Claim No: CFI 012/2014
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
PIERRE-ERIC DANIEL BERNARD LYS
Hearing: 8-11 June 2015
Zeeshan Dhar (Al Tamimi & Co) for the Claimant.
Edward Kemp (instructed by Clyde & Co) for the Defendant.
Closing Submissions: 15 July 2015, 20 July 2015, 30 July 2015, 2 August 2016
Judgment: 14 July 2016
JUDGMENT OF H.E. JUSTICE ALI AL MADHANI
Summary of Judgment
|This employment dispute arose between an employee (the “Claimant”) and employer company (the “Defendant”) whereby the Claimant was a joint shareholder of the Defendant. By the terms of a Sale and Cooperation Agreement (the “SCA”) the Claimant, being the CFO, Director and Chairman of the Defendant, agreed to sell his 50% shareholding to the Defendant’s CEO. The purchase price was calculated by reference to the Retained Earnings (as defined) for each of the four accounting years from 2010 to 2013, inclusively.
The Claimant bought his Claim following the termination of his employment as CFO on 11 February 2014, alleging that he was dismissed without good cause or notice. The termination was communicated via email on 11 February 2014 and confirmed by way of letter dated 12 February 2014. A subsequent letter confirming the reasons for dismissal was provided on 17 April 2014. It was the Claimant’s case that the reasons given by the Defendant did not constitute ‘cause’ as defined by Article 59(A) of the DIFC Employment Law and therefore, that he should be entitled to remedies, including but not limited to: payment of unpaid salary; payment in lieu of notice period and vacation leave; reimbursement of business expenses, school fees and accommodation; payment of bonus and service gratuity; costs and interest.
The Defendant submitted that in addition to other reasons, the Claimant was dismissed as he attempted to inflate the 2013 revenue figures in order to increase the sums payable to him under the terms of the SCA. The Claimant was accused of causing the accounts to be prepared in a manner which accelerated the accounting of 2014 revenues into the financial year of 2013, resulting in a non-compliant inflation of 2013 Retained Earnings for his own personal benefit. In a meeting on 11 February 2014 between the Claimant, the Defendant’s CFO, the Defendant’s accounts team and appointed auditors, the Claimant denied manipulating the 2013 accounts and was asked to leave the meeting. Thereafter, the Claimant was accused of leaving the premises with valuable property and data belonging to the Defendant in addition to soliciting business from the Defendant’s customers. The Defendant submits that the Claimant was in breach of his duties as CFO, Director and employee of the Defendant and, therefore, his employment was terminated with cause and with immediate effect in accordance with Article 59(A) of DIFC Law No. 4 of 2005, as amended. Accordingly, the Defendant contended that notice or payment in lieu of notice and end of service gratuity was not due to the Claimant. However, liability with respect to payment of the Claimant’s unpaid salary from 1 February 2014 to 11 February 2014 and in respect of some of the business expenses was admitted. The Defendant also accepted that the Claimant was entitled to a bonus for the calendar year of 2013 but stated that no specific date for payment was provided for under the SCA.
The learned Judge identified the central issue as being that of unfair dismissal. He rejected the Defendant’s submissions that the Claimant was properly dismissed as he attempted to inflate the 2013 revenue figures and accepted the Claimant’s assertions that he was merely alerting the auditors of the amount of “deferred income” which had not yet been recognised as revenue in the 2013 draft financials. It was found that the summary dismissal was unwarranted and unreasonable in the circumstances. The Defendant’s expert’s conclusion that, had the Claimant’s proposal been successful, it would have gone against the previous years’ accounting methods and inflated the Defendant’s revenues in the 2013 financial year was accepted. However, it was found that the way in which the Claimant posed his questions to the Defendant’s accountants, auditors and management did not cross the threshold of gross misconduct and the transparency in the Claimant’s approach suggested he acted in good faith.
The learned Judge found the Claimant’s retention of company property (laptop) and data to be serious and stated that it would ordinarily justify instant termination by an employer. However, after a careful analysis of the facts in this particular case, he accepted the Claimant’s submissions that his conduct was not so serious as to warrant his immediate termination on the basis that the employer could no longer continue to work with the employee for four more days (the Claimant’s scheduled last date of employment was to be on 15 February 2014 in any event).
In addition, the Defendant sought to rely on the Claimant’s post-termination conduct as grounds for his dismissal. The Defendant accused the Claimant of soliciting the Defendant’s clients and devoting time during his normal working hours to his own business, in breach of his obligations. The learned Judge stated that the approach of DIFC Employment Law is to focus on the reasons and circumstances operating on the mind of the employer at the actual time of dismissal and then to assess whether a hypothetically reasonable employer would have dismissed the employee. The employer is not entitled to terminate employment summarily, or at all, for reasons which it was not aware of at the point of termination. In any event, it was found that the Claimant’s emails to the Defendant’s clients did not constitute solicitation and that time spent on his own business was well known to the Defendant who, in fact, had accommodated it.
It was decided that the Claimant was entitled to payment of his unpaid salary, bonus and end of service gratuity; the Defendant’s assertion that the Claimant was not entitled to the gratuity due to his employment being terminated for cause was rejected, as it was found he was unfairly dismissed. With respect to payment in lieu of notice, it was determined that the correct approach was that the minimum notice period required under Article 59 of the DIFC Employment Law must not extend beyond the actual final employment date if this is agreed upon and falls short of what would have been the end of the minimum notice period. Therefore, as the Claimant was scheduled to leave the employment only four days after his summary dismissal, he was entitled to the equivalent of four days payment in lieu of notice. Accordingly, the accommodation expenses were pro-rated with respect to the Claimant’s scheduled leaving date. The Claimant failed to establish the definition of school fees and satisfy the Court that it included university fees; hence, no award was made in respect of these. It was also found that the Claimant’s health insurance premium need not be paid beyond his scheduled leaving date. Furthermore, the Claimant was found to have waived any entitlement to pension contributions by remaining silent on this point since 2009, being the year of the Defendant’s last pension contribution. The Defendant was ordered to pay the majority of expenses claimed by the Claimant up to his last day of employment. Travel allowance was also ordered to be paid as this was an ‘allowance’ and not a business related expense; the Claimant need not submit particularised claims to receive it. Regarding payment in lieu of vacation, the learned Judge determined that the Defendant failed to challenge the Claimant’s evidence that he was sending hundreds of emails during what the Defendant claimed was overtaken vacation, furthermore, the Defendant failed to provide a formal and efficient record of the Claimant’s vacations to prove that he had exhausted all of his vacation entitlement. The overpaid expenses Counterclaim was also dismissed for not being clearly particularised or supported by evidence. The learned Judge decided that it was mandatory to apply Article 18(2) of DIFC Employment Law in the circumstances, imposing a statutory penalty payment upon the Defendant, equivalent to the Claimant’s last daily wage for each day the Defendant was in arrears.
This summary is not part of the Judgment and should not be cited as such
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 regard to The Claimant’s Claim:
It is found that the Claimant was terminated without cause and accordingly, is awarded the following:
1.EUR 3,270.85 for unpaid salary from 1 February 2014 to 11 February 2014, inclusively, at the daily rate of EUR 297.35;
2. EUR 108,535 for the unpaid bonus for 2013;
3. EUR 48,468.05 for end of service gratuity;
4. EUR 1,189.40 in lieu of 4 days’ notice, from 12 to 15 February 2015, at the daily rate of EUR 297.35;
5. AED 6,562.50 as reimbursement for residential rental accommodation for 10 days from 5 to 15 February 2014, at the daily rate of AED 656.25;
6. Reimbursement for business expenses up to the date of 11 Feb 2014, excluding all sums previously paid, related to cash withdrawal, the Claimant’s wife’s air fare and the company car. The value is to be agreed between the parties accordingly, failing which, the Court shall determine them in a detailed assessment;
7. USD 408 as reimbursement for petty cash amounts;
8. EUR 8,920.50 in lieu of vacation leave;
9. USD 3,000 as travel allowance for 2014;
10. A penalty for the Defendant’s failure to pay wages and other amounts owing to the Claimant at the required time, to be calculated at the rate of the Claimant’s daily wage, EUR 297.35, for each day that the Defendant is in arrears;
11. Interest on the above-mentioned sums, accruing at an annual rate of 1%.
With regard to the Defendant’s Counterclaim:
12. The Counterclaim for overpaid vacation and expenses is dismissed in full.
With regard to costs:
13. The Defendant shall pay the Claimants costs, to be assessed by the Registrar if not agreed.
Date of issue: 14 July 2016
1.The Claimant, Pierre-Eric Daniel Bernard Lys, is a French national residing in Dubai and the former Chief Financial Officer of Elseco Limited, the Defendant.
2. The Defendant, Elseco Limited, is a company engaged in insurance intermediation and management, incorporated in the DIFC.
3. The Claimant and Mr Laurent Lemaire, the CEO of the Defendant, founded the Defendant Company in 2007. The Claimant alleges that on or around 7 May 2007, the Claimant and Defendant entered into an employment contract (the “Contract”) and the Claimant thereafter appointed Chief Financial Officer (“CFO”) of the Defendant as well as a Director of the Board. The Claimant was also employed as the Chairman of the Board on 1 June 2007.
4. In January 2009 the Claimant and Mr Lemaire jointly purchased the entire shareholding of the Defendant. On 13 June 2011 the Claimant, by the terms of a Sale and Cooperation Agreement (“SCA”) agreed to sell his 50% shareholding to Mr Lemaire. The purchase price was calculated by reference to the Retained Earnings (as defined), for each of the four accounting years from 2010 to 2013, inclusively.
5. Pursuant to Clause 8.2 of the SCA, the Claimant in his capacity as Director and Chairman retained a right to veto any decision made by the CEO which may negatively impact the execution of the SCA.
6. It is the Claimant’s case that his employment as CFO was terminated without good cause or notice on 11 February 2014. By virtue of Article 59(2) of the DIFC Employment Law No. 4 of 2005, as amended; the Claimant contends, therefore, that his employment ended 90 days later.
7. The termination was communicated via email on 11 February 2014 and confirmed by way of letter dated 12 February 2014. On 17 April 2014 a subsequent letter confirming the reasons for termination was sent to the Claimant.
8. The Claimant asserts that the reasons given by the Defendant for the termination of the Claimant’s employment do not constitute ‘cause’ as defined in Article 59(A) of the DIFC Employment Law and that, therefore, he should be entitled to the following remedies:
(a) EUR 3,270.85 for unpaid salary from 1 February 2014 to 11 February 2014, inclusively;
(b) EUR 26,761.50 in lieu of 90 days’ notice;
(c) EUR 48,468.05 for end of service gratuity;
(d) EUR 8,920.50 in lieu of vacation leave;
(e) USD 40,556 as reimbursement for business expenses detailed in the spreadsheet submitted by the Claimant to the Defendant on or around 16 January 2013;
(f) USD 29,183 as reimbursement for business expenses detailed in the spreadsheet submitted by the Claimant to the Defendant on or around 30 December 2013;
(g) USD 4,063 as reimbursement for business expenses incurred since 1 January 2014;
(h) USD 408 as reimbursement for petty cash amounts;
(i) The value of his accrued pension rights in a sum to be determined or alternatively EUR 29,770 as reimbursement for his pension contributions;
(j) AED 2,860 for unpaid insurance premiums;
(k) EUR 35,975 as reimbursement for school fees paid from 2011 – 2014, inclusively;
(l) EUR 6,596 as travel allowance for 2011 – 2014, inclusively;
(m) AED 236,250 as reimbursement for residential rental accommodation from 4 April 2014 – 12 May 2014;
(n) EUR 108,535 for the unpaid bonus for the year 2013;
(o) An amount to be determined as a penalty for the Defendant’s failure to pay wages or any other amount owing to the Claimant at the required time;
(p) Interest at an annual rate of 8% on the sums claimed above, accruing from the date on which the Claimant became entitled to such sums;
(q) Costs, including legal costs, up to the date of service of the Claim Form of USD 32,000, plus all legal costs incurred in these proceedings; and
(r) Such further relief as the Court may deem fit and proper in the circumstances.
The Defence and Counterclaim
9.The Defendant denies entering into any contract of employment with the Claimant other than the SCA.
10. The Defendant submits that in addition to other reasons, the Claimant was dismissed as he attempted to inflate the 2013 revenue figures to increase the sums payable under the terms of the SCA.
11. The accounting methodology for calculating the Retained Earnings figure was to be the same as the method applied in respect of the 2010 and following years’ financial statements. The Defendant asserts that Mr Lemaire expressed concerns to the Claimant regarding the potential conflict of interest that the Claimant would face in preparing the 2013 accounts due to his vested financial interest under the SCA and asked the Claimant for complete transparency in finalising the 2013 accounts.
12. In January 2013 the Claimant supervised the Defendant’s accounts team whilst they prepared the 2013 accounts for audit by the Defendant’s appointed auditors, PricewaterhouseCoopers (“PwC”). The Defendant asserts that the Claimant had been holding meetings with PwC in the absence of Mr Lemaire and the Defendant’s accounts team and that the Claimant had sought to increase the 2013 Retained Earnings figure by USD 5.2 million and had forwarded the revised calculations and inflated revenue figure to PwC directly, without consulting Mr Lemaire.
13. The Defendant submits, therefore, that the Claimant caused the accounts to be prepared applying a method which is inconsistent with that used for previous accounts and in breach of the SCA. The Claimant is accused of causing the accounts to be prepared in a manner which accelerated the accounting of 2014 revenues into the financial year of 2013, resulting in a non-compliant inflation of 2013 Retained Earnings for his own personal benefit.
14. In a meeting held on 11 February 2014 between the Claimant, Mr Lemaire, the Defendant, the Defendant’s accounts team and PwC, the Claimant denied manipulating the 2013 accounts and was asked by Mr Lemaire to leave the meeting. Thereafter, the Claimant was accused of leaving the premises with valuable property and data belonging to the Defendant as well as soliciting business from the Defendant’s customers.
15. In light of the above, the Defendant submits that the Claimant was in breach of his duties as CFO, Director and employee of the Defendant and, therefore, his employment was terminated with cause and with immediate effect in accordance with Article 59(A) of DIFC Law No. 4 of 2005, as amended. Accordingly, the Defendant contends that notice or payment in lieu of notice and end of service gratuity is not due to the Claimant.
16. The Defendant admits liability with respect to the Claimant’s unpaid salary from 1 February 2014 to 11 February 2014 and in respect of petty cash expenses but only accepts it is liable for some of the business expenses claimed. The Defendant also accepts that the Claimant is entitled to a bonus for the calendar year of 2013 but states that no specific date for payment is provided for under the SCA.
17. The Defendant denies that any other amounts are owing to the Claimant and counterclaims the following (the “Counterclaim”):
(a) EUR 15,462.20 for overpaid vacation;
(b) USD 9,216.86 for overpaid expenses;
(c) Interest at an annual rate of 8% on the sums claimed above, accruing from the date on which the overpayments were made to the Claimant;
(d) Costs, including legal costs, up to the date of service of the Defence and Counterclaim plus all legal costs incurred in these proceedings; and
(e) Such further relief as the Court may deem fit and proper in the circumstances.
History of Proceedings
18. On 26 November 2014 Justice Sir David Steel dismissed the Defendant’s application to strike out some of the heads of claim. It was also determined that jurisdiction was not in issue and that in any event, by virtue of Rule 12.4 of the Rules of the DIFC courts, an application disputing the court’s jurisdiction should have been made within 14 days of an acknowledgement of service being filed. No good grounds were put forward for extending this deadline and no such application was made.
19. Following a hearing on 5 May 2015, H.E. Justice Ali Al Madhani granted the Claimant permission to adduce expert evidence on the matter of accountancy and auditing in order to assist the Court in understanding whether the approach to revenue recognition proposed by the Claimant inflated revenue in the draft of 2013 accounts and whether that approach was consistent with the previous accounting years and international accounting standards.
20. The central issue in this case is that of unfair dismissal. The Claimant’s case is that his summary termination was unwarranted and unreasonable in the circumstances. The Defendant submits that the Claimant was properly dismissed as he attempted to inflate the 2013 revenue figures to increase the sums payable under the terms of the SCA. The Claimant denies the Defendant’s accusation and argues that he was merely alerting PwC to the amount of “deferred income” which had not yet been recognised as revenue in the 2013 Draft Financials.
21. Following consideration of whether the Claimant’s termination constituted unfair dismissal, I will address each element of the claim and counterclaim in turn.
22. In this part of the Judgment I shall consider whether the Claimant’s termination constituted unfair dismissal by addressing each reason given by the Defendant for the termination.
23. The Defendant’s pleaded allegations of misconduct by the Claimant, warranting termination are;
(a) Attempts to inflate the accounts by USD 5.2 million;
(b) Taking company property;
(c) Contacting the Defendant’s customers.
24. The Defendant further relies on the following minor reasons for termination;
(a) Refusing to leave the room when he was asked to do so during the meeting with PwC on 11th February 2014;
(b) Self-proclaiming to staff that he had been fired when he had not;
(c) Refusing to allow Mr Lemaire to see the contents of a box of items that he took from the Defendant, and;
(d) Informing Mr Lemaire that he would send an email to all of the Defendant’s clients regarding his exit from the company.
25. The purpose of my examination of the above mentioned reasons given by the Defendant shall be to determine whether any or all of them would justify the termination in accordance with the meaning of Article 59(A) of the DIFC Employment Law.
Attempt to inflate the companies’ accounts
26. First, the Court shall examine the reason for termination put forth by the Defendant that the Claimant attempted to inflate the company’s accounts by USD 5.2 million.
27. The Defendant’s case is that during the audit process and without the knowledge of and prior consultation with management, the Claimant in his capacity as Director, CFO and Chairman, bound by a duty of good faith and fair dealing, sent emails to PwC seeking to increase the 2013 revenue figure by approximately USD 5.2 million; this increase reflected the recognition of revenue in respect of future launches for which the balance of the premium had not yet been received and therefore, would not ordinarily increase the monies payable to him under the terms of the SCA.
28. The Defendant states that the Claimant, as former CFO of the Defendant, knows full well that within the insurance market, an insurance premium is attached to the risk involved and only proportional revenue is recorded, on a cash basis, once the premium is received.
29. The Defendant asserts that the Claimant, based on his conduct, was proposing a fundamental change to the way in which revenue was recognised, against the accounting standards and methods used in previous years (2010-2013). As such, and bearing in mind the need for absolute transparency and the potential for a conflict of interest to arise in respect of the Claimant’s financial interests under the SCA, a proposal was put forward, requiring the management of the Defendant to be consulted before any calculations and figures were communicated to PwC.
30. Furthermore, the Defendant made the following submissions in relation to the Claimant’s conduct surrounding the Defendant’s accounts;
“(a) The Claimant’s actions (by failing to consult Mr Lemaire prior to proposing a change in revenue recognition methodology) lacked transparency;
(b) The Claimant’s actions created at the very least the potential if not actual conflict of interest between his role as CFO and his personal financial interest under the SCA;
(c) The Claimant’s explanation that his approach to revenue recognition was consistent with IFRS was untrue and/or did not justify a proposed revenue figure of at least $4million USD which, on any view, should not have been recognised;
(d) he Claimant’s conduct was improper and wholly inconsistent with the relationship of trust and confidence between him and his employer such that he acted in bad faith and/or breach of the implied term of mutual trust and confidence.”
31. The Claimant denies the Defendant’s allegations, arguing that he was dismissed on 11 February 2014 after a meeting with Mr Lemaire and PwC. The dismissal was confirmed by email dated 12 February 2014 but the Claimant’s position is that the Defendant did not follow any of the disciplinary procedures set out in its Staff Handbook and that the reasons for the Claimant’s dismissal were only provided much later by letter dated 17 April 2014. That letter of dismissal sets out that the Claimant was dismissed for dishonestly and fraudulently seeking to falsely inflate the 2013 revenue figures for personal gain.
32. The Claimant contends that summary dismissal based on the account inflation issue was unwarranted and unreasonable in the circumstances for a number of reasons, which are outlined in the coming paragraphs.
33. Firstly, the Claimant’s submission is that he did not at any stage attempt to have any additional revenues included in the 2013 Draft Financials, which had already been submitted by the Defendant’s Account’s Officer to PwC on 26 January 2014. The Claimant states that he had merely alerted PwC to the amount of “deferred income” which had as yet not been recognised as revenue in the 2013 Draft Financials, and that his email of 28 January 2014 merely highlighted the impact that unrecognised deferred revenue would have on the pattern of the Defendant’s annual revenues.
34. Secondly, contrary to the assertions of the Defendant, the Claimant alleges that the emails relied on do not show that he encouraged or even suggested that the revenues ought to be recognised in the 2013 Accounts. The Claimant’s position is that he was merely asking PwC to opine and advise on whether or not, in light of the criteria for revenue recognition in the International Financial Reporting Standards, the unrecorded/deferred revenues or any part thereof should be included in the 2013 Accounts. The Claimant was not in any way attempting to conceal any facts from the auditors or the Accounts Team.
35. Thirdly, the Claimant relies on his expert’s report which he argues confirms that there was nothing unusual or out of the ordinary about the Claimant’s communications with PwC as part of the audit process and that such communications are to be expected between auditors and the CFO of a company.
36. Lastly, the Claimant contends that there is clearly a divergence of opinion between the Claimant’s expert and the Defendant’s expert regarding whether the recognition of deferred revenue for launches should be postponed or whether those due to take place in 2014 ought to be included in the 2013 Accounts. The fact that that approach to revenue recognition is not a matter of debate between the experts supports, in the Claimant’s view, the legitimacy of the Claimant’s conduct in seeking guidance from PwC on revenue recognition.
37. It is therefore concluded by the Claimant that, in the circumstances, there was no act of gross misconduct and his termination was unreasonable.
38. The Claimant further argues that certain revenues were recognised even though they were due or received in the following accounting year. This is demonstrated by the Double Total Loss contracts for Yahsat 1A and 1B which accounted for more than 15% of the total basic commission in 2010, even though most of the commission was received after 2010.
39. The Claimant refers to emails sent by Mr Lemaire to PwC on 13 February 2013 to evidence that he was seeking guidance from PwC about whether or not the payment, which had been reimbursed in relation to the Amazonas contracts, ought to be recognised as revenue for 2013.
40. The Claimant also advances an argument that in the letter of dismissal dated 17 April 2014, the Defendant confirmed the reason for terminating the Claimant’s employment as being his alleged dishonest attempt to defraud the Company, but there has been a complete and fundamental change to the reasoning for dismissing the Claimant. The Claimant believes that this fact supports his contention that Mr Lemaire was trying to dismiss him in bad faith but is now arguing that the principal reason for the dismissal was his alleged failure to consult with management prior to corresponding with PwC, which in the Claimant’s view is not a legitimate ground or dismissal.
41. Finally, the Claimant asserts that the issue before the Court is whether or not the Claimant’s conduct in corresponding with the auditors, with a view to seeking their opinion, warranted his dismissal. He also asserts that it is not necessary for the Court to opine or reach a view on the correct approach to revenue recognition.
42. Before determining the issue of the inflation of the revenue figure, It is important to bear in mind that in its Defence and Counterclaim and the rest of its submissions before the Court, the Defendant relies on the following factual allegations in support of its principal reason for dismissal:
(a) Sending revised calculations and an “Inflated Revenue Figure” to PwC without consulting Mr Lemaire;
(b) Following completion of the preliminary audit by PwC, failing to draw to the attention of Mr Lemaire and the Elseco Account Team an email from PwC which included the “Inflated Revenue Figure”;
(c) Causing the 2013 accounts to be prepared in a manner which accelerated the accounting of 2014 revenues into the financial year of 2013, resulting in a non-compliant inflation of 2013 accounts; and
(d) Preparing accounts which did not show a true and fair view of the profit and loss of the Defendant.
43. The first two points, (a) and (b), relate to the fact that the Claimant’s actions were taken without consulting with the Management or Mr Lemaire which, in my view, is central to the Defendant’s arguments. Points (c) and (d), relate to the argument that the Claimant’s conduct resulted in the account inflation, which I deem to be less crucial.
44. In my opinion the Claimant’s conduct has never gone beyond being transparent suggestions to the Defendant, accountants, auditors and management to recognise revenues which have not yet been recognised. This is in circumstances where the majority of work has been completed in a project, with very little or no additional work being needed before its launch; which has led to the non-recognition of revenues which would have otherwise been recognised were it not for the delays in a considerable number of launches in a year.
45. I reach my conclusion based on the following evidence;
(a) The email sent on 27 January 2014 by the Claimant to his Accounts Officer Rolando Caypuno, copying in Mr Lemaire, Leatitia Tollon (Mr Lemaire’s wife) and Anne Marie Chong, stating that the “recognition of revenues for launches postponed from 2013 to 2014” relating to the Audit were “Items Under Review”. This demonstrated that the Claimant was proposing to discuss the revenues of the postponed launches.
(b) The spreadsheet of revenues attached to the email dated 28 January 2014, in which the Claimant provided the data requested and highlighted what he believed to be the effect on revenues if revenue from postponed launches remained unrecognised, without actually adding those ‘postponed’ revenues to the equation or final revenues figure.
(c) On 29 January 2014 the Claimant provided PwC (copying the Defendant’s accountants) with a recalculated figure in respect of unrecognised revenue relating to commissions from planned launches amounting to USD 5.2 million. The email reads:
I refer to my email of yesterday related to the deferred revenues which have not yet been shown in any of our accounts and for which you are doing a research on IFRS rules. I have recalculated amounts. As discussed, the unrecorded revenues come mostly from commissions committed in signed contracts for which the launch is to occur after 31st December 2013.”
This demonstrated to me that until the date of this email, revenues hadn’t found their way into the Defendant’s accounts.
(d) On 2 February 2013, PwC sent the Claimant, Mr Lemaire, his wife, Anne Marie Chong and Roland Caypuno an email entitled “Status Elseco as per first phase of Audit”. The email reads:
“FYI. Kindly update the list if I have missed something.
Thank you for all your help and support. Hopefully will see you soon for the second phase.”
The attachment to the email contained a list of topics intended to be the subject of “Further Discussions” during the “Second Phase” of the audit. One of the topics for further discussion included the “Proportional Revenue Recognition”. The relevant section of the attachment reads as follows:
Premium Tax Adjustment….
Proportional Revenue Recognition
5.2 m of Revenue which has not been recognized coz it has not hit 95% mark yet, however work is completed and no additional/or very less work is needed before the launch. This is due to delays in a considerable number of launches in the year.”
This evidences that the matter does not go beyond discussion, which Mr Lemaire confirms during his testimony before this Court;
“Mr Dhar: That is a topic for further discussion, is it not?
Mr Lemaire: Yes. So that is a further discussion to recognise it.
Mr Dhar: Or not recognise it, as the case may be?
Mr Lemaire: Yes, you’re right. So for recognising it or not recognising it.”
“Mr Dhar: Okay. Even if Mr Lys wanted to have it that way, do you accept that he, even on your case – and this is not accepted by us – he had put it up there for further discussion? He had put it up there as an open item.
Mr Lemaire: Correct.
Mr Dhar: You accept that he did not at any stage force the auditors to include it? He could not have, could he?
Mr Lemaire: No, he hasn’t forced them, no.
HE Justice Al Madhani: Can he force them?
Mr Lemaire: No, I don’t think he could…”
(e) During his cross examination, Mr Lemaire confirmed in relation to the Claimant’s email to PwC, that there was no instruction to PwC to include unrecorded revenues in 2013 and that the email was no more than an invitation to PwC to opine on whether or not recognising deferred revenues would be compliant with the IFRS. Further evidencing that the Claimant’s actions did not result in any actual inflation or harm to the Defendant’s accounts. More importantly, Mr Lemaire conceded that there was nothing wrong with PwC being asked to research how IFRS would apply to revenues due from 2014:
“Mr Dhar: They are a big auditor. I think we can agree on that. But they are being instructed to research the question of whether or not or how the IFRS would apply to these unrecognised revenues.
Mr Lemaire: Correct. Correct.
Mr Dhar: What is wrong with that?
Mr Lemaire: Nothing.”
Mr Dhar: Right. So, Mr. Lys, as CFO, if he is not sure about something, he is entitled to defer to the good sense of the auditors, is he not?
Mr Lemaire: I think if he’s not sure of something, he should speak to management and to the auditor, yes.
Mr Dhar: Well is it your complaint that he did not speak to you and tell you that he was going to invite PwC to do some research?
Mr Lemaire: No, No. He can ask PwC to do some research, but I think clearly it was important point, and I think it’s important to mention that to the management, I think.
Mr Dhar: So that is his crime, he did not mention that he wanted PwC to do some research on IFRS? That is his crime, is it?
Mr Lemaire: The fact that he is asking a question is not a crime. I think it’s a good thing that he does it. So I’m very happy for anyone in my company to ask questions, especially during audits.
Mr Dhar: So what is the crime in this email?
Mr Lemaire: Now, when you got questions which are directed and which are the wrong title for purpose? That’s the problem.
HE Justice Al Madhani: But what are you saying? He is not allowed to deal with PwC directly and ask them for research or suggest anything?
Mr Lemaire: No, he’s allowed to do. No, I think he’s obviously allowed to speak to PwC and ask for research, so there’s no problem with that at all.
HE Justice Al Madhani: So he is allowed to do anything and then it is for you to approve it or not at a later stage, is that right?
Mr Lemaire: Correct. Correct.”
(f) Furthermore, the fact that the Claimant’s actions did not constitute serious misconduct and were done with the knowledge of the company’s management is strongly supported by the evidence of Mr. Roland Caypuno, who during his evidence stated that:
“Mr Dhār: You say your reason for doing nothing about it is because you are too busy.
Mr Caypuno: Yes, and one thing more, since it was during the audit and addressed to the people you see, that I left the case with the people you see who are going to resolve the issue because I know the process of the audit. The auditor would have an issue on this one, they had to come to me or I go to the management to discuss the issue. So I think I don’t see any issue on this one.
HE Justice Al Madhani: Let me ask you this question. So you were thinking this would never go through. Is that what you were thinking? This proposal would never go through. It could be stopped somewhere.
Mr Caypuno: Yes.”
(g) The expert appointed by the Claimant concluded that the email exchanges between the Claimant and PwC were “Standard in the context of an Audit” (paragraph 60 of the report). The Claimant contends that this conclusion remains unchallenged by any other expert evidence. It is submitted that in any event, such a conclusion is incontestable as the correspondence speaks for itself.
(h) The Claimant’s willingness to attend the meeting to discuss issues surrounding the company’s accounts and Deferred Revenues with the auditors and the management including Mr. Lemaire, further demonstrates that the Claimant was acting in transparent way before the final steps of the accounting process.
46. I am satisfied that the Claimant’s actions amount to no more than an enquiry to the auditors, accountants and management, which is permissible and did not result in any actual inflation in the company’s accounts and was, in any event, done in a transparent way in accordance with the company’s procedures.
47. It is also obvious from Mr Lemaire’s own evidence that he haphazardly concluded that the Claimant was acting fraudulently based primarily on an unjustified and arbitrary presumption of guilt. The relevant sections of his testimony are as follows:
“Mr. Lemaire: I think it’s the addition of many evidence.
Mr. Dhar: Which in particular?
Mr. Lemaire: I mean first of all, I think, if I may, a bit of context. Knowing someone for eight years and knowing their very well. Far, far better than you know your client, I take it, okay? So I knew when something happened, when you deal with someone and you are 2.5 metres from him, you know very, very well what’s his intention.
Mr. Dhar: So you presumed his intention, did you, on an arbitrary basis?
Mr. Lemaire: At that point. Yes.
Mr. Dhar: That is interesting.
Mr. Lemaire: Yes\
Mr. Dhar – –
Mr. Lemaire: That’s the beauty of a company…..They know you, you know them. Just by looking at it, you know? And I think the same thing with family. When you see your mum, all right, even if you are ten metres, she will tell you if you’re sick or not, okay? She doesn’t have to be there and ask you the question. She knows it.”
48. I accept the Defendant’s expert’s conclusion which made the observation that if the Claimant’s proposal was successful, it would go against the previous years’ accounting methods and inflate the Defendant’s revenues in the 2013 financial year. However, the way the Claimant posed his questions to the Company’s accountants, auditors and management did not reach the threshold of gross misconduct and the transparency in the Claimant’s approach suggests he acted in good faith.
49. The Defendant contends, in its second reason for termination, that the Claimant took a laptop from the company containing “all the information relevant to [his] case” with the express purpose of supporting his claim against his employer. It was submitted that the laptop contained confidential information such as customer details and information relating to the Defendant’s business, customers, finances and other affairs. Furthermore, that the confidential information has not been used by the Claimant for legitimate business purposes to assist the Defendant but for personal reasons, to support litigation against the Defendant.
50. The Defendant describes the Claimant’s conduct as wholly inconsistent with both the Claimant’s express and/or implied duty of good faith/fair dealing while he remained an employee, to act in the best interests of the Defendant and the implied term of mutual trust and confidence. Therefore, this misconduct is relied on as a ground to terminate the Claimant’s employment.
51. The Defendant submits that the Claimant’s email to Benjamin Davey on 8 May 2014 is an example of confidential information belonging to the Defendant being used for personal gain.
52. The Defendant relies on the following principle from the judgment of Mr Justice Jack in Bandeaux Advisers (UK) Ltd v Chadwick  EWHC 3241 (QB) to support the proposition that an employee who retains confidential information for the purposes of pursuing a claim against their employer is nonetheless acting in breach of their duty of good faith and fair dealing:
“…I am doubtful if the possibility of litigation with an employer could ever justify an employee in transferring or copying specific confidential documents for his own retention, which might be relevant to such a dispute. If such a dispute arises, in the ordinary course the employee must rely on the court’s disclosure processes to provide the relevant documents: even if the employee is distrustful whether the employer will willingly meet its disclosure obligations, he must rely on the court to ensure that the employer does.”
53. On the other hand, the Claimant’s justification for retaining the laptop and data is that when he was leaving the premises of the Defendant, he had already been implicitly accused of attempting to defraud the company. Furthermore, on a previous occasion during the audit, Mr Lemaire had alleged that the Claimant had acted wrongly in relation to Insurance Premium Tax and had attempted to manipulate and/or force staff to act against their wishes. In addition, the Claimant submits he had been deliberately excluded from a meeting with PwC which would have had implications for the calculation of revenue and therefore, Retained Earnings figures. It is also submitted that Mr Lemaire had not at any stage sought to speak with the Claimant or afford him an opportunity to comment on his correspondence with PwC.
54. The Claimant added that there had been no investigation of misconduct whatsoever prior to the termination. During the audit period, hundreds of emails had passed between him, PwC, Mr Lemaire and the Accounts Team and Mr Lemaire had conducted himself in a manner which caused the Claimant not to trust him by this stage.
55. Furthermore, the Claimant contends that he was concerned by the capricious and irrational manner in which Mr Lemaire was making injudicious allegations concerning his role in the preparation of accounts in previous years. As a consequence, he was naturally concerned that any evidence which vindicated his actions and/or shed light on any dealings he had with members of the Accounts Team, Mr Lemaire and/or PwC were preserved.
56. The Claimant puts forward evidence to support the fact that he was genuinely concerned about the destruction of emails which supported and/or vindicated his conduct. An example is an email sent to the Claimant from Mr Lemaire on 11 February 2014, which reads:
“You have told me that you did not want to give me your computer based on the fact that you did not want elseco personnel to delete your emails. I understand your concern and told you that this was a reciprocal concern.”
57. As regards to the Bandeaux Case, the Claimant submits that Mr Justice Jack’s reasoning is of no relevance to these proceedings. The disclosure obligations imposed by Part 31 of the English Civil Procedure Rules (“CPR”) are far more demanding and expansive than those imposed by the Rules of the DIFC Courts (“RDC”). The CPR requires a party to disclose those documents that “adversely affects” its own case.
58. Therefore, in England and Wales there is no practical necessity for an employee to retain those confidential documents that would assist in a claim against their former employer as they can be safe in the knowledge that the disclosure obligations imposed by the CPR will ensure the disclosure of these documents in advance of trial. It is argued that the position is very different in the DIFC where RDC 28.15 only requires a party to produce those documents “on which it relies”.
59. It is also submitted that in the context of the DIFC, it is wholly legitimate for an employee to retain information (confidential or otherwise) that is to be used (or is potentially to be used) in a claim against their employer. If this were not correct, an employee would be unfairly hampered from adequately pursuing a claim against their employer. Given the imbalance of power between an employer and an employee, the prejudice caused by this would be all the more acute. While the RDC entitles an employee to make an application to the Court to compel an employer to produce relevant documents both prior to and during proceedings, this does not adequately redress the issue for the following reasons:
(c) No guarantee of success in making the application;
(d) Imposes a burden than does not exist in England and Wales.
60. The primary rationale for imposing a duty of confidentiality on an employee is to prevent them from disclosing commercially sensitive information to third parties that would have the effect of damaging the employer’s commercial interests, therefore, retention of confidential information by an employee for the purposes of using it in a legal dispute clearly falls outside of this rationale and cannot constitute a breach of any duty relating to confidentiality.
61. With respect to arguments relating to the email sent to Benjamin Davey, the Claimant insist that the Defendant failed to provide any evidence to support the following facts;
(a) that this email came from an Elseco database;
(b) that Mr Davey was an existing client of Elseco;
(c) why the contact details of Mr Davey were confidential and/or the property of Elseco; or
(d) whether Mr Davey’s contact details were known to the Claimant through Elseco or Elseco related work.
62. It is my view that in normal circumstances, the taking of a company laptop with sensitive data on it would be very serious misconduct as it goes to the heart of an employment relationship and would typically warrant termination, as in the case of Bandeaux where Mr Justice Jack said:
“I am doubtful if the possibility of litigation with an employer could ever justify an employee in transferring or copying specific confidential documents for his own retention”
63. However, the wording of Article 59(A) of the Employment Law suggests that a test of reasonableness is to be used in any case to satisfy the question of whether or not the employee’s conduct warrants termination;
“59A Termination for cause
An employer or an employee may terminate an employee’s employment for cause in circumstances where the conduct of one party warrants termination and where a reasonable employer or employee would have terminated the employment.”
64. The reasonableness test would definitely require the Court to take into account all circumstances and factors surrounding the employee’s conduct and employer’s reaction at the time of the termination in order to answer the question of what a reasonable employer would do.
65. As mentioned above, the Claimant’s retention of company property (laptop) and data is serious and may ordinarily justify instant termination by his employer. However, after a careful analysis of the facts in this particular case, I am inclined to accept the Claimant’s submissions that his conduct was not so serious to warrant his immediate termination on the basis that the employer could no longer continue to work with the employee.
66. I rely on the following facts and circumstances to support my conclusion:
(a) The employment relationship in this case is not an ordinary one. The Claimant, apart from being CFO, Board Member and Co-Founder of the company, along with Mr Lemaire, had a special interest in the company’s final accounting year, in which he was to receive a percentage of the company’s profit as final payment against the sale of his share in the company to Mr Lemaire in accordance with the SCA.
(b) The retention of company property and data was at all material times a secondary reason relied on by the Defendant for termination, demonstrated in the evidence of Mr Lemaire himself, when answering the question put to him by the Claimant’s counsel regarding the weight he gave to reasons for termination, other than the attempt to inflate the company’s revenues; the transcript reads as follows:
“Mr Dhar: “Would you agree that that summarises at the time your principal reason for dismissing the Claimant?
Mr Lemaire: I think that reason we thought kind of overweighted the other one. So yes.”
(c) The mutually agreed date of departure of the Claimant from the Defendant is only 4 days after the termination. Had the Defendant not terminated his employment on the termination date (11 February 2014), the Claimant’s employment would have terminated on 15 Feb 2014.
(d) Following the meeting of 11 February 2014, Mr Lemaire had not at any stage sought to afford the Claimant with an opportunity to comment on his correspondence with PwC. The Claimant had been excluded from a meeting with PwC and in the absence of a proper investigation, I am inclined to find that the employer’s conduct was unreasonable, which might have genuinely led the Claimant to be concerned about the destruction of hundreds of emails which had passed between him, PwC, Mr Lemaire and the Accounts Team which supported and/or vindicated his conduct. This is confirmed by an email from Mr Lemaire to the Claimant at 16:30 on 11 February 2014, which reads:
“You have told me that you did not want to give me your computer based on the fact that you did not want elseco personnel to delete your emails. I understand your concern and told you that this was a reciprocal concern.”
67. For all of the above-mentioned reasons, I find that the Claimant’s conduct was not serious enough to go to the heart of the employment relationship on the basis that the employer could no longer continue to work with the employee for four more days (after which the Claimant was due to leave in any event). As a result, I dismiss the Defendant’s attempt to rely on such conduct as grounds for instantly terminating the employment of the Claimant.
Post termination conduct
68. In this part of the judgment I shall address the fresh allegations made by the Defendant on 20 July 2014 regarding the Claimant’s behaviour, which were not relied upon previously; either on 11 February or thereafter on 17 April during the termination:
(b) Working on UXCo/iCompanion
69. The Defendant sought to rely on an allegation not known of at the time of his dismissal. The Defendant refers to the decision in Boston Deep Sea Fishing v Ansell (1888) 39 Ch D 339, which provides that dismissal may be justified by reliance on facts not known to the employer at the time of the dismissal.
70. Firstly, in this context the Defendant contends that the Claimant sought to ‘breach his obligations as an employee, CFO and director’ by soliciting business from clients of the Defendant by advertising his products and services. The allegation is that the Defendant discovered emails sent from the Claimant on 20 January 2014, demonstrating that the Claimant had approached an existing client of the company, Es’hailSat, plainly offering his own consultancy in the field of space insurance. The Defendant considered the sending of the email to be equivalent to carrying on business similar to the business of Elseco which, therefore, required prior written agreement from Mr Lemaire before being sent; and as no written permission was obtained, this act amounted to a breach of Clause 10.2(a) of the SCA.
71. Secondly, the Defendant sought to rely on an allegation that the Claimant had devoted time during his normal working hours to his own business in breach of his obligations. The Defendant asserted that devoting any time during his normal working hours, when he is paid to work for the Defendant, on marketing and setting up his own business is a further act of misconduct warranting termination.
72. The Defendant submits that it had come to their attention that the Claimant had begun devoting time during his normal hours to set up and market his own business called UXCo/ iCompanion.
73. The Defendant refers to the email of 22 January 2014, sent from the Claimant to Mr Lemaire, and submits that the Claimant admitted the following:
“With respect to iCompanion, I agree that I might have occasionally received some phone calls or organised some meetings. As you know, I’ve actually recently requested your authorisation to do so”.
74. The Defendant then argues that by the time of the Claimant’s termination, iCompanion had grown from being the Claimant’s idea to being ready for launch.
75. Finally, the Defendant submits that the allegations against the Claimant in this connection are consistent with the wider narrative of:
(a) The Claimant’s willingness to use confidential information for his own personal purposes; and
(b) The Claimant’s apparent willingness to further his own personal interests above those of the Defendant in the run up to and after his agreed termination date.
76. The Claimant’s defence to the events discovered post termination is, according to Article 59A of the Employment Law, that the decision of the reasonable employer is to be assessed at the time the decision to dismiss is taken, and for the reasons relied upon at the time.
77. The DIFC Employment Law approach is to focus on the reasons and circumstances operating on the mind of the actual employer at the point of dismissal, and then to assess whether a hypothetically reasonable employer would have dismissed the employee and that the provision does not appear to enable an employer to terminate employment summarily, or at all, for reasons which it was not aware of at the point of termination.
78. For the Claimant, neither the DIFC Employment Law nor the Claimant’s contract of employment contain any provisions allowing termination to be justified by reference to conduct discovered after termination. Therefore, the argument is that the principle in Boston has no application in the DIFC. The Claimant relies on Ithmar Capital v 8 Investments Inc CFI/8/2007 to establish that the dicta does not allow for the open importation of new concepts that are not already codified in the applicable DIFC Laws. As Justice Sir Anthony Coleman stated:
“…in construing the applicable codified provisions of that law it is appropriate to add flesh to the concise bones of these legislative provisions by looking to the manner in which the Common Law courts of England and elsewhere have given effect to similar principles. Whereas the ruling principles are those laid down in the DIFC codes, the manner of application can properly be informed by reference to English law not as a default system but as an aid to construction and application”
79. The Claimant also argues that even if the Defendant has identified the conduct that it relies upon, which was discovered post termination, it has failed once again to articulate the express or implied term which has been breached by the said conduct.
80. The Claimant then argues that if the principle in Boston is applicable in the DIFC, the incidents referred to by the Defendant, working on UXCo/iCompanion, was very well known to the Defendant at the time of termination.
81. As for the Es’hailSat emails, the Claimant’s case is that there is no non-solicitation agreement clause in the Claimant’s contract of employment. Accordingly, the Defendant can only rely on an undisclosed implied term in order to advance this allegation. In the event that the Defendant is seeking to rely on a breach of Clause 10.2 of the SCA, the Claimant submits that this Court lacks jurisdiction to deal with Clauses 9.1 and 9.2 of the SCA, therefore, the Court ought to decline to determine whether there has been a breach of Clause 10.2 of the SCA.
82. Finally in regards of the Es’hailSat email, the Claimant submits that there is no solicitation contained in the wording of that email, instead the email was sent on the recommendation of Mr Lemaire so as to attempt to secure further work from Es’hailSat through the Claimant after his departure.
Does the Claimant’s conduct (work for UXCo/iCompanion) warrant termination?
83. In my view, the work carried out by the Claimant during his employment relationship with the Defendant for his personal business, UXCo/iCompanion, was well known to the Defendant and it was even accommodated by Mr Lemaire. My view is based on the Claimant’s evidence in such regards and the answers given by Mr. Lemaire during his cross examination:
“Mr Dhar: He says in the third sentence, “It is now time for me to dedicate more time towards them”. So you were aware that he was dedicating time towards iCompanion whilst employed at Elseco?
Mr Lemaire: I was aware that he did set up iCompanion and was working on it while he was an employee of Elseco. So, yeah, I knew that he did start he did some work on it, yeah.
Mr Dhar: Can I suggest to you that Mr Lys was comfortable and confident, you would agree as a logical conclusion to draw, with having the meeting in the offices because you had no problem with him dealing with iCompanion matters during work time?
Mr Lemaire: As long as it was reasonable and as long as the, you know, the interests of Elseco wasn’t impaired, I think, yeah, I was fine. I was fairly flexible in trying to help Mr Lys to get his new life so, yeah, I was accommodating.”
84. I conclude that the work for UXCo/iCompanion was well known to the Defendant and particularly Mr Lemaire who accommodated it according to his evidence. Accordingly, I don’t consider this behaviour to justify the Claimant’s instant dismissal, nor is it capable of being relied upon post dismissal, as the Defendant seeks to do.
Does the Claimant’s conduct (Es’hailSat email) warrant termination?
85. In this regard, the wording of the email itself does not clearly suggest that the Claimant was soliciting the Defendant’s client:
“Although I do not intend to create any venture in the field of space risk or space insurance, some local space insurance expertise might be valuable to Es’hailSat at some point. I would be delighted to provide this type of support to your venture on an ad hoc basis and the purpose of this message is to inform you of that personally.
I know you are currently conducting a tender for selecting your broker to help you on the risk management side, but I think you might be interested to get some independent view.”
86. Furthermore, the evidence of Mr Lemaire during his cross examination led me to believe there was no solicitation at all, or at the very least, to doubt what he tries to contend:
“Mr Dhar: If it is right that Mr Lys was only going to provide assistance or advice on the selection of the broker, then he is not competing with you, is he?
Mr Lemaire: I think, you know, you know, some local space insurance expertise may be valuable to Es’hailSat, so space insurance expertise, I mean, it’s not just selecting a broker. It’s.
Mr Dhar: No, no, my question to you was: if it was just I know
Mr Lemaire: If it was just selection of a broker, yeah, I don’t I wouldn’t see it as competition. I would find it a bit strange that someone who has a non-compete clause, because that’s what we’re talking about, speaks to my clients and as such I would like to know, but at the end of the day I wouldn’t I wouldn’t see it as a competition.
Mr Dhar: It is right, is it not, that Mr Lys never provided any advice on the selection of brokers or any other advice to Es’hailSat as far as you are aware after the termination of his employment?
Mr Lemaire: As far as I’m aware, no, but I don’t know.”
87. In summary, with respect to the Claimant’s post termination conduct, the Defendant, for the above-mentioned reasons, has failed to satisfy this Court that the ‘solicitation’ or work done on UXCo/iCompanion could be relied upon to justify the termination of the Claimant’s employment.
Other reasons for termination
88. In addition to the reasons or causes for termination discussed above, the Defendant sought to rely on less serious causes than the alleged attempt to inflate financial accounts as a second tier of reasons; the retention of the laptop and companies’ data, in addition to solicitation and working on UXCo/iCompanion.
89. The Defendant submits that during the meeting of 11 February 2014, the Claimant committed the following acts, on which they rely to justify the Claimant’s termination;
(a) The Claimant was insubordinate when he refused to leave the first phase of the meeting with PwC;
(b) The Claimant’s statement to staff that he had been fired “I have been fired, can you believe it?”;
(c) Refusing to allow Mr Lemaire to see the contents of the box, and refusing to do so in front of other staff was insubordinate and suspicious given that the box evidently contained company property;
(d) Informing Mr Lemaire that he was going to send an email to the Defendant’s clients that would be out with the proposed draft email, contrary to the best interests of the Defendant and further undermining trust and confidence;
90. The Claimant on the other hand, denies the Defendant’s allegations and submits that they cannot stand as cause to terminate his employment.
91. The Claimant submits that there is no reason why Mr Lemaire would want to have a general discussion regarding the accounts without his CFO, prior to the submission of audited accounts. The Claimant contends that when he insisted that PwC apply the IFRS principles to the recognition of revenue, Mr Lemaire interrupted and demanded that he have a private discussion with PwC. When the Claimant then asked why it would need to take place without him, Mr Lemaire said that he could ask the Claimant to leave and that he could also fire him.
92. With regards to his leaving statement, the Claimant submits that he meant that in light of the way he had been treated, he would not be making leaving statements expressing adoration for the Defendant. It was substantially different to the one which had been drafted and/or reviewed by Mr Lemaire. The Claimant asserts that the principal difference was the removal of any statement mentioning how great it was to have worked for the Defendant. This was not meant as a threat to the Defendant.
93. The Claimant further argues that the Defendant was breaching the terms of the SCA by preventing the Claimant, as CFO, from having any say in the calculation of and assessment of the revenues figure, which he was entitled to do under the terms of the SCA.
94. Finally, the Claimant contends that in any event, it is not open to the Defendant to criticise or dismiss him for making such a statement in circumstances where the Defendant’s own conduct provoked such a statement.
95. In my view none of the reasons provided by the Defendant in paragraph 88 of this judgment amount to gross misconduct qualifying as cause for a reasonable employer to terminate an employee just four days before the employee’s scheduled last day of employment.
96. I do take the view that the Claimant in his capacity as Chief Financial Officer, Board member and co-founder of the company, with a special interest in the company’s final accounting year, was entitled to attend the meeting between Mr Lemaire and PwC at least to the end of the accounts discussion which was a controversial issue between them.
97. The Claimant’s behaviour might not be what the Defendant was expecting but it is in no way, in my opinion, actions that strike at the heart of the employment relationship that was already to come to an end in a few days.
98. Thus, the above-mentioned reasoning and discussion take us to the conclusion that the Defendant has failed to satisfy this Court that as a reasonable employer, immediate termination of the employment relationship was warranted due to the employee’s misconduct, which must be so serious as to strike at the heart of employment relationship such that the employer can no longer continue to work with the employee, owing to the employee’s unjustified conduct.
99. Therefore, the termination was not for cause and accordingly, not in compliance with Article 59A Of the DIFC Employment law.
Amounts claimed by the Claimant
100. The Claimant’s case is that he has not been paid his basic salary for the period 1 to 11 February 2014 and is therefore owed EUR 3,270.85. This part of the claim is admitted by the Defendant as in their Amended Particulars of Defence and Counterclaim, paragraph 9.
101. The Claimant sought EUR 108,535 as an unpaid Bonus pursuant to Clause 2.1 of Appendix 2 of the SCA which reads “minimum payment by way of bonus of 10% of profit commissions up to a maximum of 100% of his salary”, which the Defendant failed to pay for Calendar year 2013.
102. The Defendant admitted the Claimant’s entitlement but argued that it is not payable until June 2015 once it has finally determined the paid profit commission for the 2013 underwriting year. The Defendant maintains that it cannot determine the final figure until the value of insurance claim by O3b is known.
103. Until 2 August 2015, when the Defendant submitted its second written closing submission, the Defendant failed to update the Court with respect to the exact value of the bonus. By the Defendant’s own admission, this figure should have been known to them by June 2015, or an alternative figure contrary to what the Claimant sought ought to have been proposed. Therefore, the Defendant shall pay the Claimant his bonus in the sum of EUR 108,535.
104. The Claimant submits that he is entitled to EUR 48,468.05 based on his length of service of 6 years and 346 days and in accordance with Article 62(2) of the DIFC Employment Law.
105. The only defence put by the Defendant is that the Claimant’s employment was terminated for cause and that he is therefore not entitled to gratuity by virtue of Article 62(4) of the DIFC Employment Law.
106. The Court has concluded that the dismissal was without cause; accordingly, the Claimant shall be paid the sum of EUR 48,468.05 by the Defendant as gratuity.
Payment in lieu of Notice
107. The Claimant is seeking payment in lieu of notice, equivalent to 90 days salary, pursuant to Article 59(4) and (5) of DIFC Employment Law, amounting to EUR 26,761.50 on the basis that had he not been dismissed, he would have remained employed until the completion of the audit which appears to have been completed on or around 16 June 2014, when PwC wrote to the directors of Elseco setting out their provisional report on the accounts.
108. The Defendant, on the other hand, contends that the Claimant was terminated for cause and is therefore not entitled to such payment. The Defendant alternatively argues that if the Claimant was not terminated for cause, his employment would have come to an end by agreement three days later on 15 February 2014. Therefore, the correct measure of loss is three days’ pay only.
109. Although Article 59 of DIFC Employment Law provides that either party may terminate the employment by giving 90 days’ notice if the period of the employment is five years or more, the law is completely silent as to the situation where the remaining period of the employment is shorter than the required notice.
110. The right for notice exists in order to give parties the option of exiting an employment contract at a low cost and with a degree of warning, providing for monetary compensation in the event that the employment is ended sooner than anticipated in order to create a stable employment environment. If the notice was to be extended beyond the actual initial agreed last day of employment, then it would defeat the above principle of a low cost exit.
111. The correct approach is that the minimum notice required by Article 59 must not be extended beyond the actual final employment date if it is agreed upon and falls short of what would have been the end of the minimum notice period.
112. Thus, as in this case, the termination took place on 11 February 2014 and the agreed final employment date is just four days later on 15 February 2014, the Claimant is accordingly entitled to minimum notice only up to the actual agreed final day of employment which is four days.
113. The Claimant’s statement that he would have remained employed until the completion of the audit on or around 16 June 2014 is not supported by evidence that he would keep working with the Defendant in the usual way before 15 February 2014 and there was nothing in the PwC letter, referred to by the Claimant in support of his argument, to show that he would be required to do any extra work beyond 15 February 2014.
114. Therefore, the Claimant’s entitlement of notice is that from 12 to 15 February 2015 in the sum of EUR 1,189.40 at the daily rate of EUR 297.35.
115. The Claimant in this part of the claim is seeking reimbursement of rent for accommodation for the period of 5 April to 12 May 2014. The Claimant in fact is seeking this sum during, what he believe should be, the notice period that he is entitled to.
116. The Claimant submits that the Defendant has not pleaded that there is an implied term in the employment contract and/or the SCA to the effect that this would be paid on a monthly pro rata basis, and he therefore submits that the full amount of AED 236,250 should be awarded as was done in the year of 2013.
117. The Defendant argues that the Claimant is entitled to such benefit up until the termination date only.
118. As I have concluded that the Claimant’s notice period extends to 15 February 2014 only, the Court grants the Claimant accommodation fees from 5 to 15 February 2014 (10 days) on a pro-rated basis, equivalent to the sum of AED 6,562.50 at the daily rate of AED 656.25.
119. The Claimant submits that pursuant to Clause 2 of Appendix 2 of the SCA, he was entitled to the educational costs of his son’s university education. He argues that he submitted claims in January and December 2013 in the sum of EUR 8,110 for the cost of his son’s education between September 2012 and June 2013 but has not been reimbursed for these to date.
120. The Claimant further submits that there is no provision in the SCA that requires receipts to be submitted and no such provision has been relied upon by the Defendant in its Amended Defence and Counterclaim.
121. Finally the Claimant argues, in reply to the Defendant’s submission that these fees are for school education but not university, it would have little merit considering he was reimbursed EUR 7,820 in June 2010 for his son’s medical university fees as pleaded in his first witness statement. Accordingly, the Claimant submits that he is entitled to the full amount of USD 35,975 claimed.
122. The Defendant counters the Claimant’s demand for school fees by arguing that any sensible reading of Appendix 2 of the SCA is that the entitlement is to “School Fees” and not university fees, otherwise it would have said so. Alternatively, the Defendant contends that no documentation has been provided by the Claimant to support the sum claimed.
123. It is evident that pursuant to Clause 2 of Appendix 2 of the SCA, the Claimant is entitled to “School Fees” for his son, however, in his Claim the Claimant is seeking reimbursement of university fees. The Claimant failed to establish that the definition of school fees shall cover the university fees, and also failed to provide documentary evidence that the Defendant has paid him university fees as an established practice. Therefore, I am not satisfied that the Claimant is entitled to such fees and no such amount shall be paid by the Defendant to the Claimant.
Insurance premium until 12 May 2014
124. The Claimant submits that he was entitled to health insurance which the Defendant terminated on 28 February 2014, and he insists that the insurance coverage should have continued until the last effective date of the employment which is the end of the three months’ notice, 12 May 2014. The Claimant is seeking AED 2,860.
125. As I have concluded that the Claimant’s notice extends only to 15 February 2014 as the last effective date of the employment, there is no basis on which the Claimant’s health insurance should extend beyond that date.
126. The Claimant alleged that during the course of his employment he has made annual pension contribution from 2009 to 12 May 2014, the end of the notice period, in the sum of EUR 29,770, and he is now seeking for either the Defendant to pay the accrued pension amount or to reimburse him.
127. The Claimant contends that these contributions were not maintained by the Defendant as the new employer, despite the agreement between him and Mr Lemaire. The Claimant made reference to Appendix 2 of the SCA to support his entitlement to social security contributions: “Health Insurance & Pension – As per current contract”.
128. From 2009 onwards, the Claimant asserts that he did not receive payments as per his contract at the time, even though such payments are shown in the sample pay slips which have been provided and identified in the Claimant’s witness statement.
129. The Defendant’s response to the pension claim is that there was no contractual entitlement to contributions to a personal pension plan. It continued to make other social security contributions to Caisse des Francais de L’Etranger.
130. The Defendant invites the Court to have regard to the conduct of the parties subsequent to the conclusion of the contract when interpreting the Claimant’s contract of employment as Article 49 and 51(c) of the DIFC Contract Law provides. The Claimant, former CFO and originally Chairman, never questioned his pension at any stage during his employment. The contractual entitlement to pension contributions was to those made by the Defendant without any protest by the Claimant to Caisse des Français de L’Etranger.
131. The Defendant contends that there is no contractual entitlement to contributions over and above those that were in fact made from 2009 with reference to Clause 7.4.2 of the undated expatriation letter in French which was varied on or around 2009.
132. Although the Claimant has managed to establish before this court that according to the SCA he is entitled to pension contributions as per his current contract. The Claimant further established that, in his current contract of employment at the time of signing the SCA, he used to receive pension contributions with reference to his salary slips with SPACECO.
133. However, the Defendant’s position is that it’s conduct of not paying the pension contribution since 2009 and the Claimant’s silence on this point, evidences that the pension entitlement is no more. I consider this to be a very strong argument. The Claimant has not provided any reason why it’s not been claimed or the non-payment of pension contributions have not been protested by him since then. The Claimant in his position as CFO and Board member should have claimed such entitlement before now if he believed he was still eligible.
134. This leads me to accept the Defendant’s arguments and evidence that such entitlement has been waived by the Claimant and the Defendant is therefore not required to make any such payments to the Claimant.
Expenses & petty cash
135. The Claimant contends that during the course of his employment with the Defendant he incurred expenses which he claimed through a spread sheets as follows;
(a) USD 40,556 for the year of 2012;
(b) USD 29,183 for the year of 2013;
(c) USD 3,655 for the year of 2014.
136. The Defendant on the other hand, relies on the following reasons for denying various items in the expense claims made by the Claimant:
(a) Claims were not made in an expense reimbursement summary form (“ERS form”);
(b) Claims were not made before the 25th of each month or within the 3 month extension provided to the Claimant for the submission of expenses;
(c) Business entertainment claims did not provide the name of the clients, the actual individuals’ names and also the reason for entertaining;
(d) No pre-approval was obtained for business and travel expenses to be paid using the corporate credit card;
(e) Travel expense claims did not provide the reason for travelling.
137. The Claimant, in response to the Defendant’s points above, submits that the requirements of the Staff Handbook were varied and/or waived by custom and practice. The Claimant directly responds to each submission in the preceding paragraph as follows:
(a) Expense claims have not historically been made by the Claimant or Mr Lemaire by way of the ERS form, but rather by way of spread sheets itemising expenses. No objection has been made to this method of claiming expenses and the Defendant has admitted certain amounts claimed in this manner in its Amended Defence and Counterclaim;
(b) Claims were regularly made by the Claimant and Mr Lemaire and reimbursed outside of the 3 month period specified in the Staff Handbook;
(c) In practice, there was no need for such information as business meetings of this kind were normally arranged by Lucy Gilchrist on behalf of the Defendant and therefore such information was already in the Defendant’s possession. Furthermore, Mr Lemaire did not provide this information in many of his own claims for business entertainment expenses, which were nevertheless reimbursed;
(d) In practice, no pre-approval was required for business and travel expenses to be paid using the corporate credit card. This is demonstrated by the fact that the Defendant is now willing to reimburse for business expenses incurred upon receipt of certain information, which they would not do if pre-approval is a mandatory requirement;
(e) As in sub-paragraph (c) above, such travel arrangements were usually arranged by LG of the Claimant and there was in practice no need for such information to be provided as it was already in the Defendant’s possession
138. Having reviewing both parties evidence in this regards, I am of the view that the requirements set out in the Staff Handbook were varied and/or waived in practice. The Claimant’s evidence is in line with the fact that the Defendant did not ask the Claimant to comply with such requirements, nor did it reject his submission with written reasons at the time of submission.
139. Accordingly, the Claimant is entitled to all expenses submitted up to the date of 11 Feb 2014 as the final day of employment, excluding all sums that have been paid previously, sums related to cash withdrawal, sums related to the Claimant’s wife’s air fare and sums related to the company car.
140. Expenses are to be agreed between the parties in accordance with my finding in the previous paragraph; failing which, the Court shall determine them in a detailed assessment. The Claimant is to prepare a new schedule of the expenses being claimed, to be presented to the Defendant for response.
141. The Claimant is also to be paid USD 408 with respect to his admitted petty cash entitlement.
142. The Claimant asserts that Clause 5, together with Appendix 2 of the SCA, entitles him to a travel allowance of EUR 3,000 per year. He contends that he agreed with Mr Lemaire in October 2010 that EUR 3,000 would be paid irrespective of the way it was utilised in personal travel and that it was never agreed that these sums would only be paid on submission of expenses.
143. The Claimant seeks payment of the remaining travel allowance from the year 2011 up to 2014, in the sum of USD 6,596.
144. The Defendant insists that the claim should be dismissed in its entirety, he contends that the burden is on the Claimant to prove his entitlement and he has failed to provide any evidence at all in support of the amounts claimed. The Defendant made reference to Ms Tollon’s evidence and stated it should be accepted as proof of the facts that:
(a) In 2011 the Claimant was reimbursed more than double his yearly allowance;
(b) In 2012 – 2013 the Claimant was reimbursed using the company credit card;
(c) In 2014 no claim was ever made.
145. In my view the sum related to travel is an allowance and not business related expenses. Nothing in the Agreement requires the Claimant to submit claims to the Defendant in order to receive it. I must accept the evidence of Ms Tollon only to the extent that the Travel Allowance for the years from 2011 to 2013 is paid and even over paid, where this evidence is not challenged by the Claimant.
146. I reject what Ms Tollon’s evidence says with respect to the year 2014 as no submission is made yet, and I order the travel allowance for the year 2014 to be paid in the sum of USD 3,000.
Payment in lieu of vacation and Counterclaim
147. The Claimant has claimed for 30 days of untaken holidays in 2012 and 2013 in the sum of EUR 8,920.50 pursuant to Article 28 of the DIFC Employment Law.
148. The Defendant alleged that no such amount is payable and, in fact, money is owed to them because the Claimant took annual leave totalling 79 days, exceeding his entitlement during the following periods:
(a) 2 June 2012 – 28 August 2012;
(b) 2 June – 22 August 2013;
(c) 27 August 2013 – 12 September 2013; and
(d) 22 December 2013 – 31 December 2013.
149. In defending the Counter Claim, the Claimant submits that no such annual leave exceeding his entitlement was taken and that he was working remotely during said periods. The Claimant contends that it’s a common practice to work remotely.
150. At paragraph 228 of his first witness statement, the Claimant has included the following table of emails sent during the period said to be vacation to demonstrate that he was working during that time, he also presented screenshots of his email account evidencing the number of emails sent:
(a) During the period 2 June 2012 – 28 August 2012 he sent (696) emails;
(b) During the period 2 June – 22 August 2013 sent (341) emails;
(c) During the period 27 August 2013 – 12 September 2013 he sent (91) emails;
(d) During the period 22 December 2013 – 31 December 2013 he sent (21) emails.
151. The Claimant, although insisting he worked full time and more, refers to the evidence given by Mr Lemaire during the trial, whereby he observed that the Claimant was working part time during the holidays, with his knowledge;
“Mr Lemaire: I’m not — I’m not going to deny the fact that he worked from distance. He did work, you know.
Mr Dhar: I am sorry to stop you, Mr Lemaire, where is it that you say Mr Lys says he never took any holiday? He accepts he took holidays. The question is whether or not during the 79 days you say he was out of the office he was working or not working.
Mr Lemaire: No. To me he was part-time working. He was in between holidays —
Mr Dhar: Was that with your knowledge and consent?
Mr Lemaire: Sorry?
Mr Dhar: Was that with your knowledge?
Mr Lemaire: Yes.
Mr Dhar: Thank you.”
152. It’s evident to me that the Defendant failed to challenge the Claimant’s evidence that he was sending hundreds of emails during what the Defendant claimed was over taken vacation, particularly in light of the fact that Mr Lemaire admitted during cross examination that he knew that the Claimant was working during the counter claimed vacation.
153. Furthermore, the Defendant failed to provide a formal and efficient record of the Claimant’s vacations, leading me to take the view that the Defendant failed to prove that the Claimant has exhausted all of his vacation entitlement, therefore the Claimant is entitled to the sum of EUR 8,920.50 and the Counterclaim with respect to vacation must be dismissed.
Counterclaim / overpaid expenses
154. The Defendant’s Counterclaim submits that on 25 January 2013 the Claimant claimed the sum of USD 9,216.86 in respect of expenses he alleged occurred in 2011. In 2014, after the termination of the Claimant, an investigation was carried out in relation to the Claimant’s payment records, it appears that the amount was paid to the Claimant along with other expenses but was not justified because it’s either a) not supported by evidence of the amounts actually incurred as required by the company’s policy; or b) already paid by the company’s corporate credit card; or c) not actually incurred.
155. The only evidence the Defendant submits to support to this Counterclaim is the witness statement of Laetitia Tollon when she refers to some figures as unjustified, unsupported or never occurring. However, in her witness statement, she has not said that any of the figures claimed in the Counterclaim have been paid twice and she has not explained how the figures have been paid and who approved them.
156. It is difficult now after years have passed to say that wrongly justified payments were made, having already collected the documentation relating to such payments/expenses, this leaves the other party handicapped. The Claimant is entitled to rely on the Defendant’s past approval of these expenses.
157. Ms Tollon has said that the payment was unjustified, unsupported or never incurred, this statement is itself a confusing one and she should have elaborated on the reasoning behind each figure that was reimbursed and supported it with evidence rather than putting her comments in such general terms.
158. In light of the Claimant’s denial of this part of the Claim, I take the view that the overpaid expenses Counterclaim is not clearly particularised and supported by evidence reflecting what has been said in the Counterclaim. Accordingly this part of the case must be dismissed.
Defendant’s arguments on Article 18 of the DIFC Employment Law
159. In its interpretation of the ‘penalty clause’ the Defendant asks the Court to keep in mind that its purpose is to protect employees from unscrupulous employers who do not pay wages on termination and to apply the golden rule of interpretation (the “Golden Rule”).
160. The Defendant submits that a literal interpretation of the penalty clause would lead to the following absurd results:-
(a) An employee who is owed AED 1 on termination is entitled to a daily penalty that is equivalent to wages that would have been payable had the employee’s employment not been terminated;
(b) There is a six year limitation period for bringing an employment claim in the DIFC Courts. Consequently, a penalty award could easily exceed an amount equivalent to a year’s salary;
(c) In the Claimant’s penalty would be equivalent to: EUR 143,322.70 or USD 156,542.78 which is 15 times greater than the admitted arrears), this is absurd and grossly disproportionate;
(d) An employee will, therefore, be financially rewarded for failing to bring a claim for wages promptly since they would receive a greater penalty with every day of delay, so prejudicing the expedient administration of justice;
(e) An employee will be financially rewarded for delay in litigating their claim since they would receive a greater penalty with every day of delay, so prejudicing the administration of justice;
(f) An employee will be financially rewarded for failing to settle their dispute before trial because they would receive a greater penalty by running the claim for wages to trial, so defeating proportionate and cost efficient dispute resolution in the DIFC;
(g) An employer who lawfully terminates for cause is financially penalised if any monies are withheld on termination. This is unjust.
161. Accordingly, the Defendant invites the Court to imply a judicial discretion into Article 18 as to whether a penalty should be ordered on the facts of a particular case and the value of any such penalty. The Defendant’s primary position is that no penalty should be awarded on the facts of this case as the Claimant was lawfully terminated for cause, the Claimant made a late admission that he has wrongfully claimed for expenses in 2012 when such expenses (at the very least in part) had been reimbursed in 2011, if no discretion is exercised the Claimant will receive a windfall for failing to articulate his case consistently as to the amount he is owed. The Claimant, as former CFO, Director and joint shareholder of the Defendant has already received vast sums of money from the Defendant and it would not be consistent with the underlying purpose of Article 18 to award him any additional monies to that which is owed.
162. Alternatively, the Defendant invites the Court to exercise discretion to award a small penalty that is proportionate to the admitted arrears (excluding the bonus which is not yet contractually due and therefore is not in “arrears”).
163. The Claimant seeks to recover a statutory penalty payment from the Defendant pursuant to Article 18(2) of the DIFC Employment Law, accruing at a daily rate of EUR 297.35 as the Defendant has failed to pay the amounts owing to the Claimant within 14 days of 11 February 2014, as required.
164. The Claimant seeks to recover a statutory penalty payment from the Defendant pursuant to Article 18(2) of DIFC Employment Law and dismisses the Defendant’s arguments regarding hypothetical scenarios resulting in harsh results as a weak approach as Article 18(2) is intended to penalise.
165. It is also submitted that although the meaning of words may be modified in the interpretation of legislation, the courts are not entitled to go any further than this (i.e. they cannot simply disapply a word or words altogether). Therefore, the Defendant’s suggested interpretation of Article 18(2) ought to be rejected by the Court and the Claimant should be entitled to a statutory penalty payment in the sum sought.
166. In my view the wording of Article 18.2 of the Employment Law can lead to absurd and harsh consequences, especially where the conflict between parties reach the courts, this is made even worse if the dispute itself is over wages.
167. However, the question of whether the Golden Rule can cure this kind of absurdity or the Court should use its discretion in a way to minimise the absurdity caused is something to be dealt with carefully.
168. In the Article 18.2, only the word “shall” can be subject to the Golden Rule. There is no ambiguity in the rest of the wording.
169. The Defendant would like for the word “shall” to be interpreted and read as “may” where the court can retain discretion and apply the penalty when appropriate, taking into consideration all circumstances surrounding the employment relationship.
170. In my opinion, the late insertion or introduction of the penalty into DIFC Employment Law, the frequent uses of the word “shall” in Article 18(1); “An employer shall pay all wages and any other amount owing to an employee within fourteen (14) days” and the clear wording of the Article which imposes certain calculation “penalty equivalent to the last daily wage for each day the employer is in arrears” all suggest that the legislative authority was aiming for the penalty to be definite as if they have used the word “must” instead of “shall”.
171. As mentioned above, there might be absurdity in the consequences of the application of Article 18 but there is no absurdity or inconsistency in Article 18 or the Employment Law itself that justifies the application of the Golden Rule.
172. Therefore, if this Court were to accept the Defendant’s argument, it would take away from the certainty of the Law; the Court cannot go further or beyond the aims of the legislator. Accordingly, the Defendant’s suggested interpretation of Article 18(2) is rejected and I find that the Claimant is entitled to a statutory penalty payment equivalent to the rate of the Claimant’s daily wage for each day that the Defendant is in arrears.
173. Interest is to be awarded on the sums awarded to the Claimant at the annual rate of 1%.
174. Costs are awarded in favour of the Claimant, being successful in the majority of his Claim.
Date of issue: 14 July 2016