Companies - claims by the plaintiff for sums due pursuant to a breach of contract.
Before : |
W. J. Bailhache, Q.C., Deputy Bailiff (now Bailiff), and Jurats Liston and Morgan |
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Between |
Hans Peter Dohr |
Plaintiff |
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And |
AI Airports International Limited |
First Defendant |
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And |
PI Power International Limited |
Second Defendant |
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Advocate R. O. B. Gardner for the Plaintiff.
Advocate N. M. Santos-Costa for the Defendants.
judgment
the deputy bailiff (Now bailiff):
1. This judgment concerns the third action involving members of the middle boards of the two defendant companies. The expression "the middle boards" refers to the boards of each of the defendant companies during the periods following the EGMs at which the hedge fund investors were successful in replacing the previous boards in July and November 2008 respectively until the EGMs for the companies in April 2009. The first action was brought by Mr Bjorn Pirrwitz. Judgment in that case is to be found at Pirrwitz-v-AI, PI and Vilsmeier [2013] JRC 017 and, on appeal, at AI Airports International Ltd and PI Power International-v-Pirrwitz [2013] JCA 177. The second action was brought by Mr Wolfgang Vilsmeier and judgment of this Court is to be found at Vilsmeier-v-AI Airport Int Ltd and PI Power Int Ltd [2014] JRC 257. Jurats Le Cornu and Liston sat in the former case. Jurats Le Cornu and Morgan sat in the latter case. Jurats Liston and Morgan have sat in the present case. Inevitably, members of the Court will carry forward some recollection of the credibility of the witnesses and what was said in relation to the relevant issues on a previous occasion. The difficulties which flowed from this were tackled at paragraphs 7 and 8 of the judgment of this Court in the Vilsmeier proceedings. The present case falls into a different category because the plaintiff was not a party to either of the earlier proceedings, nor was he called as a witness. In the circumstances, no issue estoppel arises. However there is, no doubt as a result of the earlier decisions, a substantial amount of factually common ground against which we have to weigh the present claims of the plaintiff even though the defendant companies have not previously accepted all of those facts. The decision of the present boards of the defendant companies and their advisers not to seek to reopen issues already determined in this Court is to be commended.
2. The plaintiff was formerly a member of the middle boards of each of the defendant companies. Under the terms of the service contracts which had been entered into, he was entitled, in the event of his ceasing to be a director, to payment of an "exit amount", namely €600,000 in the case of AI and €700,000 in the case of PI. In these proceedings he has brought a claim for the exit amounts against each company pursuant to the terms of the service contracts, given the fact that he was not re-elected as a director at the general meetings of the companies in April 2009.
3. We make no apology for repeating the background facts recited in the judgment of the Court of Appeal in AI and PI v Pirrwitz [2013] JCA 177:-
"4. The companies are public limited companies incorporated in Jersey. They were established as investment funds by an Austrian bank, Meinl Bank AG ("Meinl Bank"), and were formerly called Meinl Airports International Limited and Meinl International Power Limited respectively. As their names suggest, AI was established with a view to investing in airports and related businesses, and PI with a view to investing in power generating assets. They raise substantial sums: AI had raised €700m by April 2007 and PI only slightly less. However a scandal associated with another Meinl company meant that investors lost confidence in all Meinl related stocks, and the share prices of AI and PI fell, to the extent that they were trading below their net asset values. This made the companies attractive to a number of hedge fund investors who began buying stock in them with a view to replacing the directors with their own nominee, the plan being that the new boards would cut all ties with Meinl entities, realise the investments and return cash to the shareholders, thereby generating a substantial profit to those investors.
5. The hedge fund investors requisitioned EGMs in July 2008. At the EGM of AI, held on 28th July 2008, they succeeded in replacing the Board. In the case of PI, a similar attempt was narrowly defeated, but they were successful at a further EGM held on 14th November 2008.
6. Following the EGMs the boards of the companies were as follows:-
(i) AI:-Mr Wolfgang Vilsmeier (Chairman)
Mr Pirrwitz
Mr Hans-Peter Dohr
Mr Richard Boleat
Mr George Baird
Mr Fred Duswald
Mr David Pascall
(ii) PI:-Mr Vilsmeier (Chairman)
Mr Pirrwitz
Mr Dohr
Mr Boleat
Mr Baird
Mr Duswald
Mr Wilfried Hassler
The composition of the boards was thus the same with the exception of Mr Pascall (AI only) and Mr Hassler (PI only).
7. The Judgment [namely the judgment under appeal [2013 JRC 017]] records the difficulties facing the new Board of AI in July 2008. It had previously had no executive officers, all management functions being outsourced to a further Meinl subsidiary. The new Board had been mandated to return cash to shareholders as soon as possible; it had an expensive management agreement from which an exit was to be procured; it had no employees; and did not even have access to its own corporate records.
8. A number of committees were set up to deal with various aspects of the company's business; Mr Pirrwitz himself was appointed to a banking committee and an investment bankers committee which were established on 1st August 2008 (and was also charged, along with Mr Duswald, with finding new Austrian legal counsel); and later to a due diligence and legal strategy committee and a corporate finance committee which were established on 15th September 2008. The Royal Court in the Judgment said that it was:-
"Unsurprising by the time of the telephonic board meeting held on 1st September 2008, Mr Vilsmeier was reporting to the board that the workload contributed to the directors was far greater than anticipated."
9. The Judgment also records the circumstances in which relations between the new Boards of AI (and, once appointed, PI) and the hedge fund investors became increasingly strained. Since there is no challenge to the factual findings in this part of the Judgment it is not necessary to detail them but in brief:-
(i) AI had made a significant investment in TAV Havalimanlari Holding AS ("TAV"), a Turkish company involved in airports. The value of this investment declined sharply, Mr Pirrwitz and Mr Vilsmeier being told by TAV's chief executive on 17th October 2008 that this was due to heavy hedge fund selling. At a meeting the next day with Mr Klaus Roehrig, an investment manager with Elliott Associates (one of the major hedge fund investors in AI), they were told that he had taken a very large short position in TAV on behalf of Elliott, and that Elliott wanted to take over AI's stake in TAV. The conclusion of the Royal Court on this matter (at paragraph 18 of the Judgment) was:-
"To find that one of the major institutional shareholders which had been instrumental in appointing the new board was in fact the cause of depleting the value of the company's biggest asset and suggesting it would acquire that asset at the depreciated price came as a big shock. Mr Vilsmeier noted immediately the acute conflict of interest between Elliott, a major investor in AI, and AI itself, including all its other shareholders."
(ii) Further strain was put on the relations between the hedge fund investors and the Boards of both AI and PI as a result of the so-called Pecik deal. In November 2008 Mr Roehrig and Mr Alexander Proschofsky (the individual behind another of the hedge funds, Cube Invest) requested access to the electronic data rooms of the companies; an approach was also made for access to information by Mr Ronnie Pecik. In December 2008 it became apparent that a deal had been agreed between Elliott, Mr Pecik and Meinl Bank which included the settling of various claims between the companies and the Meinl Group with AI making various payments to Meinl. The Boards were however advised that they had obligations to all shareholders and should not grant access to the virtual data rooms unless they came to the conclusion that such disclosure was in the interests of the Companies as a whole; they were also advised that accepting instructions from an individual shareholder, particularly if those instructions would favour the interests of a single shareholder and were not in the best interests of the companies or the other shareholders, did not conform to good corporate governance standards and might constitute a breach of the Boards' fiduciary duties. Due to the refusal of the Boards to acquiesce in the arrangements, the negotiations with Mr Pecik foundered.
(iii) A further matter of contention was a rights issue by TAV which was published on 31 December 2008. The hedge fund investors (Mr Roehrig on behalf of Elliott, Mr Proschofsky on behalf of Cube Invest, and Mr Geoffrey Strong on behalf of another hedge fund, QVT Financial LB) made it plain that they did not want AI to take up the rights issue but rather to sell their rights instead. Mr Pirrwitz however considered that it was in the interests of AI to take up the rights issue; he had the perception that as there was limited liquidity in TAV stock, the rights issue was an opportunity for Elliott to buy TAV shares cheaply and off market to cover the short position they had taken in the autumn. The Board of AI in the event did take up the rights issue despite the demands made by the hedge funds, a decision which AI's adviser at Goldman Sachs described as "a strongly disputed decision" and one where the Board "had to exercise judgment and courage also vis-à-vis shareholders' requests.""
4. The plaintiff claims €600,000 from AI pursuant to a breach of clause 9.2 of a contract for services dated 2nd March, 2009, and an associated side letter of the same date. He claims €700,000 from PI under clause 9.2 of a contract for services with that company dated 6th March, 2009, and an associated side letter of the same date. It is not disputed before us that clause 9.2 provides that exit payments shall be paid to the plaintiff, in amounts to be agreed between the plaintiff and the Chairman of each defendant company in the event of the plaintiff not being re-elected as a director or being removed from office pursuant to Article 133 of the relevant company's Articles of Association, nor is it disputed that the quantum of such payments is as claimed if they are due at all.
5. It is also not disputed that the plaintiff was removed as a director of AI and PI respectively at the general meetings on 21st and 22nd April, 2009, and that no exit payments have been made to the plaintiff by either of the defendant companies. It is not in dispute that save as to the question of contractual waiver, the plaintiff is contractually entitled to the exit payments from the defendants as set out in the side letters. These are referred to in internal e-mails as the "extra pages".
6. Accordingly it has been agreed that the issues for us to decide are as follows:-
(i) Between 1-5 April, 2009, did the plaintiff enter into an unconditional contract of waiver in relation to the exit payments?
(ii) If not, did the plaintiff enter into a conditional contract of waiver in relation to the exit payments?
(iii) If (ii) is the case, were the conditions of the contract of waiver fulfilled so as to make the waiver contract complete?
7. It is further agreed that the legal and evidential burden for establishing that valid binding contracts of waiver were made is on the defendant companies.
8. The defendant companies claim that the plaintiff unconditionally waived his entitlement to the exit amounts. Alternatively, they claim that if the waiver was conditional, the conditions have been satisfied. It is common ground that there is no documented waiver contract. The defendant companies' case is that the waiver was an agreement made between Mr James Shinehouse, at that stage one of the directors of AI and PI respectively (and thus before he became managing director of those companies) evidenced in writing. The plaintiff asserts by contrast that there was a contract of waiver, but that it was conditional. The waiver would only become effective upon the plaintiff being granted a substitute package of benefits which would include:-
(i) Equivalent protection and financial security against removal from office as a non-executive director of the defendant companies and/or from being sued by the defendant companies, regardless of the identity of the shareholders in control of the defendant companies, and from being sued by any of the defendant company shareholders including but not limited to Meinl Bank and Elliott Associates. This package of benefits was designated "downside protection".
(ii) A new fair, appropriate and acceptable bonus system to remunerate the directors (the "bonus system").
9. The plaintiff asserts that these conditions were never satisfied in part or in full - because no downside protection was provided, and no bonus system offered either prior to or after the plaintiff's removal on 22nd April, 2009, as a director of the first defendant or 21st April, 2009, as a director of the second defendant. Accordingly the plaintiff asserts that the contract of conditional waiver was ineffective. As an alternative, the plaintiff asserts that the alleged waiver contract was so uncertain that it is to be treated as void ab initio and/or was induced by fraud, error or misrepresentation on the part of Mr Shinehouse, for and on behalf of the defendants. The particulars of that claim are that Mr Shinehouse held out that the downside protection and bonus system would be put to the shareholders for agreement, but in fact it never was and at the time the representations were made by Mr Shinehouse, it was never intended that it should be.
10. We had placed before us seven lever arch files of documents, and sundry other files containing pleadings, skeleton argument, witness statements and hearsay notices. The plaintiff gave evidence over the course of approximately one and a half days, and Mr Shinehouse gave evidence for the defendant companies over the course of one day. No other live evidence was called.
11. The plaintiff was a director of AI from 28th July, 2008, until the general meeting held on 22nd April, 2009. On the latter date, he was appointed chief operating officer of AI, a position which he held until his resignation, which was formally accepted by the Board on 28th June, 2009. From then at the latest, he ceased to have any role or involvement with AI. The plaintiff was a director of PI from his appointment at the general meeting of 14th November, 2008, until the general meeting held on 21st April, 2009, when he was not re-elected. From that date, he ceased to have any role with PI.
12. Mr Shinehouse was formally appointed at board meetings of the defendant companies held on 24th February, 2009. He had previously been approached by at least two of the hedge fund investor representatives in connection with such an appointment. He was aware on joining the board that there was a desire on the part of the hedge fund investors to have a smaller board of directors. Indeed he said in evidence that this was well known by everyone. We do not think there is any doubt that on his appointment to the board in February 2009, he had a realistic expectation, albeit of course there were no guarantees because it would depend on the outcome of an extraordinary general meeting for each company, that he would be appointed as managing director of the two companies and effectively would take control of their day to day administration. We do not doubt that the middle boards had a real suspicion that this was a likely direction of travel as far as the hedge fund investors were concerned. That may have been part of the reason why the service contracts were executed after the Klosters board meetings in March 2009.
13. Mr Shinehouse told us that he first learned of the exit payment provisions through a telephone call from Mr Mark Levine of Elliott Associates during the evening of 30th March, 2009. Mr Levine had received a call from Dr Proschofsky, a friend of whom had overheard Mr Pirrwitz apparently boasting in a bar that he would be due over a €1 million in exit payments even if he was removed as a director of the two companies. This information was subsequently confirmed at least in part by a separate conversation Mr Shinehouse had had with Dr Proschofsky who told him that he had received a similar confirmation from Mr Hassler. In short order Mr Shinehouse found out that every other director except Mr Boleat, Mr Pascall and himself had agreed an exit payment.
14. It was clear that Mr Levine was extremely upset at the prospect of these exit payments becoming due. According to Mr Shinehouse, both he and Dr Proschofsky were seriously considering taking legal action against the directors personally over the exit payments. That almost certainly, in our view, reflects their state of mind rather than any considered course of action. If the exit payments had not been made, then the companies had suffered no loss and it is hard to see what the substance of the action would be. Similarly once the hedge fund investors were in control of the board, they were in a position to prevent the exit payments being made, as indeed was the case with Mr Pirrwitz who had to sue to obtain those payments. It is possible that the plaintiff, among other directors believed that legal action would be brought against them by the shareholders.
15. The evidence of Mr Shinehouse was that he spoke to each of the directors who had signed the agreement in relation to the exit payments, except for Mr Pirrwitz. He spoke to them individually, and he said that each of them agreed with him that the obligations with regard to the extra payments were void and they would waive their claims to them. His evidence was that he spoke with the plaintiff on or about 1st April, 2009, regarding the exit payments and was told that the payment was intended to be a protection for the directors against action by Meinl Bank, in case it regained control of the boards of the companies, and that it was not intended to be a remuneration package. Mr Shinehouse said that the plaintiff agreed at the time that the idea that Meinl Bank was going to regain control of the two boards was unlikely in any event. According to him, Mr Dohr conceded that the claim for the exit payments was no longer valid anyway and that he would be happy to void it. Mr Shinehouse told us in examination in chief that he agreed with the plaintiff that Meinl was not in a position to regain control but in any event he told the plaintiff that he would be working to settle the litigation with Meinl Bank and would protect the directors in any such settlement.
16. Mr Shinehouse described how he had a further telephone discussion with the Plaintiff on 5th April, 2009. The discussion included topics related to the exit payments such as downside protection and a proper bonus scheme. In summary, Mr Shinehouse' evidence was that he considered that the plaintiff believed he was not giving much up anyway, but also that the plaintiff wanted to keep his connection with AI, and was worried that shareholders, especially Elliott, would sue the directors for making the exit payment agreement.
17. When he gave his evidence, the plaintiff said that he had had dinner with Dr Proschofsky and Mr Hassler in Vienna on 23rd and 24th March. Dr Proschofsky had found out about the exit payments and was extremely disappointed and unhappy about them. The three of them discussed the matter. The plaintiff explained to Dr Proschofsky that the exit letters had been negotiated at a time when the directors were under enormous pressure, principally from Elliott, in relation to preferential access to documents, and they were concerned about being sued and the potential struggle to fund their defence. Although Dr Proschofsky apparently was unwilling to accept this explanation and made a threat that the directors would be sued, the plaintiff said he did not take this as a serious threat as he and his colleagues had plainly achieved so much for the companies. He left that meeting without any residual concerns about litigation in relation to the exit letters.
18. In his evidence in chief, the plaintiff does not describe any conversations with Mr Shinehouse during the period 1st - 5th April other than a conversation on 5th April when, he said, Mr Shinehouse was very friendly to him. He had no clear recollection of any telephone call on 1st April. The conversation on 5th April proceeded as a form of negotiation in which Mr Shinehouse tried to persuade him to give up the exit payment. The carrot which was offered was a replacement bonus package being put in place and alternative downside protection.
19. That is the extent of the oral evidence before us in relation to the alleged contract of waiver made between the defendant companies and the plaintiff during the period 1st - 5th April, 2009. We have however had the opportunity of reviewing also the evidence of email traffic between members of the board over the same period, which starts with an e-mail from Mr Shinehouse in these terms:-
"Between yesterday and today we have had conversations concerning 'the extra page' to the Director Contracts dealing with termination payments. We have discussed the desire to eliminate or void these extra pages from the contract and the associated termination pages at this time. It is understood that the Board will develop and seek shareholder agreement on appropriate further compensation including a success fee arrangement.
Please reply to this e-mail to acknowledge your agreement to void the termination payment as identified in the extra page of your director's contract.
Please contact Wolfgang or me if you would like to discuss further.
Kind regards
Jim
James P Shinehouse, Partner
Atlantic Financial Advisory Partners"
20. This e-mail was sent to Mr Baird, the plaintiff, Mr Duswald and Mr Hassler, and copied to Mr Vilsmeier and Mr Boleat. It seems to us that there are three conclusions which can be drawn from it:-
(i) The reference to a 'desire' to eliminate or void extra pages tends to suggest that no final agreement had been made in any of the conversations which Mr Shinehouse had had with those directors to date.
(ii) The directors had clearly expressed a concern about a success fee arrangement, and Mr Shinehouse acknowledged that the Board should develop and seek shareholder agreement on further compensation which would include such a success fee; and
(iii) That there was no apparent clear water between the position of Mr Shinehouse and the position of Mr Vilsmeier as Chairman of the company because directors were invited to contact either the Chairman or Mr Shinehouse.
21. Before we look at the replies, we note that Dr Proschofsky sent an email to Mr Vilsmeier, the plaintiff, Mr Shinehouse, Mr Duswald and Mr Hassler also on 1st April, 2009. He indicated that there was an urgent need to find a reasonable solution to the remuneration topic. He clearly linked that question of remuneration with the exit payment agreements. He concluded that he would put his personal feelings aside and he asked that the directors establish a fair remuneration scheme very quickly, adding that "a solution has to be found before the EGMs".
22. The plaintiff responded to this email to say that it was not a question of a remuneration package but a question of a safety net against arbitrary misbehaviour from persons under extreme pressure. He confirmed to Dr Proschofsky and indeed to Mr Vilsmeier, Mr Shinehouse, Mr Duswald and Mr Hassler, to whom the email was also sent, that he anticipated that the new set up would permit serious work to be done and achievements reached in the next few months. While Dr Proschofsky was not a director and only one of a group of material shareholders, the plaintiff's reply to him may give some indication of his approach at that time. However, the plaintiff replied on 2nd April to Mr Shinehouse with a short one line "What's the offer?"
23. Mr Baird sent a response to Mr Shinehouse in slightly different terms. It was sent only to Mr Shinehouse although he later that evening copied it to the plaintiff. The response to Mr Shinehouse was:-
"Being a man of my word I agree to void the extra pages for both companies on the basis that an equitable solution is achieved for all concerned."
24. This would seem to suggest that Mr Baird had made an unconditional agreement to void the exit payments, perhaps against an assumption that an equitable solution would be achieved. We think this refers to the bonus package or success fee arrangement, which Mr Shinehouse had mentioned in his e-mail of 2nd April.
25. Mr Hassler responded on 3rd April. He said that he had not seen the replies from the other directors (so we assume he had not seen Mr Baird's response) but in his view the matter was a very personal issue on the one hand, and a board issue and not an individual one on the other. He continued:-
"After having spoken to you today I herewith declare my agreement re termination payment void - I point out that it is a matter of course for me that a commonly agreed replacement settlement has to be established before the EGM - our board meeting in Jersey could be the right moment to do that."
26. Rather like Mr Baird, it appears that Mr Hassler was prepared to proceed on trust that an equitable solution would be found, but his language suggests a greater degree of conditionality than is to be found in Mr Baird's e-mail.
27. On 3rd April, 2009, Mr Shinehouse sent a further email to the plaintiff the substance of which was as follows:-
"I left you a message a few hours ago. I would like to catch up with you on a few topics but notably the issues surrounding the termination bonus payment. When would be a good time to chat?
Good seeing you this week.
Jim
James P Shinehouse, Partner
Atlantic Financial Advisory Partners".
28. There is no direct reference to the plaintiff's email of 2nd April, asking what the offer was. We assume that this email from Mr Shinehouse nonetheless follows on from that.
29. The plaintiff responded on 4th April, 2009, in these terms:-
"Jim I had a conversation with Wilfried [Mr Hassler] this afternoon. Just to let you know:-I do not insist on this exit clause, provided that there is sufficient downside protection against Meinl hunting me down by his lawyers in the case of a change of control.
I understand from Wilfried that this information would be vital for you to have ASAP so you have it now.
I am looking forward to talking to you tomorrow, and am happy to make an additional, more formal statement to my other board colleagues within the next two days."
30. The response from Mr Shinehouse was that that was very helpful and he looked forward to speaking with the plaintiff the following day.
31. On Sunday 5th April, it appears there was a telephone conversation between the plaintiff and Mr Shinehouse. The plaintiff sent an email to Mr Shinehouse immediately following it, in these terms:-
"Jim
Further to our conversation some minutes ago I agreed to dispose of the "extra page" I understand that we shall seek downside protection of our position as directors of the two funds through other means, which we shall discuss within the next weeks.
Regarding the set-up of a fair bonus system we also agreed to develop and discuss an appropriate and acceptable bonus system in due course.
Best regards.
Hans-Peter".
32. This email was copied to Mr Vilsmeier, Mr Boleat, Mr Hassler, Mr Duswald and Mr Baird. Mr Baird responded "nice one H-P" and received this response from the plaintiff:-
"Thanks George for your comment. I really think that we need to regain as much trust from our shareholders as possible, but also need to ask them to give us their full support.
The matter is too complicated to support too much internal discussions and agitations. I have not spoken to Wolfgang for more than four days, but hope that we can all agree on a unified way forward."
33. Mr Baird responded with the comment "agree 100%".
34. Mr Duswald responded to Mr Shinehouse on 5th April. A copy of his response was sent to Mr Vilsmeier only. His reply indicated that he wanted to speak to the Chairman Mr Vilsmeier first, and that he would follow up as soon as he had been able to do so. On 9th April he e-mailed Mr Shinehouse, with a copy to Mr Vilsmeier, to say this:-
"After my discussion with the Chairman I declare the 'extra page' of my contracts void. I trust in finding a proper solution for us. I would recommend that our Chairman to negotiated a new agreement" (sic)
35. It would seem therefore that on 9th April Mr Duswald was prepared to make an unconditional waiver of his contractual entitlement, although he was clear that there were outstanding issues requiring attention.
36. Mr Boleat of course had no agreement in relation to the exit payments. The only remaining director who did have such agreement was the Chairman Mr Vilsmeier. He responded to Mr Shinehouse (only) on 8th April to say this:-
"After having spoken to Klaus Roehrig today and to calm down our hedge fund managers, I herewith declare my agreement referring indemnity and performance (sic) fee payments in case of termination from 9th March, 2009, void. Of course I want to point out that we all as directors need to put a full indemnity solution in place. Furthermore I believe that we both agree in putting a new and fair performance fee regulation in place.
Looking forward to hearing from you soon. I tried to reach you via cell phone but could only leave you some messages."
37. That is the material upon which we are asked to assess whether there was an unconditional or conditional waiver of the right to claim exit payments from the defendant companies totalling €1.3 million. Even at this distance, it seems to us to be remarkable that such little attention was given by the boards of public companies to the formalities of executing appropriate waivers in relation to director service contracts which contained provisions for the payment of such large sums of money. The exchanges beg important questions, not only as to what was actually agreed but also as to the status of the parties purportedly making such agreement as can be ascertained from the oral and written evidence. At this time, Mr Shinehouse was not managing director of the two defendant companies. He was merely a director. His e-mails are not apparently sent by him even in that capacity but give his capacity as a partner in Atlantic Financial Advisory Partners. His address for e-mail is given at Kroll. It is ironic that whereas the two defendant companies were so critical of the middle boards for making arrangements in relation to the directors' service contracts without a formal board meeting addressing the final version of those contracts including the extra pages, here we have a position where the defendant companies are comfortable to rely on some alleged oral confirmations of the waiver of claims, in some cases evidenced in writing by emails from one director to another, never formally tabled before the board, and in many cases not even copied to all the directors.
38. A board meeting of AI took place on 14th April. The minutes of the meeting do not reveal that any discussion took place on the directors' service contracts. Mr Pirrwitz apparently attended the later part of the meeting, and one assumes that he would have had plenty to say about the possibility that the extra pages and exit fees were to be voided. The minutes do reveal that some discussion took place on the issue of directors' indemnification and directors' compensation generally, but the extent of the board resolution was really to note that further work on an appropriate model would be done. A directors' meeting for PI was held the following day on 15th April, 2009. The minutes are in similar terms.
39. The general meeting of PI took place on 21st April, 2009, and of AI on 22nd April, 2009. The directors' service contracts were not an agenda item. The plaintiff was not amongst the directors re-elected to office at the meeting of PI, with the resolution to re-appoint him adopted by only 11.49% of the votes cast. He withdrew from election to the board of AI for the EGM the following day.
40. The plaintiff's evidence was that he had been hoping to have the revised remuneration package and bonus scheme settled at the board meeting which occurred prior to the EGMs and he was disappointed that that was not achieved. He was particularly disappointed that that was so, given that in his view it was not difficult to work up a model for an appropriate bonus package, and yet at the same time it was being proposed at the EGMs to return €600 million to shareholders.
41. On 19th April, the plaintiff had been contacted by Mr Roehrig. In translation, he was advised:-
"Hi Hans Peter, the events of Tuesday and Wednesday cannot be reliably predicted, but I would like you to stay on the team. Hope you can be there on Tuesday (see below) and Wednesday (8pm DO and Co Wintergarden, 8th Floor)? Regds, Klaus"
42. The plaintiff told us in examination in chief that he did not fully understand what this e-mail meant but he thought probably the remark around the unpredictability of events the following week might relate to shareholder activism by Meinl related parties. What he was not expecting was that Elliott would cast its votes to remove him from the boards at the EGMs. He discovered this the night before the PI EGM on 21st April when the directors met for dinner in Vienna with Mr Roehrig and Dr Proschofsky. The consequence, of course, of not being re-elected to the boards was that the plaintiff lost any direct participation in a vote to approve or otherwise proposed remuneration packages and bonus schemes. Accordingly, his position in relation to achieving a successful outcome to the conditionality he asserted was attached to the agreement to forgo the exit fees, was now considerably less safe.
43. The next board meeting of AI and PI took place in Paris on 29th April, 2009. In both companies there was discussion of the directors' service contracts. It was noted that directors' remuneration would encompass three elements - base fees, a performance bonus and an indemnity agreement. In so far as the latter is concerned, the minutes reflect that:-
"It was resolved that the indemnity agreement in place in relation to the previous directors' contracts of the following: RV, GB and WV is a continuing indemnity. It was resolved that the company would enter into equivalent agreements for the benefit for JS and MM as soon as reasonably practical, on the same terms as the agreements currently in place in respect of RB, WV and GB. In addition, JS reaffirmed the resolution made at the board meeting on 14th April in Jersey, that further shareholder indemnification would also be put in place."
44. The boards then considered the position of past directors in these terms:-
"The board discussed that the past directors of the company will be offered consultancy contracts. The duration of these contracts will range from 3 - 12 months with a fixed monthly fee in relation to minimum time commitments. The contracts will also attract a loyalty bonus and performance bonus. It was resolved that JS will be responsible for negotiating the past director consultancy contracts. It was further resolved that all such contracts would require board approval."
45. In relation to the plaintiff, the minutes of AI reflect that he is to be appointed as Chief Operating Officer and contain a resolution that he would be offered a consultancy contract which provided him with the same basic fees as a director and a reporting line to Mr Shinehouse in relation to overtime.
46. We have had the advantage also of seeing some transcripts from the board meetings held on 14th April and 29th April, 2009. It seems to us to be clear that although of course the outcome of a vote put to an extraordinary general meeting is always theoretically uncertain until the vote is taken, Mr Shinehouse must have known by 14th April what the intentions of the hedge fund investors were, and that he must therefore have been reasonably sure that he would be appointed managing director of the two defendant companies, and that there would be a change in the composition of the board. If he did have that awareness, he certainly did not share it with his co-directors.
47. At the same meeting the board discussed board member compensation, with specific reference to indemnity and performance bonuses. It is clear that some members of the board regarded the possibility of action by Julius Meinl against them with some continuing trepidation. It is also clear that the question of a performance bonus was central to their thinking. Mr Baird asked whether there was likely to be something in place, in principle, before the EGM, to which Mr Shinehouse responded that there had to be something in principle in place from the standpoint of a verbal agreement communicated to the Chairman, and also communicated to him, so it was then a question of what the numbers might be. He was happy to try and make the preparation of something in place before the EGM a goal.
48. It is clear from the transcript of the board discussion that the minutes correctly reflect the position, but also that no member of the board raised the question of the existing exit fee payments. The contracts made between the companies and the directors in March were not mentioned, and the boards were not asked to note or agree that the contractual position had changed.
49. The transcript of the meeting held in Paris on 29th April is in many respects similar, although there is one passage which deals with the "extra pages". Mr Shinehouse said that he understood that the new directors' contracts would be similar to the previous ones, save that there would not be the extra page. Mr Boleat agreed. The chairman Mr Vilsmeier said that "Well everybody has declared the page as void except for Bjorn". This was a reference to Mr Pirrwitz.
50. The board also appeared to be under the impression that the result of the termination of each of their appointments as director by the companies in general meeting in April, and subsequent re-appointment of some of them, was that in law the service contracts which had existed prior to their reappointment were no longer effective. Accordingly it made sense for new contracts to be prepared.
51. Although the plaintiff was not a director of the defendant companies when the Paris meeting was held, he was in attendance for at least some of the time. He was in particular in attendance when there was this discussion:-
"[Mr Baird]: The advice we have from the lawyers is that our contracts effectively terminated but there was another point, in terms of the contracts, um, which I picked up from one of your notes from the lawyers, Richard, was that there was specific reference to the famous pages that were agreed would be excluded, I think the lawyers were saying was there anything formally documented to that effect but in view of the fact that ...
[Mr Shinehouse]: I have e-mails from each individual saying that they agree, that they, probably doesn't matter now if you're telling me all those contracts were eliminated then you're starting new anyway.
[Mr Baird]: Yeah, I would guess that. OK, so in terms of where we are now and where we will be in the next few weeks, we will expect to see the finished product for all the directors and all the new, um, COOs."
52. There was subsequently in that Paris meeting a discussion about the contract for the COOs, and this took place after the plaintiff had left the room.
53. In fact, the contract appointing the plaintiff as COO was never executed. The plaintiff was provided with a draft contract on 20th June, 2009, which he thought was completely unacceptable, and did not even provide a basis for proper negotiation because:-
(i) All previous agreements between him and AI were to have no further effect;
(ii) The service agreement was terminable on notice;
(iii) The bonus provisions were vague, discretionary and incapable of enforcement or calculation.
It appeared to him that his contract could be terminated at any time and was likely to be terminated before any agreement had been reached on a bonus for future performance.
54. The plaintiff accordingly did not sign the agreement and resigned six days later on 26th June. He had never been offered any form of consultancy agreement with PI, notwithstanding the minutes which provided for the past directors of the company to be offered consultancy contracts which would include provision for a loyalty bonus and performance bonus.
55. Having reviewed the COO draft contract, we understand completely the plaintiff's concerns in this respect. It is indeed a document which would confer limited cast iron entitlements on him.
56. The plaintiff had an entitlement from each of the defendant companies to the exit payments pursuant to the service contracts signed at the Klosters meeting. If he is to be disentitled from claiming under those contracts, then there must be a basis for asserting that they are no longer binding. Otherwise, la convention fait la loi des parties.
57. The assertion made in this case on behalf of the defendants is that the right to claim the exit payments was waived by agreement. It is said by the defendants to have been an unconditional agreement, but if there were conditions, it is said that those conditions were satisfied. We note that this is not the same position as was reported by Mr Baird to the board meetings in April 2009, because it is not a case of the agreements between the plaintiff and the two companies becoming somehow ineffective simply because the defendant companies did not re-elect the plaintiff as a director of the company at the April 2009 EGMs. Indeed if that had been the issue which had been raised, we would have been quite satisfied that there was no defence. An ongoing obligation to pay exit payments upon a director ceasing to hold office as such cannot simply evaporate when he ceases to hold office, or the contractual obligation would never be of any force. That indeed would be a potestative condition and if the obligation to pay the exit payments on behalf of the companies could truly have been described as such, there would not have been a valid contract at all. However, as this Court has already found in the case of Pirrwitz v AI and PI, the contract was valid and it follows that the obligation to pay the exit payments was not dependent upon continued election to the board of the directors in question.
58. In order to assess whether there was or was not a valid contract of waiver, we therefore need to have regard to the case of Selby v Romeril [1996] JLR 210 which set down that there were four requirements for the creation of the valid contract under Jersey law:-
(i) The consent of the party undertaking the obligation;
(ii) His legal capacity to enter into a contract;
(iii) "Objet" or the subject matter of the contract; and
(iv) A legitimate "cause" or reason for the obligation to be performed.
59. As was set out in Incat Equatorial Guinea Limited and others v Luba Freeport Limited and others [2010] JRC 083A at paragraphs 22 - 29 inclusive, it is clear that the first question is to establish whether there was a contract which was made. A second question which might flow from the facts arising in a particular case is whether there are any grounds for setting aside the contract, whether for erreur, dol, déception d'outre moitié, lésion or any other grounds which may permit such a course of action. For the reasons we will come on to give, it is not necessary to consider whether these grounds for setting aside a contract apply in this case.
60. We apply these legal principles to the facts of this case.
61. Advocate Gardner submitted as a first proposition that the defendant companies never made any contract to depart from the terms of the service contracts which had been agreed with each director. There was nothing in writing, although of course that did not exclude the possibility of an oral contract. However, the reality of the defendant companies' position was that as he put it, they relied upon e-mails sent not to the company but to Mr Shinehouse who was an independent director who had no actual or apparent authority to represent the defendant companies. Advocate Gardner pointed out that the relevant e-mail from the plaintiff sent on 5th April, 2009, was not copied to Mr Pascall who was a director of AI nor was it copied to Mr Pirrwitz who was a director of both AI and PI. He contended that it could not be said that the companies had expressed any will to do anything. As they had not done so, the existing contractual obligation of the companies remained in place.
62. We can see that there might have been some mileage in this argument but for two considerations which we regard as material. The first such consideration is the way of business or modus operandi of the two companies during the time of the middle boards. The reality of their business dealings is that committees of the board seem to have proceeded upon the basis that they had authority to make commitments. Sometimes one member only of the board made such commitments, simply notifying other members of the committee of the board with relevant responsibility that he was doing so. That was certainly the approach taken by both Mr Vilsmeier and Mr Pirrwitz and probably Mr Dohr. At all events, the latter certainly knew this was the modus operandi. It does not surprise us therefore that directors might have assumed that one director only - in this case Mr Shinehouse - had some form of authority to speak on behalf of the company. This was particularly so given that the hedge fund investors had procured that Mr Shinehouse be appointed to the board in February 2009, a development which the remaining directors of the middle boards did not view with equanimity.
63. The second consideration is that the plaintiff himself agreed in his evidence that Mr Shinehouse was in effect the managing director and the representative of the shareholders and therefore able to speak for the companies at large. He so viewed him even as early as the e-mail exchanges and telephone discussions in the first week of April 2009.
64. Accordingly, although we think that had the question of waiver been put to a formal board meeting of each company in the first two weeks of April 2009 there would have been real doubt as to whether the companies would have agreed the waiver contract, not least because of the influence of Mr Pirrwitz, we are on balance satisfied that the only impact of a refusal to agree the waiver would have been for sufficient members of the board to be displaced at the forthcoming EGM such that the defendants could then have approved the contracts thereafter. The oddity of an argument of this kind is that the party who now contends that there was no such waiver agreement made by the defendants is the party who undoubtedly did apparently agree to waive his rights. Having on his own evidence so agreed that, albeit in his view conditionally, it hardly lies in his mouth to contend that the companies did not agree to accept the waiver in the waiver contract. Accordingly, we hold against the plaintiff on this point and we conclude that whatever was agreed between the plaintiff and the defendant companies was capable of being a contract which the defendant companies had capacity to enter through the dealings of Mr Shinehouse.
65. The second consideration for us is whether there was a consensus arrived at by the contracting parties to avoid the exit payment provisions in the March service contracts, and if so whether firstly that was an unconditional consensus and secondly whether it amounted to a consensus which would be legally binding.
66. In order to determine those questions, we need to consider what the objet of the purported contract was. Is it sufficiently certain?
67. It seems to us that the motivations of the parties were these:-
(i) From the perspective of the two defendant companies, the cancellation of the extra pages by which the exit payments would be due by those companies respectively to the outgoing directors;
(ii) From the perspective of the directors, the provision of adequate downside protection in relation to possible claims by Meinl, the hedge fund investors or other shareholders; and
(iii) Equally from the perspective of the directors, but possibly from the perspective of the Defendant companies, the development of a bonus scheme which benefitted the Directors appropriately in such a way as would be acceptable to the shareholders and in particular the hedge fund investors.
68. It is clear that from the companies' perspective the second and third of these motivations was not the basis of the contract at all. For the companies, the real purpose of the waiver contract was to cancel the obligation to pay the exit amounts. From the perspective of the directors, the position was clearly different. Assuming that they considered that they had a valid right to the exit payments, the question which arises is why they should have been prepared to give it up. We add that in our view, the directors did not consider in April 2009 the obligation of the companies to make the exit payments was unenforceable. The agreement had been made in principle in December 2008, and had reached formal fruition in March 2009. There is no obvious reason why directors who had concluded these agreements at Klosters in March 2009 should three weeks later have suddenly reached the view that the agreements were unenforceable. We proceed on the premise that the plaintiff, like the other directors, assumed that he had a valid entitlement to the exit payments if he should cease to hold office as a director of the two defendant companies.
69. Advocate Santos-Costa on behalf of the defendant companies asserted that the bargain of waiver was struck because the plaintiff knew that he would never receive the sum of €1.3 million voluntarily from the defendant companies because the shareholders would never allow it. Both Dr Proschofsky and Mr Levine were outraged. The plaintiff knew, contended Advocate Santos-Costa, that he was liable to be sued, and of course he would not have known at that stage that the Court would later uphold the contracts as it did in the Pirrwitz litigation. Advocate Santos-Costa was confident that all the directors knew and the shareholders knew that the exit payments would not be made. In those circumstances it was said by the defendant companies that the plaintiff had the option of either entering the waiver contract or being dismissed from the board immediately and it was after all a lucrative job. All the plaintiff gave up was his opportunity to litigate in circumstances where he would never receive the money anyway.
70. Thus, Advocate Santos-Costa submitted that the balance sheet exercise of weighing up the pros and cons of waiver came down clearly in favour of waiver. To waive his entitlement meant that the plaintiff would keep his job, would continue to earn good money, would avoid any litigation risk, and would get some downside protection and ultimately a bonus. If on the other hand he refused to agree a waiver, he would be facing the difficulties of litigation and the risk that that entailed; would lose his job and other benefits, and would be doing so against a recognition that there were defendants with deep pockets. Accordingly he was much better off waiving the entitlement, to the extent it could truly be regarded as an entitlement. Accordingly the objet of the contract was the waiver of the contractual right to the exit payment.
71. The Court rejects this analysis. The plaintiff, like Mr Vilsmeier and Mr Pirrwitz, is an experienced businessman. He had become well aware of the pressure which individual shareholders could exert on the boards of the two funds. He had seen that pressure over a five month period since October 2008. The boards had tried to defend themselves against such pressure by making the service contracts, executed in March at the Klosters meeting, and had performed appropriately in resisting the pressure of the minority. The idea that in these circumstances the plaintiff would simply give up an entitlement to the exit fee payments of €1.3 million against the hope that he would keep his job and continue to earn some reasonable remuneration without any guarantees in that respect is in our judgment fanciful. The plaintiff's immediate response to the e-mail from Mr Shinehouse of 2nd April, 2009, was "What's the offer?" He was not to be shunted off a favourable position simply by threats or fear. We do not doubt that considerations of continued interest in the defendant companies, keeping a job which offered good remuneration and the general advantages of reaching a common position would all have been material factors in the plaintiff's decision making process. What we cannot accept however is the proposition that the existing entitlements would be given up without anything coming back in return.
72. This finding is in our judgment also consistent with the e-mail traffic at the time. One of the difficulties with these e-mails, of course, is that they were exchanged between people with different first languages. An advantage of a formal contract is that it can readily be translated and understood. We have to discern the intentions of the directors, and in particular the plaintiff, from e-mail exchanges which in his case were not expressed in his first language.
73. In our judgment the correct analysis of the contractual position with regard to waiver is that the plaintiff agreed with Mr Shinehouse, representing each defendant company that he would waive the exit payments to which he was entitled under the March agreements if:-
(i) There was a bonus scheme put in place which was acceptable to him; and
(ii) The directors would have some downside protection, again acceptable to the plaintiff, against being sued for damages by Meinl.
74. These conditions are both potestative conditions - that is to say they are both conditions the achievement of which lay within the power or control of one of the parties concerned, namely the plaintiff. The result is that the contract is not valid unless and until the power or control which the plaintiff had over the existence of the contract was removed by the conditions being satisfied. We accept the plaintiff's evidence that at the time he reached this agreement in the first week of April 2009, he expected that he would remain on the board of the two defendant companies and that an acceptable bonus scheme would be agreed with the lead shareholders within a very short delay. A good deal of work had been done on the subject of bonus remuneration in any event and it was not in our view unreasonable for the directors to expect that such a scheme might be tabled for consideration at the board meeting on 14th April. It might not have been agreed at that time, but there would have been something upon which negotiations could have taken place. Instead, what happened at the board meeting of 14th April was that there was some talking around the subject with an assurance that colleagues of Mr Shinehouse would get to work and come up with a proposal at some stage.
75. The situation was then compounded by the plaintiff not being re-elected to the board of PI on 21st April and accordingly, for presentational purposes, withdrawing from nomination as a director of AI on 22nd April. The removal of his position of any authority within the company to settle an appropriate bonus scheme coupled with the short period which the shareholders set for the liquidation of the companies' assets and his increasing lack of involvement in the business of the two companies understandably led the plaintiff to the view that the promise of future gold, and of copper plated protection against third party suits was simply not good enough. The offer of the COO contract in June emphasised that to be the position and accordingly the conditional departure from the exit payments which he had agreed in the first week of April was never consummated.
76. Advocate Santos-Costa contended that the conditions, if there were any, which are to be taken from the agreement to waive the contractual entitlement to the exit payments were these:-
(i) The companies were to seek, pursue, try to obtain and discuss with the plaintiff and the board the issue of downside protection. It did not have to be a downside protection which was acceptable to the plaintiff and it did not have to be provided. In fact, such protection has been provided, settlement having been achieved between the defendant companies and Meinl towards the autumn of 2009.
(ii) Discussions might take place with a view to achieving a bonus scheme which would be acceptable to everybody. In his submission, the discussions in relation to the bonus scheme did not have to be fruitful at the time, although in fact they have been. Advocate Santos-Costa pointed to the fact that the bonus payments had been made to Mr Duswald and Mr Hassler, who were directors at the time of the middle boards but ceased to be directors thereafter, the quantum of such payments being settled considerably after the plaintiff gave notice. Had the plaintiff not decided to sue the defendant companies, he too would have been entitled to some bonus payments.
77. It was contended that these conditions should be given a strict construction, but even so they have been satisfied.
78. We do not for the reasons we have given consider that there was a written contract to waive the exit payments. At best we think that there was an oral contract evidenced in writing, and we do not therefore find ourselves in the position of having to give a strict construction to some e-mails passing between the individual directors of the two defendant companies. We do not think that these e-mails could reasonably be construed as amounting to a contract intended to be given legal status as between the companies and each director. We also do not think, for the reasons given, that the plaintiff would have given up fixed entitlements to the exit payments for the questionable advantage of discussions around the possibility of downside protection and a subsequent bonus. Furthermore, we do not think that the fact that downside protection and a bonus scheme was ultimately put in place many months after the plaintiff had given notice, left the employment of the companies and given notice of an intention to commence proceedings claiming his exit payments can possibly lead us to the conclusion that the conditions were satisfied. We are being asked to find that there was an absolute contract of waiver, or failing that, a conditional contract of waiver. Having found that there was no absolute contract of waiver, the conditions must be established as at the date of the alleged contract of waiver, and in our judgment had to be satisfied before the plaintiff left his employment with the company. We reject the conditions which Advocate Santos-Costa has submitted were those which applied in this case, but even if we had accepted them, they were not satisfied in time and we think that there must have been implied a requirement that they be satisfied prior to the termination of the plaintiff's employment.
79. Accordingly we answer the questions in paragraph 6 above as follows:-
(i) No.
(ii) Yes. The conditions were that there would be an agreed performance based bonus scheme in place during the plaintiff's employment by the defendants and that the plaintiff would have downside protection in terms he had agreed in the same time period.
(iii) No.
80. For all these reasons, the defendants have failed to establish on the balance of probabilities that there was either an absolute contract of waiver or that there was a conditional contract of waiver and that those conditions had been satisfied. Accordingly, the plaintiff's claim succeeds and he is entitled to judgment as against AI in the sum of €600,000, and against PI in the sum of €700,000. The plaintiff is also entitled to interest on these sums the quantification of which will be assessed if not agreed. We will hear argument upon costs if that should be necessary.
Authorities
Pirrwitz-v-AI, PI and Vilsmeier [2013] JRC 017.
AI Airports International Ltd and PI Power International-v-Pirrwitz [2013] JCA 177.
Vilsmeier-v-AI Airport Int Ltd and PI Power Int Ltd [2014] JRC 257.
Selby v Romeril [1996] JLR 210.
Incat Equatorial Guinea Limited and others v Luba Freeport Limited and others [2010] JRC 083A.