors for which neither party can claim credit. The plaintiff claims that the shares are his. The defendant claims that because of the happening of certain events, the plaintiff's title determined and that the shares must be revested in it.

4. The proceedings were heard by me on 25 and 26 February 2013. Mr P Kite SC and Mr G Boyce appeared for the plaintiff and Mr V Bedrossian appeared for the defendant.

5. Having given a broad outline of what this case is all about, I must now turn to the details.

6. The plaintiff commenced these proceedings seeking declaratory relief in respect of shares held by the plaintiff in Sirius Minerals plc, a company registered in the United Kingdom with an Australian subsidiary. He also seeks an injunction restraining the defendant from exercising any powers under the Loan Agreement to which I shall shortly refer by reason either of the conversion of the shares under the CREST Transfer Form, or the termination of the plaintiff's employment with the defendant.

7. The defendant cross-claims, seeking declaratory relief and an order that the plaintiff (cross-defendant) take the steps necessary to transfer the shares to the defendant (cross-claimant).

8. Key facts that are not in dispute include that the defendant is a company incorporated in Australia which carries on business giving advice specialising in investment in natural resources. The plaintiff was employed by the defendant as an "Investment Banking Executive" under a written contract dated 16 September 2009. He reported to Mr Fraser, who was the Executive Chairman and Managing Director of the defendant.

9. On 8 November 2010, the defendant lent AU$47, 500 to the plaintiff under a written contract (the Loan Agreement) for the exclusive purpose of acquiring 2,500 shares in York Potash Ltd, a company registered in the United Kingdom. Counsel on both sides referred to this agreement as a "golden handcuff", creating an incentive for the plaintiff to continue his employment with the defendant and perhaps acting as extra compensation in light of a salary which may have been below market levels. The plaintiff acquired the shares under a Share Subscription Deed between himself and York Potash Ltd, also dated 8 November.

10. In May 2010, the Fraser Family Trust (which was headed by Mr Fraser and, at the time, the sole member of York Potash) had entered into a memorandum of understanding with Sirius, granting Sirius an option to acquire the entirety of the shares in York Potash in exchange for 150 million Sirius shares. As is clear from its terms, the Loan Agreement contemplated that the 2,500 York Potash shares would be exchanged for the relevant number of Sirius shares.

11. Sirius did exercise its option and on 17 January 2011 all persons, including the plaintiff, holding shares in York Potash sold their shares to Sirius in exchange for an allocation of shares in Sirius. The plaintiff received 7, 499, 850 Sirius shares in exchange for the 2,500 York Potash shares.

12. Also on 17 January, Mr Fraser was appointed Chief Executive Officer and Managing Director of Sirius.

13. Because of an extraordinarily good find of potash off the coast of Whitby, Yorkshire, the shares had a value of about AU$1.6 million in August 2012. If the plaintiff was entitled to pay out the loan agreement in cash, he would only need to pay about AU$58,575.

14. I should now turn to the relevant parts of the Loan Agreement.

1 Definitions and interpretation

1.1 In this Agreement, unless the context requires another meaning:

Approved Purpose means to fund the acquisition by the Borrower of 2,500 York Potash shares.

Drawdown Date means the date on which the Loan is, or is to be, made to the Borrower under this Agreement.

Early Termination means that, prior to the Final Repayment Date, the Borrower terminates its employment contract with the Lender, or its contract is terminated by the Lender due to a breach of that employment contract by the Borrower.

Event of Default means an event listed in clause 11.1.

Facility means the loan facility of $47,500 to be made available by the Lender to the Borrower under this Agreement (as reduced or cancelled in accordance with this Agreement).

Final Repayment Dates means 8 November 2013.

Security Interest means a right, interest, power or arrangement in relation to any property which provides security for, or protects against default by a person in, the payment or satisfaction of a debt, obligation or liability and any arrangement under which rights are subordinated to the rights of another party, and includes:

(a) a mortgage, charge, bill of sale, pledge, deposit, lien, encumbrance, hypothecation or other security interest;

(b) any other arrangement having the effect of conferring security (including any conditional sale, hire purchase or lease agreement, or arrangement for the retention of title or sale and repurchase arrangement); or

(c) any contractual arrangement under which money or claims to, or the benefit of, a bank or other account may be applied, set-off or made subject to a combination of accounts.

Shares means the York Potash Shares and/or the Sirius Option Shares.

Sirius Option Shares means any Sirius shares received pursuant to the Share Subscription Deed and any outstanding entitlement to receive Tranche 1 Sirius shares or Tranche 2 Sirius shares which has arisen or may arise pursuant to the Share Subscription Deed.

Transaction Documents means:

(a) this Agreement;

(b) the Share Subscription Deed;

(c) each document which the Lender and Borrower agree in writing is a Transaction Document under this Agreement; and

(d) each document entered into or provided under any of the documents described in paragraphs (a), (b) or (c), or for the purpose of amending or novating any of those documents.

2 The Loan

2.1 Subject to this Agreement, the Lender agrees to provide the Facility to the Borrower in one drawing.

2.2 The Borrower must use the Loan only for the Approved Purpose.

...

5 Repayment, prepayment and cancellation

Repayment

5.1 Subject to clause 6.7, the Borrower must pay the Amount Owing (including any interest accrued under clause 4.1) in full to the Lender on the Final Repayment Date.

5.2 In the event of an Early Termination, repayment of the Loan may only be achieved as follows:

(a) should Early Termination occur prior to the one year anniversary of the Drawdown Date, by the Borrower delivering clear and unencumbered title to 100% of the Shares to the Lender or its nominee, and issuing an irrevocable transfer notice to York Potash or to Sirius, or both, as the case may be, to have the Borrower's name on the relevant share register removed and replaced in favour of the Lender or its nominee in respect of the 100% of the Shares; or

(b) should Early Termination occur after the one year anniversary of the Drawdown Date, by the borrower delivering:

(i) cash in an amount equivalent to the figure calculated as the Early Termination Service divided by the Loan term, then multiplied by the Amount Owing; and

(ii) clear and unencumbered title to that number of shares, representing a proportion of the total number of the Shares, calculated as the Early Termination Shortfall divided by the Loan Term, then multiplied by the total number of the Shares

to the Lender or its nominee, and issuing an irrevocable transfer notice to York Potash or to Sirius, or both, as the case may be, to have the Borrower's name on the relevant share register removed and replaced in favour of the Lender or its nominee in respect of the proportion of the Shares as calculated pursuant to sub-clause 5.2(b)(ii).

5.3 In consideration for entering into this Agreement, the Borrower irrevocably appoints the Lender to be his attorney for the purposes of executing and delivering, in the name of the Borrower, all documents required to be executed and delivered by the Borrower under any portion of clause 5.2.

Prepayment

5.4 Subject to clause 5.2, the Borrower may only prepay the Loan in cash with the written consent of the Lender or an Authorised Officer of the Lender.

5.5 Amounts prepaid may not be reborrowed under this Agreement.

...

9 Representations and warranties

9.1 The Borrower represents and warrants to the Lender in respect of itself that:

...

(d) documents binding: the Transaction Documents constitute (or will, when signed and delivered, constitute) their respective legal, valid and binding obligations enforceable against it in accordance with their terms.

...

(l) title: it will be the sole beneficial owner of the Shares purported to be charged or mortgaged by it free of any Security Interest or other third party right or interest other than the Permitted Security Interests...

10 Undertakings

Positive undertakings

10.1 Unless the Lender or an Authorised Officer of the Lender otherwise agrees in writing, the Borrower must:

...

(e) ranking of obligations: ensure that its obligations under the Transaction Documents at all times rank ahead of all its other obligations (other than those which on its winding-up, liquidation, dissolution or similar process must be preferred by operation of law) except for any priority agreement to which the Lender or an Authorised Officer of the Lender agrees in writing in respect of any Permitted Security Interest;

Negative undertakings

10.2 Unless the Lender or an Authorised Officer of the Lender otherwise agrees in writing, the Borrower must not:

(a) Security Interests: create or permit to exist a Security Interest over all or any part of its assets, revenues or business, other than a Permitted Security Interest;

...

(c) Disposal: sell, pledge, encumber, assign, transfer, or take any economically similar action, or make any such offer, in relation to the Shares, nor permit the sale, encumbrance, assignment, transfer or economically similar action of the Shares in any manner, including such actions as writing covered options or other economically similar undertaking.

11 Events of Default

11.1 It is an Event of Default if:

...

(c) other default: the Borrower fails to perform or observe any other obligation under a Transaction Document and:

(i) the Lender considers that the failure or default cannot be remedied; or

(ii) the Lender considers that the failure or default can be remedied but it is not remedied to the Lender's satisfaction within 3 Business Days (or any longer period the Lender of an Authorised Officer of the Lender approves) from the earlier of:

(A) the date the Borrower became aware of the default or ought reasonably to have become aware of the default; and

(B) receipt by the Borrower of a notice from the Lender requiring it to remedy the default.

...

(k) undertakings: an undertaking given to the Lender or an agent or advisor of the Lender by or on behalf of the Borrower or an agent or advisor of the Borrower is not honoured strictly in accordance with its terms;

...

11.2 If an Event of Default occurs the Lender may by notice to the Borrower:

(a) declare the Amount Owing to be either:

(i) payable on demand; or

(ii) immediately due and payable without further demand, notice or other legal formality of any kind; or

(b) declare the Facility cancelled; or

(c) declare the Amount Owing to be immediately due and payable without further demand, the Amount Owing to be satisfied only by delivery of the Shares.

or make any or all of these declarations.

11.3 A notice given under clause 11.2 is effective on its receipt.

11.4 Subject to clause 5.2, if the Lender gives a notice under clause 11.2 the Borrower must immediately pay to the Lender the Amount Owing in full and in the form demanded in the notice under clause 11.2. In consideration for entering into this agreement, the Borrower irrevocably appoints the Lender to be its attorney for the purposes of executing and delivering, in the name of the Borrower, all documents required to be executed and delivered by the Borrower and sub-clause 11.2(c).

...

14 Assignment

Assignment by the Borrower

14.1 The Borrower must not assign or otherwise transfer, create any charge, trust or other interest in or otherwise deal with a Transaction Document or a right, remedy, power, duty or obligation under a Transaction Document without the prior written consent of the Lender or an Authorised Officer of the Lender.

...

16 Preservation of rights

...

Moratorium legislation

16.4 To the extend permitted by law, a provision of a law is excluded if it does or may, directly or indirectly:

(a) lessen or vary in any other way the Borrower's obligations under a Transaction Document; or

(b) delay, curtail or prevent or adversely affect in any other way the exercise by the Lender of any of its rights, remedies or powers under a Transaction Document.

...

18 General Provisions

Consents and approvals

18.2 The Lender may give its approval or consent conditionally or unconditionally or withhold its approval or consent in its absolute discretion unless a Transaction Document expressly provides otherwise.

(Emphasis added.)

15. Sometime in early 2011, the plaintiff was told by the defendant that Mr Fraser would be pursuing his new role with Sirius on a full-time basis, and that the defendant's business activities would be winding down accordingly.

16. The plaintiff says (and Mr Fraser gave no evidence so that there is no contrary version) that when both he and Mr Fraser were in London in the week of 17 January 2011, Mr Fraser said to the plaintiff,

"Mate, I have some bad news for you. I've been talking to the Board. They have said that I cannot be CEO of Sirius and keep running Sigiriya as well. I'm sorry, but I am shutting it down."

17. Subsequently, there were discussions with Mr Fraser about the plaintiff taking up employment with Sirius.

18. In mid-February of that year, the defendant informed the plaintiff that his employment would be terminated at the end of the month, and that his upcoming salary would be his last. It also requested the plaintiff to sign a Deed of Release absolving the defendant of any outstanding liability towards the plaintiff, which the plaintiff refused to do. The plaintiff has received no salary payments from the defendant since 28 February 2011

19. On 9 March 2011 the plaintiff entered into a written contract of employment with Sirius, with the role of "Manager of Business Development". The commencement date of the second contract was set as 17 January 2011.

20. Later that year, the employment relationship appears to have soured and on 25 November 2011 the plaintiff received an email notifying him that his employment was suspended pending investigation into his conduct and performance. After some correspondence in early to mid December, the plaintiff received a letter from Mr Fraser on the Sirius Australia letterhead which purported to terminate his employment with both Sirius and Sigiriya.

21. The letter made several allegations of unsatisfactory conduct, including alleged breaches of the plaintiff's employment obligations, and continued:

In view of the breaches of your employment contracts with both Sirius and Sigiriya, as outlined above and in my letter dated 6 December 2011, I have decided to terminate your employment with both Sirius and Sigiriya. This decision is fully supported by the Boards of both companies.

As a result of the termination of your employment contract with Sigiriya, the following provisions of clause 5 of the Loan Agreement executed on 8 November 2010 become operative:

5.2 In the event of an early termination, repayment of the Loan may only be achieved as follows:

(b) should Early Termination occur after the one year anniversary of the Drawdown Date, by the Borrower delivering:

i. cash in an amount equivalent to the figure calculated as the Early Termination Service divided by the Loan Term, then multiplied by the Amount Owing; and

ii. clear and unencumbered title to that number of the Shares, representing a proportion of the total number of the Shares, calculated as the Early Termination Shortfall divided by the Term Loan, then multiplied by the total number of the Shares

to the Lender or its nominee, and issuing an irrevocable transfer notice to York Potash or to Sirius, or both, as the case may be, to have the Borrower's name on the relevant share register removed and replaced in favour of the Lender or its nominee in respect of the proportion of the Shares as calculated pursuant to sub-clause 5.2(b)(ii).

5.3 In consideration for entering into this Agreement, the Borrower irrevocably appoints the Lender to be its attorney for the purposes of executing and delivering, in the name of the Borrower, all documents required to be executed and delivered by the Borrower under any portion of clause 5.2.

You will receive a separate letter in relation to repayment of the Loan.

22. Mr Fraser's reliance on clause 5.2(b) as opposed to clause 5.2(a) is consistent with the letter's attempted termination of the plaintiff's employment with the defendant as of 23 December 2011.

23. However, it is now not in dispute that his employment with the defendant took place by agreement sometime at the end of February or in early March of 2011. If that letter had any validity, the relevant clause is therefore 5.2(a), the plaintiff's termination being prior to the one-year anniversary of the Drawdown Date being 8 November 2012.

24. Through a letter dated 30 December 2011 by his solicitors, the plaintiff disputed, inter alia, the basis for his termination, or the allegation that his employment with the defendant continued after 28 February 2011, and the defendant's right to act under either clause 5.2 or 5.3 of the Loan Agreement.

25. The plaintiff's view as to the timing of the termination must be correct as it is now admitted that the employment ceased on 28 February 2011.

26. Before turning to the rival submissions, I must set out the facts concerning the plaintiff's dealings with JP Morgan.

27. Although JP Morgan is popularly known as a prominent United States Finance House, the evidence in the present case shows that, actually, a person dealing with "JP Morgan" will probably be dealing with a separate corporation merely licensed to use the name JP Morgan and trading to some extent under the aegis and control of the American company. However, no point was taken in the case on this matter by either party.

28. The plaintiff had a prior association with a senior officer of JP Morgan. He made use of this association to open an account with JP Morgan and also to obtain credit so that he could trade in shares with JP Morgan.

29. The plaintiff gave evidence that he has the qualifications of Master of Financial Economics from Oxford and Master of Management from Cambridge. However, when cross-examined on the JP Morgan documents, one would not think that he showed any proper appreciation of the legal issues involved.

30. The JP Morgan entity which whom the plaintiff opened an account was Bear Stearns. The "Customer Service Agreement" in clause 3 provided that each JP Morgan entity was given a lien and continuing security on all property carried or controlled through any JP Morgan entity.

31. I will now turn to the rival submissions. The plaintiff's basic case is that there was no "Early Termination" of his employment with Sigiriya which would entitle the defendant to seek delivery of the Sirius shares pursuant to clause 5.2(a).

32. Furthermore, although there is no doubt that the plaintiff converted his Sirius shares from certificated to uncertificated form and that that involved transferring them to JP Morgan to be held in a brokerage account, the plaintiff argues that this did not amount to a "Disposal" or other proscribed dealing which would entitle the defendant to succeed.

33. In the alternative, the plaintiff argues that the reliance on clause 5.2(a) and/or the exercise of the discretion as to whether to apply it by the defendant is contrary to implied terms of good faith and reasonableness.

34. The defendant argues that the termination by agreement which occurred in early 2011 falls within the definition of "Early Termination". It also argues that the conversion of the Sirius shares constitutes a "Disposal" or other proscribed dealing entitling it to seek delivery up of the shares.

35. The defendant further argues that any implied term of good faith and/or reasonableness has been excluded in this case. In the alternative, the actions of the defendant are not contrary to such an implied term.

36. I should note here that the thought crossed my mind the case would include an application for relief against forfeiture. The core complaint of the plaintiff appears to be that relinquishing the shares would amount to a windfall to the defendant which is unjustifiable in comparison with the actual prejudice suffered by reason of any alleged breach. However, despite prompting, no such case was attempted. Thus I can put that thought aside.

37. For the same reason I need not consider whether the plaintiff's agreement with JP Morgan is valid or void for uncertainty, or whether there is a security interest in NSW which has not be stamped under the Duties Act 1997.

38. Accordingly, I need to adjudicate on the following points which I now consider. As they are all interrelated, I need to deal with them in groups, which I will do under the following heads:

A. Questions of liability

1. Has there been an "Early Termination" within the meaning of the Loan Agreement?

2. Has there been a "Disposal" of the "Shares" within the meaning of the Loan Agreement in breach of clause 10.2?

3. Has there been a dealing with the shares in breach of clause 14.1 of the Loan Agreement?

4. Has there been an "Event of Default" within the meaning of the Loan Agreement?

B. Can the plaintiff nonetheless resist delivery up of the shares?

If the answer to any of the questions in Part A is "Yes", whether the plaintiff is nevertheless entitled to resist delivery up of the Sirius shares. This requires consideration of the following matters:

1. Does the Loan Agreement contain an implied term of good faith and/or reasonableness?

2. If so, is reliance by the defendant on any right, power or discretion to seek delivery of the shares contrary to that implied term?

3. Accordingly, whether the plaintiff is obliged, under the Loan Agreement, to transfer the shares to the defendant.

C. What is the result of the litigation?

39. A. As noted above, "Early Termination" is defined in the Loan Agreement as covering at least two distinct situations, viz:

(1) `where the Borrower terminated its employment contract with the Lender; and

(2) where the contract is terminated by the Lender due to a breach of that employment contract by the Borrower.

I must examine each of these possibilities in turn.

40. The underlying question is this: how did the plaintiff's employment come to an end?

41. The plaintiff says that he was employed by the defendant between 21 September 2009 and about 28 February 2011. He pleads that the termination was by operation of law (by which he means he accepted a repudiation by the defendant) and alternatively by agreement.

42. The defendant says that the employment was terminated by agreement on or about 28 February 2011 and that such termination was a termination by the Borrower under the definition of Early Termination.

43. I accept that the view taken by each side that termination by agreement is the correct analysis. However, the second part of the defendant's proposition is difficult to accept.

44. It is clear that termination of a contract by agreement is properly analysed by one or both parties proposing that the agreement be terminated and the other concurring. The consideration for the agreement is the mutual promises (usually implied) to release the other party from further performance, see e.g. Chitty on Contracts, 29th ed (2004); Tullett Prebon (Australia) Pty Ltd v Purcell [2008] NSWSC 852 (Brereton J) at [27].

45. The only reasonable way of construing the first part of the definition of Early Termination is to distinguish between two (or perhaps three) situations. First, it may be the employer could terminate the employment in some circumstances without cause; secondly, the employee could elect to terminate; and thirdly, the employer could terminate for breach. It is only in situations two or three that there would be early termination.

46. Indeed, as Mr Kite submits, whilst there may be various ways in which the termination of the employment might come to an end, the contract only picks up two of these that can lead to a finding of Early Termination, which can be loosely expressed: (1) where the employee initiates the termination and (2) where the employee's conduct gives rise to termination by the employer.

47. I find it impossible to accept the general proposition that if an employee consents to a termination of employment, even if it is the employee who first raises the proposition, that the employee has terminated the employment. Further, I know of no authority which supports such a proposition, nor has one been cited to me.

48. In discussion, Mr Bedrossian said that it would be absurd if an employee said that he or she wishes to terminate the employment and the employer said, "Okay" that it would not be a termination by the employee.

49. In the example given by Mr Bedrossian that might be so because the employer was a mere recipient of the employee's expression of desire to terminate and merely acquiesced. However, that is not this case. In this case, the employer was reluctantly shutting down its business and both parties wished their relationship to continue under some new arrangement.

50. Thus I do not find the first part of the definition of Early Termination established.

51. I now turn to the second part of the definition. This requires consideration as to whether there has been a breach. I will deal with these matters below. However, there is one preliminary issue I must deal with now.

52. The definition of Early Termination uses the significant words "due to" in the phrase "terminated by the Lender due to a breach of that employment contract by the Borrower".

53. I put to Mr Bedrossian that the words "due to" must mean that his client must rely on the breach to justify termination. His reply was (T80) "I think that's a fair construction of that part of the document."

54. Indeed, the plaintiff's counsel's original written submission made the point that, whatever the analysis, the termination did not occur as a result of anything the plaintiff initiated or did.

55. Especially remembering that the employee may forfeit considerable benefits on early termination, the clause should be construed strictly and the words "due to" given due work to do.

56. Thus, on the evidence, was the termination of employment "due to" the plaintiff's breach of the Employment Contract?

57. It takes a while to realise that, on the pleadings as amended and on the common ground that the employment ceased on 28 February 2011, one must ask what was the cause of the termination as at 28 February 2011.

58. Clearly as at the relevant time the defendant did not appreciate that there had been a breach of cl 14.1. The termination was not due to that breach. Thus one must focus on the alleged breach to do with disposal of the shares.

59. I now must look at the two transactions which are said to constitute a disposal and ask myself whether they occurred, whether they were a breach of the employment contract and whether the termination of that contract on 28 February 2011 was due to either of them.

60. I will first consider whether the plaintiff's dealing with his shares involved a disposal as defined.

61. The word "disposal" may have different shades of meaning in different contexts.

62. As noted above, the word is defined in the Loan Agreement cl 10(2)(c). That definition contains the rather odd phrase, for lawyers, "or take any similar economic action". Whilst that expression obviously is meant to cover a transaction which has similar economic effect to an assignment or encumbrance, I find it difficult to conceive a particular transaction which would come within these words.

63. However, the definition shows that the word "disposal" is used in a very wide sense. It obviously covers divesting of any interest in the shares, thus the use of the word "encumber". The reason for this is quite clear. If certain events occur, the defendant wants to take full title to the shares free from any encumbrance.

64. The plaintiff says that merely because he transferred the shares in to the CREST scheme to hold for him, this does not mean he has entered into a transaction of similar economic effect to an assignment or a mortgage.

65. However, that is the least of his problems.

66. There was considerable evidence given as to the plaintiff's dealings with the broker JP Morgan. I have detailed some of those dealings earlier in these reasons.

67. The evidence shows that from mid October 2009 the plaintiff was in discussions with JP Morgan with respect to opening a credit brokerage account.

68. The standard form of the JP Morgan Customer Agreement clearly provides for liens to be held by members of the JP Morgan group over shares involved and this would include the shares the subject of these proceedings.

69. It is clear that the plaintiff did enter into such an arrangement with JP Morgan, probably in the last couple of months of 2009, and that when he obtained the certificate for the shares, they became subject to the lien.

70. This was an encumbrancing of the shares and thus a disposal.

71. That being so, it appears that there was an Event of Default within the meaning of clause 11, subject to any problems that may be involved with the lender complying with either (i) or (ii) of 11.1(c).

72. Here I find a difficulty which was not really addressed in submissions. Cl 11 writes in to there being an Event of Default that the employer is to either declare that the default is beyond remedy or to give the employee time to remedy it.

73. In actuality, the employer did neither. Eventually Mr Fraser wrote his letter of December 2011. This hardly qualified under cl 11: all it seemed to do was to say that so many months had passed that the alleged breaches could not be remedied. This could not qualify as a reaction by the employer under cl 11 which was necessary before there could be an Event of Default.

74. Clause 10(2)(a) forbids the creation of any security interest. The supplementary bundle of documents and the cross-examination of the plaintiff on the JP Morgan documents show again a breach in that JP Morgan did achieve security over the plaintiff's shares. However, again, cl 11 is applicable before there is an Event of Default.

75. Mr Kite objects to this on the basis that default under 10(2)(a) was never pleaded. Mr Bedrossian admits it was not pleaded but says that there was no evidence of it until the supplementary documents were produced.

76. Mr Bedrossian sought leave to amend, but I did not consider that necessary as the question was whether there was a default and the particular default was really of little moment.

77. It may thus not be necessary to consider also whether the transfer to CREST was also a disposal, but, in view of possibility of problems with cl 11 and the fact that the High Court requires first instant judges to deal with all major issues, I must briefly deal with it.

78. The evidence is that in February 2011, the plaintiff approached his contact at JP Morgan to enquire about registering his shares in a brokerage account. His friend prepared and asked the plaintiff to sign a form transferring his shares to CREST. He did so. He says that he was unaware that by doing that, the shares would be registered in JP Morgan's name.

79. Expert evidence was received that the CREST transfer would not alter the beneficial ownership of the shares. I accept this, though subject to the effect of the JP Morgan Customer Service Agreement.

80. However, whether the beneficial interest was affected or not, is of little moment. The plaintiff covenanted not to transfer the shares and he did so. He did so because it was a step along the way to him having an account with JP Morgan with substantial credit so that he could possibly make megadollars in share trading. Despite his high qualifications as a Master of Business, it seems that the downside of the transaction did not occur to him.

81. The attempt to rely on the phrase "or take any similar economic action" cannot alter this. That phrase means that not only is a transfer a breach but so also is any other dealing with the same economic effect. It does not mean that a transfer to a nominee which does not change the beneficial interest is exempt from being a proscribed dealing.

82. The CREST transaction took place on 24 February 2011. There was hardly time for it to become known to the defendant before 28 February and indeed, there is no evidence that it did.

83. In any event, under cl 11 the employer would have had to give an opportunity to remedy the breach before it could rely on it.

84. The only evidence of the Lender's reaction is Mr Fraser's letter of 5 February 2013 (Court Book p 537). That letter relies on the breach by making the Transfer to CREST either under cl 10 or under 14.1. The reason why the JP Morgan matter was not mentioned was that it only became known when the plaintiff provided documents shortly before the hearing.

85. Curiously, it must follow that, as the breach was not known on 28 February 2011, it cannot be that the termination was due to it.

86. I should note that another possible Event of Default might have occurred under cl 11.1(k). Although there is brief mention of this in the defendant's submissions this was not developed. The point is that as the plaintiff had undertaken not to encumber his shares and had done so, he had not adhered strictly to his undertaking and so had brought about an Event of Default which was not subject to the proviso of a notice to remedy being given though it led to the defendant being invested with various options.

87. This however gets nowhere because the defendant did not exercise any of the options given to it under cl 11.2, but rather elected in Mr Fraser's letter of December to allege an early termination and rely on cl 5.

88. To conclude, the facts show that the termination was due to the closure of the business of the defendant and to the rearrangement of the affairs of the parties following the Sirius Board requiring Mr Fraser to quit the defendant's business.

89. Thus, it has not been established that the termination of the plaintiff's employment with the defendant was due to breaches by the plaintiff.

90. I realize that in many situations once a notice of default is given it does not matter that it states the wrong breach or does not state an available breach. This principle is of no comfort to the defendant where it needs to show that the employment was terminated due to specific causes.

91. It follows that the plaintiff is entitled to succeed on the ultimate issue.

92. B. In view of my consideration of the previous matter, this question becomes of no significance. However, as it was raised as a major issue, I must briefly consider it in case this case goes further.

93. The plaintiff says that in this State, implied terms of good faith and reasonableness are accepted as legal incidents of commercial contracts.

94. Mr Kite says that the purpose of the agreement is clear. It was to provide a mechanism to encourage the plaintiff to continue in the defendant's employment. He puts that that purpose is virtually nullified if the defendant is enabled at will deprive the plaintiff of the benefit of the agreement.

95. Mr Bedrossian does not dispute that, ordinarily, implied terms as to good faith and reasonableness are implied into commercial contracts. However, he puts that there are a number of substantial reasons why no such term should be implied in the present case.

96. Mr Bedrossian put that the plaintiff has failed to establish that any terms ought to be implied because:

(a) the Loan Agreement expressly excludes the implication of terms;

(b) the terms sought to be implied would operate inconsistently with the express terms of the Loan Agreement;

(c) in any event the terms sought to be implied do not satisfy the requirements for implication in fact or in law.

97. In my view, the submissions in (a) and (b) above are correct (I say nothing about (c)). It was fundamental to the Loan Agreement that the shares be kept completely intact. To this end, the document was replete with statements that undertakings of the plaintiff were to be strictly honoured (cl 11.1(k)); that any implied terms, including those which directly or indirectly adversely affected the defendant's rights, were excluded (cl 16.4); and that if the defendant's consent were required it could withhold it in its absolute discretion (cl 18.2).

98. As I have said, this issue is irrelevant to my decision, but, had I to rule on it, I would rule adversely to the plaintiff for the reasons just noted.

99. C. It follows that the plaintiff is entitled to relief on his claim and that the defendant's cross claim must be dismissed.

100. One other matter must be mentioned. Mr Fraser swore a defence on behalf of the defendant and later swore an amended defence which was partially inconsistent with the former.

101. The clear inference is that both versions of the defence cannot be correct and that there is a real probability that some false swearing is involved.

102. Swearing a defence is a solemn occasion and the law expects that people will not put their oaths to the correctness of a defence or other pleading without being sure that what they swear to is the truth.

103. Thus, ordinarily, where I see that there are inconsistent sworn pleadings by the same person my duty is to request the Registrar to refer the matter to the police. I should note that this situation only occurs in very few cases.

104. However, this is not done until after the case is concluded for two reasons. First, usually opposing counsel will be using the fact of inconsistent verified pleadings in cross-examination. Secondly, an opportunity must be given to the alleged false swearer to explain and the hearing should not be interrupted by this side issue.

105. In the instant case, Mr Fraser did not give evidence so the first matter is not a consideration. However, he must be given 30 days to explain why the papers should not be sent to the police.

106. I should stand the matter over for short minutes to be brought in by the plaintiff. I would think that the proper orders are to make declarations in terms of prayers 1, 2 and 4 of the summons and perhaps a declaration that the plaintiff is at liberty to repay the loan by a cash payment. The cross claim must be dismissed and the defendant cross claimant pay the plaintiff's costs of the proceedings.

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