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Mr Raul Silva v United Investment Bank Limited [2012] DIFC CFI 010

Mr Raul Silva v United Investment Bank Limited [2012] DIFC CFI 010

November 6, 2013

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Claim No: CFI-010-2012

THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

In the name of His Highness Sheikh Mohammad Bin Rashid Al Maktoum, Ruler of Dubai

IN THE COURT OF FIRST INSTANCE

BEFORE H.E. JUSTICE ALI AL MADHANI

BETWEEN

MR RAUL SILVA

Claimant

and

UNITED INVESTMENT BANK LIMITED

Defendant

Hearing: 25 February 2013

Counsel: Tom Montagu-Smith instructed by Hogan Lovells (Middle East) LLP for the Claimant

Stuart Ritchie QC and Simon Roderick instructed by Allen & Overy for the Defendant

Judgment: 6 November 2013


JUDGMENT OF H.E. JUSTICE ALI AL MADHANI


JUDGMENT

UPON hearing the Claimant and the Defendant

AND UPON reading the submissions and evidence filed and recorded on the Court file

IT IS HEREBY ORDERED THAT:

With regards to the Claimant’s claim:

1. The Claimant’s claim for accrued but untaken annual leave with reference to Clause 6.8 of the Employment Contract is granted, and the Defendant shall pay to the Claimant the amount of US$2,231.18;
2. All other claims made by the Claimant are denied;

3. The Claimant shall pay the costs of the claim incurred by the Defendant, to be assessed by the Registrar if not agreed.

With regards to the Defendant’s counterclaim:

1. The counterclaim is granted, and the Claimant shall pay to the Defendant the amount of US$51,213.91 as damages equal to the Defendant losses;
2. The Claimant shall pay the costs of the counterclaim incurred by the Defendant, to be assessed by the Registrar if not agreed.

REASONING

The Parties

1. The Claimant is Mr Raul Geraldes Silva, a Portuguese national and the former CEO of the Defendant, residing in Al Dabas Building 2, The Shoreline Apartments, The Palm Jumeirah, Dubai, United Arab Emirates.

2. The Defendant is United Investment Bank Limited (“UIB”), a company incorporated and registered in the DIFC at the address of Unit 7, Level 1, The Gate Village 5, DIFC, Dubai, United Arab Emirates. The Company is authorised by the Dubai Financial Services Authority (DFSA) to engage in investment activities.

The Claimant’s Claim

3. The Claimant’s claim can be summarised as follows. On 20 December 2010, he entered into an Employment Contract with UIB and commenced his employment on 1 January 2011 as the Chief Executive Officer. One of his responsibilities was the establishment of UIB in the DIFC and obtaining its licensing with the Dubai Financial Services Authority (“DFSA”). In March 2011, UIB was licensed as an authorised firm.

4. The Claimant and Mr Philippe Tourillon were appointed as the Directors of UIB while Mr Chihab Tamdi was appointed as a Director and Chairman of UIB. United Financial Partners Limited (“UFP”) is the 100% shareholder of UIB, and is incorporated in Hong Kong and mainly owned by Mr Tamdi. Both Mr Yves Bayle and Mr Philippe Tourillon held minority shareholdings in UFP.

5. Around August 2011, Mr Bayle who was the CEO of FAST, a sister Company of UIB, became the CEO of UFP and the group of these companies. He had no official position on the Board of Management of UIB. It is the Claimant’s understanding that Mr Tamdi and his family were very wealthy, and that they entrusted Mr Bayle with their investments. Mr Tamdi and Mr Tourillon would generally approve all of Mr Bayle’s recommendations.

6. At a Board Meeting on 21 February 2011, it was resolved that the CFO, Mr Craig Roberts, would become an authorised signatory of UIB. It was also resolved that Mr Silva and Mr Roberts could approve payments from UIB’s bank account with their joint signatures, with no limit as to the amount of payments they could approve.

7. The Claimant contends that he proceeded with the establishment of UIB and its business in March 2011 and presented a Strategic Business Plan to Mr Tamdi, Mr Tourillon and Mr Bayle. In the report, amongst other matters, he proposed the employees he wanted to recruit and their corresponding monthly salaries. Included, amongst others were:

a) Mr Dino Skandalis as Head of Asset Management;
b) Mr Stephen Hefft as the Compliance Officer and Money Laundering Officer; and
c) Ms Tatiana Pikaleva as an Analyst and Executive Assistant.

8. The Claimant also argues that he proposed opportunities for UIB to invest in and proposed ways in which he could continue to carry out his role and fulfil his duties as CEO for UIB until January 2012.

9. On 25 January 2012, the Claimant was called into a meeting with Mr Tamdi, Mr Bayle, Mr Tourillon and another person who was introduced as a lawyer instructed by UIB. The Claimant was told that he would be dismissed with immediate effect. Mr Tamdi stated to him that the justifications for terminating his employment were for the reasons set out in a letter that UIB had sent to him later that day confirming his termination (“the Termination Letter”).

10. The letter stated that he had been terminated for the following reasons:

a) Mr Silva had breached clear instructions provided by the “Group CEO” (Mr Bayle) in relation to contractual arrangements concluded with Mr Skandalis and Mr Hefft;
b) Mr Silva had taken a holiday from 23 December 2011 to 6 January 2012 without seeking approval from Mr Bayle, which was in breach of Clause 6.8 of the Employment Contract;

c) Mr Silva had authorised payments of certain personal expenses, namely:

i. A payment of US$45,000 in November 2011 for expenses incurred in booking the Copacabana Palace in Rio De Janeiro in Brazil for the period of 27 December 2011 to 2 January 2012 during his vacation in Brazil;
ii. Reimbursement for meals and entertainment in the sum of US$6,213.25 whilst on vacation in Brazil; and
iii. A payment of US$840 to Jeff Byers on 18 December 2011 in settlement of an invoice for invitations to a New Year’s Eve Party;
d) He had allowed an “intern”, Tatiana Pikaleva, to meet with clients, and had permitted Ms Pikaleva to hold herself out as an employee of UIB as a business analyst when she was not an employee; and
e) He had submitted investment proposals to the Board of Directors of UIB which contained “inappropriate risks” to UIB which had allegedly cast “serious doubts” upon the Claimant’s judgment.

11. The Claimant insists that UIB had invented justifications to terminate him and that every single reason provided by the Defendant in the termination letter dated 25 January 2012 was false. The Claimant believed that Mr Bayle, Mr Tamdi and Mr Tourillon had fired him because he had refused to allow UIB to start processing transactions as an intermediary on a non-discretionary basis as it would have resulted in UIB breaching its license with the DFSA, and due to his persistence in ensuring that the breaches of the DFSA regulations caused by UIB’s investment in the Investment Opportunity Fund Limited (“IOPL”) were resolved.

12. The Claimant’s assertion is that although the Defendant submitted various reasons for the termination, only one reason would justify summary termination, which is the allegation concerning the authorisation of payments for Mr Silva’s trip to Brazil in December 2011. The Claimant described these payments as personal expenses which had been claimed and justified by the Claimant as business expenses. It is a claim for fraud inadequately substantiated by the Defendant.

13. The Claimant’s position is that the Defendant must prove the grounds they relied on for the termination. The Claimant denies the reasons for termination provided by the Defendant, and if the Defendant fails to prove these grounds, the Claimant’s claim should succeed. The Defendant is also required to establish the Claimant’s dishonesty at a very high standard of proof.

14. The Claimant asserts that under his contract, he would normally be entitled to several payments such as one year’s full salary as he believes that he was terminated without cause. As a result of this, Mr Silva claims the following remedies:

a) one year’s salary of US$360,000, in accordance with Clause 12.3 of the Employment Contract;
b) US$90,000 for payment in lieu of notice in accordance with Clause 12.2 of the Employment Contract;
c) US$37,114.47 for end of service gratuity;
d) US$2,231.18 for accrued but untaken annual leave;
e) if applicable, an amount pursuant to Clause 6.1 of the Contract, equal to 6% of the annual profit which should have been earned by UIB up to the date of termination on 25 January 2012; and
f) the legal costs incurred in pursuing this claim.

The Defendant’s position

15. The Defendant, UIB, argues that it was entitled to terminate the Claimant’s employment for the reasons stated in the termination letter dated 25 January 2012, set out below:

“1. You concluded contractual arrangements with Konstantinos Skandalis and Stephen Hefft which were in breach of the clear instructions to you as to the conditions on which they were to be employed. You subsequently failed to disclose to the board or the group CEO the changes you had agreed, which were material and which expose UIB to potential liabilities which the board was expressly keen to avoid. In particular, Mr Bayle’s email of 24 March 2011 approved the recruitment of Messrs Skandalis and Hefft on the condition that they be engaged for a six month trial period during the course of which UIB may terminate the relationship without penalty if they generated insufficient business compared to their business plan. I was dismayed to discover, upon reviewing copies of the contracts of employment this week, that these instructions were ignored.
2. You took holiday in the period from 23 December 2011 to 6 January 2012 without approval from Mr Bayle (which is a breach of Clause 6.6 of your employment contract) or indeed without his prior knowledge.

3. You have authorised payment by UIB of certain expenses which appear to be of personal, rather than a corporate nature. These include:

(a) The payment of US$45,000 in November 2011 in favour of Copacabana Palace, for the period of 27 December to 2 January during which time you were on vacation in Brazil;
(b) A reimbursement to you to cover “meals and entertainment” in the sum of US$6,213.25 whilst you were on vacation in Brazil; and
(c) A payment of US$840 to Jeff Byers on 18 December in settlement of an invoice for a New Year’s Party invitation.
We are examining other expense claims you have submitted. None of these claims appear to have any business connection and I am dismayed that you saw fit to use company funds to pay such a sizeable invoice for the Copacabana Palace without first seeking approval. In the extreme unlikely event that this was a corporate event it would represent a clear breach of the repeated instructions from the board about the appropriate level of corporate expenditure.
4. You engaged an intern Tatiana Pikaleva, who met with clients on your instruction and who held herself as an employee of the bank, using a UIB business card in which she was described as ‘business analyst’.
5. You have recently submitted, and promoted, investment proposals to the Board which in our assessment pose inappropriate risks to the UIB and casts serious doubt upon your judgment and suitability for the CEO role.”

16. The Defendant further argues that they are entitled to rely on reasons and facts that were discovered after the dismissal with reference to the principle in Boston Deep Sea Fishing & Ice Company v Ansell (1888)39 CH D.339. The Defendant claims that they discovered further evidence of dishonesty or destructive conduct undermining the mutual trust on the Claimant’s part after investigating the Royal Football Fund (“the RFF”). In addition to the reasons set out in the Termination Letter, the Defendant claims that they found that Mr Silva had misrepresented to them information about an investor, Mr Ashok Hiranandani, and his intention to invest $5 million in the RFF which should then have entered into a nominee agreement with UFB on his behalf. The Claimant also failed to disclose to the Defendant that he is the beneficial owner of 90% of the RFF.

17. The Defendant argues that in so doing the Claimant acted dishonestly in breach of his contractual duties and the implied terms of mutual trust and confidence as a Director of the Defendant which required him to act in good faith with a view to the best interests of the Company. He breached the duty of loyalty as he placed himself in a position where his own interest conflicted with those of the Defendant and he had put himself in a position where he would use the Defendant’s opportunity for his own benefit, without disclosure or approval from the Defendant in advance.

18. The Defendant considers that what the Claimant has done, from the misconduct noted in the Termination Letter and discovered at a later stage following an investigation, is in breach of Article 59 (a)of the DIFC Employment Law No 3 of 2012 which provides that:

“An employer or an employee may terminate any employee’s employment in circumstances where the conduct of one party warrants termination and where a reasonable employer or employee would have terminated the employment.”

The Defendant also refers to Article 12.4 in the Employment Contract which stated that:

“the Employer may dismiss the Employee without notice or end of service benefits for any gross misconduct and for the following behaviour…”

19. According to the Defendant, the Claimant was in further breach of an implied term of trust and confidence in his relationship with his employer, the principle of which was recognised in CFI-14-2009 Kteily Ghassan Elias v Julius Baer Middle East Limited “as an overarching obligation implied by law as an incident of the contract of employment”.

20. The Defendant also drew the Court’s attention to the issue of what level of misconduct by an employee justified instant termination under English law, citing the case of Neary & Neary v Dean of Westminister [1999] IRIR 228, as where the conduct “so undermines the trust and confidence which is inherent in the particular contract of employment that the master should be no longer be required to retain the servant in his employment”.

21. Finally, the Defendant asserts that the Claimant was in breach of Articles 53 and 54 of the DIFC Company Law, Article 159 of the DIFC Law of Obligations and Article 57 of the DIFC Employment Law.

Hearing and Submissions

22. On 25 February 2013 I heard both parties’ opening submissions and evidence. At the end of the trial, the Court allowed for written submissions. Each party submitted two sets of closing submissions that will be considered and discussed further in the below reasoning.

23. On 20 March 2013 (during the period of exchanging closing written submissions) the Defendant applied to this Court to adduce new evidence (documents) that had not been presented before. The application was dismissed as it was too late to submit such evidence.

Reasoning

24. Although the DIFC Employment Law makes no provision for damages against unfair dismissal, the Claimant’s entitlement to compensation is based on the terms of the Employment Contract, particularly Clause 12, which provides as follows:

“12.2 Following completion of the Probation period, each Party shall have the right to terminate this Contract provided that three (3) months written notice is given to the other party;
12.3 If the Employer terminates this contract in accordance with clause 12.2 above and prior to completion of the term of the contract, the Employee will be entitled to a total termination benefit equivalent to 12 months Base Salary as to the date of termination;
12.4 The Employer may dismiss the Employee without notice or end-of-service benefits for any gross misconduct and for the following misbehaviour.

25. The Claimant’s case is that the ground for seeking such contractual remedies is that he did not commit any misconduct or gross misconduct that would justify the termination and that none of the reasons provided by the Defendant in the termination letter dated 25 January 2013 or after that qualify as a cause for summary termination.

26. On the other hand, the Defendant’s case is that the Claimant has breached the Employment Contract by committing gross misconduct which would justify summary termination, giving the Claimant no right to pursue such a case.

27. In order to resolve the dispute between the Claimant and the Defendant, namely whether the termination was based on justifiable grounds or effected with cause, the Court shall take into consideration the reasons provided by the Defendant in the termination letter dated 25 January 2012 and will then question whether or not they are capable of justifying summary dismissal in light of the test of fairness and reasonableness as follows below.

Expenses related to the UIB event in Brazil (the Copacabana Event)

28. The first and foremost reason that was provided by the Defendant in the 25 January 2012 termination letter is that the Claimant on 20 November 2012 dishonestly sought reimbursement from the Defendant for expenses consisting of six nights’ booking at a penthouse suite at the Copacabana Palace Hotel from 27 December 2012 to 2 January 2013 in the amount of US$45,000 for his and his family’s stay during his holiday. The booking was made on 11 October 2012, the reason provided being that this trip was necessary in order for him to host a UIB event at his suite in the hotel on 31 January 2012 with an extra coast of US$6,213.25 of business expenses and US$840 paid to Jeff Byers for a New Year’s party.
29. The Claimant had acted without disclosure to or approval of the Company, and was against the instruction of appropriate expenditure of the Company. That conduct was described by the Defendant as a breach of the relationship of trust and confidence, which should not be committed by a person, particularly one who is a very senior and highly paid employee. The Claimant’s conduct in this regard was described in the termination letter as follows:

“c) He had authorised payments of certain personal expenses namely:

i. A payment of US$45,000 in November 2011 for expenses incurred in booking the Copacabana Palace in Rio de Janeiro in Brazil for the period of 27 December 2011 to 2 January 2012 during vacation in Brazil;
ii. Reimbursement for meals and entertainment in the sum of US$6,213.25 whilst on vacation in Brazil; and
iii. A payment of US$840 to Jeff Byers on 18 December 2011 in settlement of an invoice for invitations to a New Year’s Eve Party;
We are examining other expense claims you have submitted. None of these claims appear to have any business connection and I am dismayed that you saw fit to use company funds to pay such a sizeable invoice for the Copacabana Palace without first seeking approval. In the extreme unlikely event that this was a corporate event it would represent a clear breach of the repeated instructions from the board about the appropriate level of corporate expenditure”.

30. In his defence and evidence, the Claimant’s position as regards the Copacabana Event is that the Event was a joint corporate event with Edgware Equity Partners (EEP) in Brazil as he had wanted to establish and develop a client base in that country, and he had felt that a New Year’s Eve party at the Copacabana Palace would be prestigious enough to serve that purpose.

31. The Claimant denies the Defendant’s description of the event as a personal event during a family holiday and insists that it was a corporate event as he had informed the Board of Directors both in the discussion list for the Board meeting and during the Board meeting itself on 22 November 2012.

32. The Claimant also argues that the payment of the expenses related to the event booking had been approved by the company CFO Mr Robert in November 2012, who then approved the payment of the New Year’s Eve party costs in December 2012 after instructions from the Claimant to his Assistant, Ms Pikaleva, to invite the guests.

33. The Claimant further argues that most of the company staff knew about the event to be held in Brazil, including the CFO Mr Robert, and the attempt by the Board members to deny that it had been discussed with them or that they had ever heard of EEP speaks only reflected their memory or their unreliability in light of the Board time table and minutes of September and November 2012 in the documents [3/242, 3/244, 4/77and 4/197].

34. Finally, the Claimant argues that he does not owe a fiduciary duty in everything he does, and that the expenses claim does not fall under the scope of section 53 of the Company Law which provides for the obligation of loyalty and good faith of a Director when he is “exercising his powers and discharging his duty”. Furthermore, even if there was a duty to disclose, the Claimant should be excused as he acted in good faith and did not intend to take personal advantage from the event which was merely meant to promote the company in the Brazilian market and, in any event, he had disclosed the event to the CFO of the Company which, in the Claimant’s point of view, should be deemed to constitute sufficient disclosure.

35. Although the Claimant has managed to prove before this Court that the so called EEP exists in UIB’s records, by showing that there was a memorandum signed between UIB and EEP and that an update about EEP was also mentioned in the Board time table and minutes of September and November 2012, and although Mr Silva also managed to prove that the payment to cover the Copacabana Event had been authorised by the Company’s CFO Mr Robert and invitations had been prepared to be sent to guests, the following facts are found to not be in support of the Claimant’s position:

a) The Claimant never in fact revealed the details of the event, such as the place where it was going to be held, the cost, or numbers of hotel nights reserved to the Board or any of its members. Instead, Mr Silva blurred submissions concerning the Board’s knowledge of EEP and Brazilian market opportunities on the one hand, and the actual Copacabana event and its costs on the other, despite the fact that he had begun making arrangements for the event personally six months in advance. The company staff knowledge of the event is not helpful as all those that were informed were below him in the Company and none of them were in a position to weigh the company’s interest in holding such an event and, moreover, had no power to influence or stop Mr Silva from proceeding.
b) The Claimant never disclosed that he would be taking the advantage of staying with his family in the reserved suite in the Copacabana Palace hotel for the “mandatory” six nights. The addition of two extra nights to the (existing) six nights is evidence that the Claimant and his family had a personal interest in staying in that hotel, despite his effort to deny that by putting evidence before this Court that he owned a villa only 200km away from the Copacabana Palace. As such, the Claimant gave no reasonable answer to the question why the Copacabana Palace hotel had been necessary in the first place, and why six nights had been booked.
c) The Claimant, in his evidence, admitted that he had instructed his Assistant, Ms Pikaleva, to print and start sending the invitations to the guests in the middle of December 2011, and provided no answer to the question who would have accepted an invitation to such an event only two weeks prior to its commencement, and who would have be able to make all the necessary arrangements to attend on such short notice. The only answer was that “Unfortunately, we were not able to get confirmation of UIB’s Middle East guests in time, so I recall that at some time in December 2011, I asked Ms Pikaleva to cancel the additional hotel accommodation that UIB was seeking to book for these guests.” even though he had started to arrange for the event six months prior.
d) The Claimant failed to get approval for his leave during the time that the event took place, as will be discussed in more detail in the paragraphs below.
e) The Claimant failed to adduce evidence that the event had occurred in reality by submitting pictures, reports or any documentation in support.

36. Accordingly, the Defendant has succeeded in establishing before this Court that the Claimant has acted in such a way that the best interests of the Company were put aside, and that the surrounding circumstances of the Copacabana Event, such as the costs involved, the Claimant and his family’s interest in staying in the hotel and the coinciding of the event and the Claimant’s holiday had imposed an obligation on the CEO of the UIB to act in a way so as to fulfil the duty to disclose and acquire Board approval before hosting such an event.

37. The Claimant however, failed to do so, and the Court finds that the Claimant breached his duty under the Employment Contract, specifically Clause 5.3 (appropriateness of expenses), and breached his duty as a Director of the company to act honestly, in good faith and lawfully with a view to the best interests of the Company and to disclose any personal interest as required by the DIFC Company Law No. 2009, Articles 53 and 54.

The issue of the Claimant’s holiday

38. Another reason for dismissal provided by the Defendant is that the Claimant had taken a holiday from 23 December 2011 to 6 January 2012 without seeking approval from Mr Bayle, which was in breach of Clause 6.8 of the Employment Contract.

39. The Claimant’s answer to this accusation is that there was no formal procedure for taking a vacation. During his time with UIB and prior to his vacation in December 2011, he had taken two previous holidays, namely during New Year’s in 2010 and in August 2011 by informing the Company’s Directors verbally. He insists that he had informed Mr Bayle that he was going away on vacation between 22 December 2011 and 6 January 2012, which was then confirmed in an email sent at 1.13am on 22 December 2011 [4/142] where Mr Roberts informed Mr Tamdi and Mr Tourillon that “Raul will be travelling for the next 2 weeks from today” [4/129]. They did not raise any objections regarding his holidays or the manner in which he had notified them. As such, the Claimant maintains that he was not in breach of any instruction and in any case his conduct cannot be said to have been repudiatory of the contract, and that Clause 6.8 of the Employment Contract is plainly a warranty and not condition per Chitty on Contracts (31st Ed.) 12-019; 12-062.

40. In the Employment Contract under Clause 6.8, it is provided that:

“The Employee shall be entitled to twenty-five (25) working days of paid leave per annum. The dates of such leave shall be approved in advance by the person to whom the Employee shall be reporting.”

41. The Claimant’s evidence is that he had told Mr Bayle informally about his intention to take leave from 22 December 2011, which was denied by all Board members, including Mr Bayle himself, who stated in his evidence that:

“As Group CEO, I try to accommodate senior managers’ holiday requests, but always on the condition that we have a discussion about their plans and we agree what matters need to be looked after in their absence and who is responsible for this. When Mr Silva took his holiday in August 2011, he informed me about his trip in advance of it and whenever he was away on a business trip, I was to be made aware that he was away. Mr Silva made no mention of his planned 16 day Christmas vacation at the 22 November board meeting. Nor did he subsequently tell me about his holiday….”

42. Mr Tamdi rejected the Claimant’s assertion as regards his leave and referred to the email dated 21 December 2011 at 7pm to demonstrate his attitude towards the Claimant’s plan to go on leave:

“I did not have the chance to talk to you on that point prior to your holiday (by the way I did not know you are out this evening and still do not know when you will be back…)” [4/139]

43. It is quite obvious from the Employment Contract that the Claimant had to seek approval in advance if he intended to go on leave. He failed to adduce any written evidence that he had done so. Furthermore, his statement that he informally told Mr Bayle about his plan to take leave is contradicted by both the evidence of Mr Bayle and Mr Tamdi supported by the email of 21 December 2011 and the Claimant’s failure to mention his holiday plans at the Board meeting.

44. As the Court finds in favour of the Defendant’s evidence in this matter, to the effect that the Claimant who was the CEO of the Company had failed to seek approval to take leave before informing his employer in the last hours of his last working day of his plan, the Court finds that Mr Silva breached Clause 6.8 of the Employment Contract.

45. The belated notification of the Directors of the Claimant’s intention to go on holiday and their negative reaction at the time cannot be considered to imply their agreement, but should instead be considered as merely silence as the Court has not seen any indication of consent within the available evidence from the Defendant to the Claimant’s breach.

The Issue of the Employment Contracts of Mr Hefft and Mr Skandalis

46. A further reason that was given by the Defendant to summarily dismiss the Claimant in the termination letter is that the Claimant did not comply with a Board instruction to terminate Mr Hefft’s and Mr Skandalis’ employment contracts and go renegotiate new contracts with a monthly salary of US$15,000 with a better termination option in favour of the company. The letter read as follows:

“You concluded contractual arrangements with Konstantinos Skandalis and Stephen Hefft which were in breach of the clear instructions to you as to the conditions on which they were to be employed. You subsequently failed to disclose to the board or the group CEO the changes you had agreed, which were material and which expose UIB to potential liabilities which the board was expressly keen to avoid. In particular, Mr Bayle’s email of 24 March 2011 approved the recruitment of Messrs Skandalis and Hefft on the condition that they be engaged for a six month trial period during the course of which UIB may terminate the relationship without penalty if they generated insufficient business compared to their business plan. I was dismayed to discover, upon reviewing copies of the contracts of employment this week, that these instructions were ignored.”

47. The Defendant argues that the Claimant had followed part of the instruction by fixing the monthly salary, but at the same time had provided a better termination option in favour of the two employees with the possibility of extending the termination notice up to nine months which exposed the Defendant to potential liabilities that the Board had been keen to avoid.

48. The Defendant also blamed the Claimant for not disclosing those changes to the contracts and not complying with the Company’s Group CEO instruction to put both employees in a probation period for six months, as per the email of 24/3/2011, which the Claimant failed to do in both the old and new contracts, as stated in the termination letter.

49. The Claimant argues that there was no Board instruction as to the termination option as regards Messrs Hefft and Skandalis or as to the cutting costs policy, and that the

Defendant had failed to establish evidence of such an allegation. The Claimant further argues that he acted reasonably in the best interests of the Company at the time.

50. It is evident from the letter of 24 March 2011 sent from Mr Bayle to the Claimant that a six-month probation period in Messrs Skandalis’ and Hefft’s contracts was required; however, no probation period was inserted in the said contracts at the first or the second renegotiations of the contract of either of the employees.

51. This is also evident from Mr Tamdi’s evidence, who stated that “we had insisted that their contract be terminable on short notice so as to protect against the risk that they could not deliver on their business plan..” which is supported by the email dated 29 September 2013 sent from Hogan Lovells (Middle East) LLP to the Claimant regarding the termination condition in the contract of Messrs Hefft and Skandalis. The termination period in the said employees’ contracts is evidently of the essence to the Defendant.

52. The Claimant, despite renegotiating the contracts of Messrs Hefft and Skandalis to include the requirement of a fixed salary as suggested by the Board, had failed to address the instructions to enhance the termination option in favour of the Defendant. The Claimant not only failed to respond to the instructions of the Board, but in fact drafted the termination clause more in favour of the employee and against his employers’ interest, which is obvious through the comparison between the old termination clause in each of Messrs Hefft’s and Skandalis’ contracts:

“12. The contract may be terminated in any of the following ways:
12.1 By either party giving one month notice of termination on 31 of October 2011 to the other party;”
And the negotiated termination clause which read as follows:
“12. This contract may be terminated in any of the following ways:
12.1 By either party giving three months written notice of termination on 30th of April 2012 to the other Party. If the Employee resign voluntarily from the employment with the Employer, then the Employer shall pay to the Employee his salary and benefits in effect as the date of termination, purported through to the date of the expiry of the notice period required under this Contract plus any gratuity payment due to the Employee under the DIFC law no 4 of 2005. If the employee’s employment is terminated by the Employer without cause (section 12.2), then the employer shall pay to the Employee any accrued compensation contractually owing to him through the date of termination and shall continue paying his salary in effect as the date of termination and providing him any benefits provided for in section 6 through the natural end of the Term (31st October 2012) of the employee’s employment hereunder as specified in section 1.2.”

53. It is clear from the above-mentioned contracts that the Claimant has acted in a way against his employer’s interests by breaching clear instructions given to him to insert a probation period and to make both Messrs Hefft’s and Skandalis’ contracts terminable on a shorter term.

54. By such conduct, the Claimant breached his duty as a Director of the Company to act honestly, in good faith and lawfully with a view to the best interests of the Company under the DIFC Company Law No. 2009 Article 53.

Whether the above-cited reasons justify dismissal

55. Since the burden is on the employer to prove that they had reasonable grounds to dismiss the employee, the Defendant who is the employer in this case has established the reasons discussed above, amongst other reasons that were not accepted by the Court, some due to a lack of evidence, such as the insisting of Ms Pikaleva’s involvement in business before her actual employment or reasons that were discovered post-termination, as the employer can only rely on reasons known to him at the time of dismissal as found in Davis and Suns Ltd v Atkins [1977] IRLR 314.

56. I accept the evidence submitted by the Defendant discussed above, including the issue of the Copacabana Event, the Claimant’s Holiday and the issue of the Employment Contracts of Mr Hefft and Mr Skandalis, and find a breach of the duty of trust and care, breach of contract and breaches of the obligation owed under DIFC Company Law No.2. 2009 Articles 53 and 54 including the “duty to act honestly, lawfully and in good faith”.

57. The question as to whether those breaches justify instant dismissal can be addressed by referring to the principle derived from the famous case of British Home Store v

Brunchell [1978] IRLR 1379 where the employer must establish that there is a genuine belief based on reasonable grounds following a reasonable investigation that the employee was guilty. Alternatively, one can refer to the principle laid down by Lord Denning in Alidaier v Taylor [1978] IRLR 82 that “Whenever a man is dismissed for incapacity or incompetence it is sufficient that the employer honestly believes on reasonable grounds that the man is incapable or incompetent. It is not necessary for the employer to prove that he is in fact incapable or incompetent.”
58. With reference to the incidents (the issue of the Copacabana Event, the Claimant’s Holiday and the issue of the Employment Contracts of Mr Hefft and Mr Skandalis) discussed in detail above, I now take the view that at the time of dismissal, the Defendant had a genuine belief on reasonable grounds of the Claimant’s accountability which justified the action taken by the employer in dismissing the Claimant without notice which, in this case, was fairly advanced and fairly proven. I also share the Defendant’s view that what the Claimant has done can be described as gross misconduct, specifically the incident of the Copacabana Brazil event and its surrounding circumstances, and find therefore that the termination was fair and in accordance with Article 12.4 and 12.4 (b) of the Employment Contract.

59. In response to the Claimant’s argument that the Defendant must establish reasons and proof at a very high standard, I am of the view that there is only one civil standard of proof, namely that “the fact in issue more probably occurred than not” as established by the Scottish Special Housing Association v Coke and Others [1979] IRLR 264 where it was decided that the employer does not have to produce evidence that establishes beyond reasonable doubt that he has a genuine belief in the employee’s guilt.

60. Accordingly, the Claimant’s claim for one year’s salary of US$360,000 in accordance with Clause 12.3 of the Employment Contract, US$90,000 for payment in lieu of notice in accordance with Clause 12.2 of the Employment Contract and US$37,114.47 for end of service gratuity must fail.

61. The Claimant also claims an amount pursuant to Clause 6.1 of the Employment Contract, equal to 6% of the annual profit which should have been earned by UIB up to the date of termination on 25 January 2012. Even though such remedy sought by the Claimant was never advanced by either party at any stage in the proceedings, it must be stated that the Employment Contract at Clause 6.1 refers to such entitlement to be within the discretion of the Board of Directors. No evidence was established by the Claimant that the Board had granted him such benefit and, therefore, this part of the Claimant’s claim is dismissed.

62. The Claimant’s claim for US$2,231.18 for accrued but untaken annual leave with reference to Clause 6.8 of the Employment Contract remains an unchallenged claim by the Defendant in all of their Defence and submitted evidence and, therefore, the Claimant is entitled to such benefit.

63. Being the losing party in the original claim, the Claimant is to pay the costs of the claim incurred by the Defendant to be assessed by the Registrar if not agreed.

The Counterclaim

64. The Defendant lodged a counterclaim in which it alleged that the Claimant, Mr Silva, by breaching his contractual and statutory fiduciary duty, had obliged the Defendant to pay US$45,000 to Copacabana Palace Hotel in Brazil for a personal vacation taken by the Claimant without Board approval or frank disclosure, as Mr Silva had presented that event to have been a business trip rather than a personal one.

65. The Defendant further claimed the repayment of US$6,213.91 which the Claimant personally took as business expenses in relation to the Copacabana Palace event in Brazil that appeared, after investigation and at a later stage, to be part of a personal and family vacation for the Claimant.

66. The Defendant argues that the Claimant’s action which resulted in the misappropriation of company money to fund personal expenses and his failure to disclose to this Board justified the Defendant’s Counterclaim to recover that money as damages for the breach of the Employment Contract.

67. The Defendant also argues that the Claimant owes a fiduciary duty and must reimburse the Defendant for the substantial unauthorised benefits that the Claimant obtained from the breaches he committed in violation of the Employment Contract and the Law with reference to Article 160 of the DIFC Law of Obligations.

68. Although the Claimant agrees that the Counterclaim and the issue of the Copacabana Brazil event expenses stand and fall together, however, he asserted that these are very serious allegations and anything less than fraud would not be sufficient to plead such a case, referring to “mere concealment of a relevant fact, without fraud, does not entitle the Employer to dismiss the Employee” Chitty on Contracts (31st Ed.) 39-181.

69. The Claimant asserted that the Defendant should have pleaded its allegations in this Counterclaim as a special category of fraud, as Rule 17.43 of DIFC Courts Rules states that:

“A party must specifically set out the following matters in his statement of case where he wishes to rely on them in support of his case;

(1) full and specific details of any allegation of Fraud, Dishonesty, Malice or Illegality”

70. The Claimant then referred to Section 31 of the DIFC Law No. 5 of 2005 Law of Obligations which provides:

“A defendant is liable in deceit if;

a) he makes a statement that is fraudulent;
b) he intends that a person should rely on the fraudulent statement;
c) the claimant relies on the statement; and
d) the claimant suffers loss as a result of relying upon the statement.”
The Claimant also argues that UIB’s Counterclaim is deficient as they fail to identify which of the statements made by the Claimant are said to be dishonest and in what circumstances UIB relied upon such statements. Therefore, the counterclaim is vague and general and should not qualify.

71. The Claimant further maintains that the Defendant must establish to a standard approaching a criminal standard that the Claimant lied in submitting his expenses. UIB, however, did not reach that level. Instead, UIB’s case is not in deceit or fraud but rather makes claims about misappropriation or misuse of UIB monies.

72. Lastly, the Claimant argues that the Copacabana Brazil event was a corporate event, and that booking six nights’ accommodation was the only way to secure that venue for the event. The Claimant also argues that the Defendant produced no evidence to support its assertion that the event was not corporate but personal and for the Claimant’s own benefit.

Finding

73. I am not convinced by the Claimant’s argument that the Defendant cannot bring such a counterclaim to seek an Order to compel him to pay back expenses which constituted misappropriation of company money just because the Defendant’s allegations are very serious and anything less than fraud would not be sufficient to plead such a case. The reference made by the Claimant to Chitty on Contracts (31st Ed.) 39-181 is irrelevant as it relates to the obligations of an employee towards his employer vis a vis disclosure of misconduct and does not set the burden of proof to be met in bringing such allegations before a court or tribunal, as the Claimant seeks to purport.

74. As has been stated above, there is only one standard of proof before a civil court, and therefore the Claimant’s assertion that the Defendant must establish a standard approaching a criminal standard is weak, meeting the requirements under liability under the common law should be sufficient: “The employee may be held liable in damages for the breach of any term of his or her contract of employment, whether express or implied, such as by his or her failure to use due care or skill.” Chitty on Contract (31st Ed.) 39-209.

75. As the issue of the Counterclaim and the issue of Copacabana Brazil event expenses are linked together, they should stand and fall together. While discussing the issue of the Copacabana Brazil event expenses above, I concluded that the Claimant has breached his duty under the Employment Contract, specifically Clause 5.3 (appropriateness of expenses), and breached his duty as a director of the company to act honestly, in good faith and lawfully with a view to the best interests of the Company and to disclose any personal interest under the DIFC Company Law No. 2009 Articles 53 and 54.

76. It is also evident and unchallengeable that the Defendant, UIB, has suffered losses in the sum of US$51,213.91 as a result of the Claimant’s misconduct and breaches and therefore Mr Silva is liable to pay damages equal to the Defendant losses.

77. The Claimant is to pay to the Defendant their costs of the Counterclaim to be assessed by the Registrar if not agreed.

Issued by:
Natasha Bakirci
Assistant Registrar
Date of Issue: 6 November 2013
At: 4pm

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