SAIS Ltd v Hardman, Michael Jon

JurisdictionEngland & Wales
CourtHigh Court
JudgeWoo Bih Li JAD,Quentin Loh JAD,Kannan Ramesh J
Judgment Date20 September 2022
Docket NumberCivil Appeal No 27 of 2022
SAIS Ltd and another
and
Hardman, Michael Jon and another

Woo Bih Li JAD, Quentin Loh JAD and Kannan Ramesh J

Civil Appeal No 27 of 2022

Appellate Division of the High Court

Contract — Breach — Employee agreeing to receive shares in lieu of cash bonus for work done — Employer failing to provide shares to employee in repudiatory breach of their agreement — How employee's damages to be calculated

Contract — Contractual terms — Interpretation — Incentive scheme generally conferring employees right to receive shares over period of time — Incentive scheme also suggesting that employees' right to receive shares could be accelerated upon “Change of Control” event — Whether more specific mechanics of incentive scheme overrode general mechanics

Employment Law — Termination — Terminating employee shortly before he would have been entitled to receive shares under incentive scheme — Whether employer's power to unilaterally terminate contract of employment with notice or salary in lieu of notice was restricted by employee's contractual right to other benefits

Held, dismissing the appeal against the first respondent but allowing the appeal against the second respondent:

(1) Section 4.3 of the RSU Plan did not bear the meaning advanced by the appellants. Instead, it obliged A1 to effect settlement on vested units within 15 days of their vesting. The vesting dates were stated in each grant to the appellants: at [20] to [29].

(2) Further, and in any event, the clear language of section 5.3 obliged A1 to make immediate payment on units deemed vested by a Change of Control event. Thus, even if section 4.3 operated in the manner which the appellants contended, it would have been obliged to provide Mr Hardman 133,079 shares on 13 September 2019: at [36] to [39].

(3) A1 bore the obligation of proving that Mr Hardman had accepted the 205,669 shares it issued on 20 September 2020. It failed to do so and thus, it was liable for its failure to provide all 205,669 shares on time. However, A1 was entitled to revoke or cancel the 205,669 shares issued to Mr Hardman: at [69].

(4) As regards the 72,590 bonus units, A2's letter dated 29 January 2020 made it clear that it was obliged to provide Mr Hardman with the shares by the end of February 2020. Section 4.3 did not apply and, even if it did, that would only have allowed A2 an additional 15 days to effect settlement, but that was not the appellants' case: at [74] to [76].

(5) Accordingly, the Judge's award of damages to Mr Hardman, both in respect of the grant of units on 29 March 2019 and the agreement for bonus units on 9 December 2019, was affirmed: at [73] and [78].

(6) The appellants' contention that Mr Finck had compromised his claims against them was rejected. There was nothing in the 6 September 2019 letter or surrounding discussions which suggested that such compromise had even been contemplated. Indeed, the CEO of A1 agreed that there was no compromise: at [80].

(7) However, it was accepted that the Judge erred in determining that section 5.3 was “engaged” on 29 July 2019 when the agreement to sell Sarment Wines had been entered into. This was internally inconsistent with the Judge's finding that the Change of Control event (ie, the completion of the sale of Sarment Wines) took place on 13 September 2019. The Judge misinterpreted the phrase “series of transactions”, which referred to the mode by which a Change of Control, a single event, could be brought about. The fact that a Change of Control event could be brought about by a series of transactions did not mean that the Change of Control event itself was part of a series. The Judge was also of the view that it could not have been the intention of the RSU Plan that an employee could be unilaterally deprived of his entitlement by termination. This, however, was erroneous. There was nothing in the RSU Plan to restrict A1 or its related companies' right to terminate their employees and there was no suggestion that A2 had terminated Mr Finck's employment in bad faith. Thus, given his termination on 6 September 2019, Mr Finck could not rely on section 5.3: at [81] to [84].

(8) As the appellants did not dispute that Mr Finck was entitled to damages in respect of the 12,753 shares which he had been promised by A2's letter dated 6 September 2019, he was awarded CA$25,506 (12,753 × CA$2.00). There was some lack of clarity as to whether the price of CA$2.00 on 13 September 2019 should be used given the holding that section 5.3 did not apply. However, the parties were content for this date to be applied: at [89] and [92].

(9) The Judge was correct that the moratorium did not apply in cases where shares are provided pursuant to section 5.3 or agreements which set out specific dates of vesting after the Change of Control event. Mr Hardman and Mr Finck would therefore have been entitled to monetise the shares on the dates which they were to be provided: at [70] to [72], [77] and [91].

Case(s) referred to

Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2008] 3 SLR(R) 1029; [2008] 3 SLR 1029 (refd)

Facts

This appeal concerned claims for damages resulting from the non-delivery of shares of a company previously listed on the Toronto Stock Exchange Venture Exchange (“TSX-V”). These shares were granted to the respondents (the plaintiffs below), Mr Hardman and Mr Finck, as part of an employee share incentive scheme called the “Restricted Share Unit Plan” (the “RSU Plan”). The respondents were employees of the second appellant, Kaddra Pte Ltd (previously, Sarment (S) Pte Ltd), which was a subsidiary of the first appellant, SAIS Ltd (previously, Sarment Holdings Ltd). The first appellant was the company listed on the TSX-V whose shares were being granted under the RSU Plan. As a group of companies, the appellants' primary business was the sale of wine. As the appellants' change in names occurred during the period material to the dispute, they would be referred to as “A1” and “A2” respectively.

Mr Hardman was granted 199,619 “Restricted Share Units” (“units”) on 29 March 2019, and Mr Finck was granted 38,260 units on 21 September 2018. Units were not shares. They were simply entries on the books of A1 which denoted an employee's entitlement to receive shares when the units “vested”. Both Mr Hardman and Mr Finck's units were scheduled to vest in three tranches. For Mr Hardman, his units were slated to vest as follows: (a) 66,540 on 21 August 2019; (b) 66,540 on 21 August 2020; and (c) 66,539 on 21 August 2021. For Mr Finck: (a) 12,753 on 21 September 2019; (b) 12,753 on 21 September 2020; and (c) 12,754 on 21 September 2021.

Once a unit “vested”, section 4.3 of the RSU Plan provided that A1 was obliged to “settle” or “make payment” on those units “within [15] days of the Vesting Date and which date shall not, in any event, extend beyond December 15th of the third year following the year of grant for the particular [unit]”. The correct interpretation of this provision was one dispute in this appeal.

The other provision which formed the subject of dispute was section 5.3 of the RSU Plan. This provided that, upon a “Change of Control” event, all units granted under the RSU Plan were deemed as having “vested immediately” prior to the event, irrespective of their scheduled vesting dates, and would also become “payable effective immediately” on the same date. Saliently, “Change of Control” was defined in section 1.1(i) of the RSU Plan as including the sale of all or substantially all of A1's or its subsidiary's assets, or an individual acquiring a controlling interest in A1.

On 29 July 2019, A1 entered into an agreement to sell the group's wine and spirits business, housed in another of A1's subsidiaries, Sarment Wines & Spirits Holding Pte Ltd (“Sarment Wines”). As part of this sale, one Mr Irwin (one of the purchasers) would acquire 53.5% of A1's shares. The sale of the wine business was completed on 13 September 2019 and Mr Irwin obtained his 53.5% stake in A1 on 15 October 2019.

Prior to these events, Mr Finck was informed on 5 September 2019 that his employment with A2 would be terminated. Mr Finck expressed unhappiness with the fact that he was being terminated so shortly before 21 September 2019, the date on which his first tranche of 12,753 units were slated to vest. He requested to be allowed to retain the benefit of these units and his request was acceded to. On 6 September 2019, A2 issued a letter to Mr Finck which stated his termination and that 12,753 units would vest in him on 21 September 2019. However, Mr Finck never received the 12,753 shares relating to these 12,753 units.

Shortly after this, Mr Hardman was asked by the chief executive officer (“CEO”) of A1 whether he would be willing to accept shares in A1 in substitution of his cash bonus for 2018. It was admitted to Mr Hardman that this was necessary because A2 was short on cash. Mr Hardman agreed and executed an agreement on 9 December 2019 accepting 72,590 units in lieu of his cash bonus for 2018. In January 2020, Mr Hardman was also told that he would also be terminated for redundancy. Mr Hardman asked to resign on his own part and he was allowed to do so. On 29 January 2020, A2 issued a letter setting out the term of Mr Hardman's resignation. This letter recorded that the 72,590 would be “issued and vesting [sic]” by the end of February 2020.

In October 2019, Mr Hardman received 66,540 shares in A1 which represented one-third tranche of the units granted to him on 29 March 2019. After the sale of Sarment Wines and Mr Irwin's acquisition of 53.5% of the stake in A1, however, Mr Hardman did not receive the balance two-thirds of the units granted. At the end of February 2020, he also did not receive the 72,590 shares in A1 he accepted in lieu of his 2018 cash bonus. On 19 February 2020, A1 announced that it had filed an application to be delisted from the TSX-V and its last trading day was 16 March 2020...

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