October 29, 2014 Court of First Instance -Judgments,Judgments
Claim No:CFI-019-2013
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 THE DEPUTY CHIEF JUSTICE SIR JOHN CHADWICK
BETWEEN
(1) ROBERTO’S CLUB LLC
(2) EMAIN KADRIE
Claimants
and
PAOLO ROBERTO RELLA
Hearing: 18 – 20 May 2014 and 22 May 2014
Counsel: Damian Brown QC assisted by Yacine Francis and Rumaana Habeeb (Allen & Overy LLP) for the Claimants
Paul Downes QC assisted by Zeeshan Dhar, Rita Jaballah and Robert Maxwell Marsh (Al Tamimi & Co) for the Defendant
Judgment: 29 October 2014
JUDGMENT OF THE DEPUTY CHIEF JUSTICE SIR JOHN CHADWICK
JUDGMENT
1. The second-named Claimant, Emain Kadrie (“Mr Kadrie”), is a businessman and entrepreneur. The Defendant, Paolo Roberto Rella (“Mr Rella”), was, at the relevant time, a well-known restauranteur. The first-named Claimant, Roberto’s Club LLC (“the Company”), was incorporated on 26 May 2011 under the DIFC Companies Law (DIFC Law No 2 of 2009) (with the name Roberto’s Ristorante LLC).
2. The Company was formed as a vehicle for a joint venture between Mr Kadrie and Mr Rella. Their intention was establish and carry on a restaurant business in Dubai. Mr Kadrie was to be the provider of finance and funds for the business. Mr Rella was to bring to the business his reputation and his skill and expertise as a restauranteur. They were the first shareholders. Mr Rella entered into an employment contract under which he was to serve as Managing Partner of the Company.
3. Subsequently Mr Kadrie, Mr Rella and two other employees of the Company – who were members of the management team – entered into an agreement (“the Shareholders’ Agreement”) under which Mr Kadrie was to have a 70% interest in the Company and Mr Rella (with the other two employees) was to have a 30% interest. The Shareholders’ Agreement contained a provision which purported to effect a forfeiture of the interest of any of the three employees who left the company by reason of resignation or dismissal for serious cause within the period of five years.
4. The Company commenced trading in March 2012 from premises in the Gate Village, DIFC. In January 2013 Mr Rella was suspended from his employment as Managing Partner and excluded from further participation in the business. In April 2013 Mr Kadrie terminated, or purported to terminate, Mr Rella’s employment. These proceedings arise out of Mr Rella’s dismissal.
The underlying facts
5. Mr Rella had been employed in the restaurant industry for some 30 years. From the year 2000 he had worked at the BiCE restaurant in the Dubai Hilton; where he acquired a reputation as a “front of house” manager. Members of his “team” at the BiCE restaurant included Mustafa Turgul (“Mr Turgul”) and Andrea Mugavero (“Mr Mugavero”). Mr Kadrie was a customer of the BiCE restaurant. In or about 2005 he suggested to Mr Rella that they should establish a new restaurant together. That proposal was not taken forward at that stage; but it was revived some years later, in 2010.
6. On 15 May 2010 Mr Kadrie and Mr Rella entered into an agreement for the establishment of a restaurant; to be known as “Roberto’s Restaurant & Lounge” and to be located “ideally” within The World Trade Centre (Lotus One). The agreement of 15 May 2010 was followed by a second agreement, signed by Mr Kadrie on 10 July 2010 and by Mr Rella, Mr Turgul and Mr Mugavero on 11 July 2010.
7. In order to provide them with financial security while the new business was established, Mr Rella, Mr Turgul and Mr Mugavero shared in an advance payment of US$100,000 from Mr Kadrie. They each resigned as employees of the BiCE restaurant in September or October 2010; and began to work on the new venture from the offices of Skelmore Consulting Ltd (“Skelmore”), a company controlled by Mr Kadrie. There were delays in the start-up of the new restaurant; in particular, negotiations to lease the premises in The World Trade Centre originally chosen for the restaurant fell through and alternative premises had to be found. These were in the Gate Village, DIFC.
8. The Articles of Association of the Company were signed by Mr Kadrie and Mr Rella on 5 June 2011. On the same day, 5 June 2011, the Company and Mr Rella entered into an agreement described as a Management Employment Contract. The agreement provided that Mr Rella should be employed by and should serve the Company in the position of “Managing Partner”.
9. On 5 September 2011 Mr Kadrie applied under Federal Law No 37 of 1992 for registration in his own name of a trademark image (incorporating the name “RS Roberto’s”). The trademark was registered on 10 September 2012, with effect from the date of the application.
10. On 21 November 2011 Mr Kadrie, Mr Rella, Mr Turgul and Mr Mugavero entered into the Shareholders Agreement. On 24 November 2011 the Company’s name was changed to “Roberto’s Club LLC”.
11. The restaurant opened in March 2012. On 12 April 2012 an Alcoholic Drinks Licence Type C - permitting the purchase of alcoholic drinks for sale at the Company’s premises, No 1 Gate Village, DIFC - was issued to Mr Rella as “Roberto Club”
12. By the summer of 2012 Mr Rella was suffering from problems with his spine. Mr Kadrie arranged for him to be treated, in Dubai, by a surgeon from Los Angeles. At the end of July 2012 Mr Rella was admitted to hospital for surgery. His medical expenses were paid in part by Mr Kadrie (as to US$27,000) and in part by the Company (as to AED 150,000). The Company recouped most of the monies which it had paid out from the hospital and from a medical insurance policy; leaving a small balance of AED 2,700. Mr Rella was away from work for some six weeks or more; returning, on a part time basis in mid-September 2012.
13. From the summer of 2012 there was concern as to the amount of alcohol consumed by staff at the restaurant. In September 2012 an alcohol policy document was issued at the request of Mr Kadrie which defined and limited the circumstances in which employees were permitted to have alcohol. On 28th November 2012 there was a further incident involving the kitchen staff. Following a meeting attended by Mr Kadrie, Mr Rella, Mr Turgul and Mr Mugavero, a much tighter policy – which prohibited the consumption of alcohol by employees on the restaurant premises (either whilst on duty or at the end of their shift) - was introduced. This policy was circulated by e-mail, and came into effect, on 6th December 2012.
14. In early January 2013, Mr Kadrie was informed that, notwithstanding the prohibition introduced at the beginning of the previous month, Mr Rella had been drinking alcohol in the restaurant with third parties in the early hours of the morning. He was satisfied that there were grounds to think that Mr Rella had breached the policy set out in the e-mail circulated on 6 December 2012.
15. Following a meeting on 26 January 2013, Mr Rella was suspended from work and from his position as Managing Partner pending investigation as to whether he had contravened the Company’s alcohol policy. The decision to suspend him was taken by Mr Kadrie, Mr Turgul and Mr Mugavero; and is recorded in a document described as “Board Resolution of Roberto’s Club LLC adopted on 26 January 2013” which they signed. Mr Rella was informed of the decision by letter signed by Mr Kadrie, as chairman on behalf of the Company.
16. Mr Rella was instructed to seek medical help in connection with what was perceived to be a problem with alcohol abuse. He complied with that instruction. By early March 2013, he felt ready to return to work; and he pressed for a decision that he should be permitted to do so.
17. On 3 April 2013 there was a meeting between Mr Kadrie and Mr Rella, in the course of which Mr Kadrie informed Mr Rella that his employment with the Company was terminated. The meeting was followed, on the same day, by a letter which set out (or purported to set out) the grounds for dismissal. Those grounds were summarised in these terms:
“Your employment, as discussed during the termination meeting is terminated because of your failure to adhere, and continually violating company expectations and policies. You, as the Managing Partner, have been party to establishing the company’s policies and procedures, which you have acknowledged and signed, and were also party to numerous management meetings where the importance of the non-use of alcohol by employees was discussed.”
18. Following the meeting of 3 April 2013 Justin Mostert (the Chief Finance & Investment Officer employed by Skelmore) (“Mr Mostert”) prepared a schedule purporting to show the amounts owing by Mr Rella to Mr Kadrie and to Skelmore on termination of Mr Rella’s employment.
19. On 23 April 2013 Mr Rella purported to issue a share certificate on behalf of the Company. The certificate stated that he was the registered proprietor of 600 Ordinary shares in the Company, of nominal value US$1,000 each, issued subject to the Articles of Association of the Company. The certificate was sent to the DIFC Registrar of Companies and filed on 24 April 2013.
20. On 20 May 2013 Al Tamimi & Co, on behalf of Mr Rella, wrote to Mr Kadrie. It was asserted in that letter that Mr Rella did not accept that his employment had been terminated. It was said that the purported termination was “without cause”, and in violation of the DIFC Employment Law.
21. By letter dated 13 June 2013, lawyers then instructed on behalf of the Company and Mr Kadrie gave notice requiring Mr Rella to transfer the 600 shares in the Company which were registered in his name to Mr Kadrie; and demanded repayment of (i) Mr Rella’s pro-rata share of an advance of US$100,000 made pursuant to the agreements of May and July 2010, (ii) monies paid by the Company in respect of Mr Rella’s hospital expenses in July 2012, (iii) monies paid by Mr Kadrie in respect of surgeon’s fees for Mr Rella’s benefit, (iv) monies said to be owing from September 2012 in respect of a dinner at the Company’s restaurant and (v) monies said to be owing on a Company credit card issued to Mr Rella. Those demands were not met.
The principal documents
22. It is necessary to examine, in greater detail, some of the documents to which I have referred in the preceding paragraphs.
(i) The Agreements made in 2010
23. The agreement made between Mr Kadrie and Mr Rella on 15 May 2010 provided for the registration of a company (“NEWCO”) within a free zone. NEWCO was to have four shareholders “in the first restaurant” – Mr Kadrie (70%), Mr Rella (17%), Mr Turgul (6%) and Mr Mugavero (7%). Mr Kadrie was to bring the finance to start and run NEWCO. Mr Rella was to give his name, “Roberto’s”, as NEWCO’s company name “during his permanence in the NEWCO”. The four shareholders would be “part of a Board of Directors”; with Mr Kadrie being the chairman and Mr Rella being “in charge as Managing Partner for the day-to-day business operations of the NEWCO”. The agreement contained the following (amongst other) paragraphs:“Shareholders b), c), d) [Mr Rella, Mr Turgul and Mr Mugavero] will not contribute to the capital amount in cash but by bringing with them management, chef expertise and goodwill (clients). Shareholder a) [Mr Kadrie] will invest the total capital of the first restaurant as an interest free loan to be paid back over a maximum of 5 years.”
“Shareholders b), c), d) ask for an Entry Fee of total US$ 100,000/- as they should leave their current employment position in order to start the NEWCO. The said sum will be returned pro-rata to the NEWCO only if the NEWCO will continue its operation beyond 2 years of time. In the event the NEWCO would stop for any reason the company business within the first 2 years of business or one or more of the Shareholder leave the NEWCO for irremediable conflict as reasons the said amount will not be refunded. If any of the shareholders do not quit and join the company within six months, they will return the ‘ENTRY FEE’ at double the amount. None of the shareholders b), c) and d) can have any outside job or conflict of interest in another restaurant during the time they are shareholders in Roberto Restaurante and Lounge.”
The references in the May 2010 agreement to “the first restaurant” suggests that the parties contemplated that there would or might be others. This is confirmed by the final paragraph of the agreement, which is in these terms:
“Note: Only Amin Kadrie and Roberto Rella will be shareholders in all the additional ROBETERTO RESTAUANTE AND LONGES (sic) with an ownership split of 90% for Amin and 10% split for Roberto.”
It can be seen that the agreement provided for Mr Rella and his colleagues – Mr Turgul and Mr Mugavero - to leave the BiCE restaurant at the Dubai Hilton on the basis of Mr Kadrie’s promise of an equity share in the new venture and certain other financial guarantees - including an “entry fee” of US$100,000 for Mr Rella and his team – as security in the event that the venture did not go ahead. Mr Rella and his team would take an equity share in NEWCO without making any financial contribution.
24. The May 2010 agreement was superseded by an agreement made between Mr Kadrie, Mr Rella, Mr Turgul and Mr Mugavero on 11 July 2010. That agreement was in substantially the same terms as the earlier agreement; but differed in the following respects:
(1) It provided that if the lease were not signed with Lotus One, then any other location agreed by Mr Kadrie and Mr Rella could be substituted for Lotus One.
(2) It provided that the name “Roberto’s Restaurante and Lounge” could be changed by agreement between Mr Kadrie and Mr Rella and that “this agreement will remain regardless of what name is agreed”.
(3) It provided that the Entry Fee of US$100,000 was to be paid as to 50% before 19 July 2010 and as to the remaining 50% by 19 August 2010.
(4) It provided that the date by which Mr Rella, Mr Turgul and Mr Mugavero were to leave the BiCE restaurant and join NEWCO was to be not later than 1 October 2010 unless otherwise agreed by Mr Kadrie.
(5) The Note in the final paragraph was replaced by:
“Note: Only Amin Kadrie and Roberto Rella will be shareholders in all the additional ROBETERTO RESTAUANTE AND LOUNGES.”
(iii) The Articles of Association of the Company
25. Following the incorporation of the Company on 26 May 2011, its Articles of Association were signed by Mr Kadrie and Mr Rella on 5 June 2011. The principal business activities of the Company were stated in that document to be “Restaurant in the name of Roberto’s Ristorante LLC pursuant to a licensing agreement for the rights, the name and trademark from Roberto’s Restaurants Holding”. There is no material before the Court to identify the entity (if any) described as “Roberto’s Restaurants Holding”.
26. Section 5 (“Share Capital”) of the Articles provided that the authorised share capital was US$2 million divided into 2,000 shares of US$1,000 each - all of which was registered (or issued) and paid up – and (at Clause 5C) that the initial registered paid up capital was held as to 1,400 shares by Mr Kadrie; and as to the remaining 600 shares by Mr Rella. It also contained the following provisions:
“D. Emain Kadrie, in addition to contributing the total share capital of the Company has financed and paid for the set up of the Company from the incorporation costs to the fit out of the Restaurant decoration, equipments, supplies, licenses and has personally settled all costs and expenses of any kind whatsoever.
E. The total amount paid by Emain Kadrie less his share capital as in C.(i) above will be accounted for as a share holder high preference loan to the company and is to be paid back within 5 years of the incorporation date, prior to distributing any profits or dividends.”
27. Section 13 (“Number of Managers”) provided that the Company should have a Board, “consisting of the Executive Manager, who should be chairman of the Board, and one Manager”. Section 15 (“Powers of Managers”) provided that the business of the Company should be managed by the Board. Clause 15D provided that the Executive Manager should be in charge of the day-to-day administration of the Company and should have full powers to represent the Company in the pursuit of the corporate purpose. Such powers included (so far as material) power to “(iii) employ all persons required for the Company’s business, to define their salaries, benefits, remunerations and the rules and provisions related to their employment as well as the right to terminate their services”. Section 19 provided that, subject to the DIFC Company Law and Regulations, the Managers might appoint one or more of their number to the office of Executive Manager; and that an Executive Manager should not be subject to retirement (as a Manager) by rotation under Section 16.
28. Section 17 (“Disqualification and Removal of Managers”) was in these terms:
“A Manager’s office is automatically vacated if he:
(i) is prohibited by the Law of Regulations from being a Manager;
(ii) becomes bankrupt;
(iii) is, by virtue of any mental or physical disability, incapable of acting;
(iv) with out permission, does not attend three successive meetings of the Board
(v) resigns his office by notice to the Company; or
(vi) is removed by resolution of the Members.”
(iii) The Management Employment Contract
29. The Management Employment Contract was made on 5 June 2011 between the Company and Mr Rella. Clause (2) provided that Mr Rella should be employed by and should serve the Company in the position of “Managing Partner”. Clause (3) set out the terms of employment. These included (so far as material) an obligation to “abide by all Laws of the United Arab Emirates and the laws of the Dubai International Financial Centre and obey all lawful orders and inter-company policies and procedures given by [the Company] from time to time . . .”.
30. The Management Employment Contract provided, further, that – subject to satisfactory completion of a probationary period of six months – the contract should remain in force for an indefinite period, but “subject to termination according to the terms and conditions of this contract and DIFC Employment Law”. Clause (6) required the Company to provide Mr Rella with medical insurance in accordance with its internal policy. Clause (7) contained provisions in relation to the entitlement to air tickets, annual leave, sick leave and holidays.
31. Clause (8) of the Management Employment Contract (“End of Service”) was in these terms (so far as material):
“a Should [the Executive] decide to resign, a notice period of not less than three months (90 days) must be given in writing…
b Termination for Cause, Voluntary Termination, Expiration of the Employment Term
The Employment Term and the Executive’s employment hereunder may be terminated (i) by the Company for ‘Cause’ (as defined below) by written notice, specifying the grounds for Cause in reasonable detail and (ii) by the Executive ‘voluntarily’ . . .
‘Cause’ shall mean
(A) …
(B) fraud, embezzlement, … or other gross and wilful misconduct which has caused serious and demonstrable injury to the Company.
(C) material violation by Executive of any material Company policy.
…
(F) Executive’s material, knowing and intentional failure to comply with applicable laws with respect to the execution of the Company’s business operations.
…
(H) Executive’s use of alcohol or drugs which materially interferes with the performance of his duties.
…
c. Where the employment is terminated, [the Executive] who has completed a period of one year or more of continuous service shall be entitled to End of Service gratuity in accordance with Article 60 of the DIFC Employment Law. End of Service gratuity shall be calculated on the basic salary and on the basis of 21 Days’ remuneration for each year of the first five years of service …
d. An employee is not entitled to gratuity payment where the employment has been terminated for misbehaviour. A termination for such cause exists in circumstances where the employee’s conduct warrants termination and where a reasonable employer would have terminated the employee. The Employer may dismiss the Employee without notice in such circumstances.
…
f. Shares bonds and any partnership financial rewards will be calculated on pro rata basis in case of contract amendment changes or separation. Balance of shares/equity will be returned to the Holding Company.”
The Management Employment Contract was signed on behalf of the Company by Mr Kadrie – under the designation “Chairman”.
32. The termination provisions in Clause (8) of the Management Employment Contract must be read with the provisions in Part 10 (“Termination of Employment”) of the DIFC Employment Law (Law No. 4 of 2005). So far as material, the provisions in Part 10 of the Employment Law include the following:
“59. Rights of employer and employee to minimum notice
(1) An employer or an employee may terminate an employee’s employment in accordance with this Article.
(2) Subject to Article 59(4) and (5), the notice required to be given by an employer or employee to terminate a person’s employment, where the person has been continuously employed for one (1) month or more, shall not be less than:
(a) …;
(b) (30) days if the period of continuous employment is three (3) months or more but less than five (5) years;
(c) …
….
(5) Article 59(2) does not apply where either party terminates the employment for cause in accordance with Article 59A.
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.
60. Right to written statement of reasons for dismissal
Upon the request of an employee who has been continuously employed for a period of not less than one (1) year on the date of termination of employment, an employer shall provide the employee with a written statement of the reasons for the employee's dismissal.
…
(1) Subject to Article 62(5), and (6), an employee who completes continuous employment of one (1) year or more is entitled to a gratuity payment at the termination of the employee’s employment.
(2) The gratuity payment shall be calculated as follows:
(a) twenty one (21) days’ basic wage for each year of the first five (5) years of service.
…
The daily rate for the employee’s basic wage shall be calculated based on the number of days in the year. The employer may deduct from the gratuity any amounts owed to the employer by the employee.
…
(4) An employee is not entitled to a gratuity payment where the employee has been terminated for cause as defined in Article 59(4).
…”
Two points must be noted: (i) the reference in Clause 8c of the Management Employment Contract to Article 60 of the DIFC Employment Law must now be read as a reference to Article 62 of that Law; and (ii) the reference in Article 62(4) of the Employment Law to Article 59(4) must be read as a reference to Article 59A. It can be seen that (so understood) Article 62(4) is to the same effect as Clause 8d of the Management Employment Contract.
(iv) The Shareholders’ Agreement
33. The Shareholders’ Agreement was made between Mr Kadrie, Mr Rella, Mr Turgul and Mr Mugavero. The text of the document which has been signed by the four parties (as put before the Court) contains no date – in the sense that no date has been inserted in the opening words “This Shareholders Agreement…is made and entered into this [ ] day of [ ] 2011 – but it is described (in the “header” on each page) as “Draft Shareholders Agreement–Roberto Ristorante DIFC 10-7-2013 – Revised 27 October 2011”. It appears, from the signatures, to have been signed by Mr Kadrie and Mr Rella on 21 November 2011: no date appears against the signatures of Mr Turgul and Mr Mugavero.
34. Clause 2.1 recorded that the “First Party” (Mr Kadrie) and the “Second Party” (Mr Rella) had formed the Company under the DIFC laws. Clause 2.2 was in these terms:
“2.2 Name. The Company has been formed under the name ‘Roberto’s Ristorante LLC’. The name of the Company shall be changed to ‘Roberto’s LLC’. Both are referred to as the ‘Name’. The Name is fully owned by the First Party and/or its affiliates and in case this Agreement is terminated and/or the Company liquidated, the Name and all intellectual property rights deriving out of the name such as trade marks, logos and trade names shall stay the full ownership of the First Party. The First Party reserves the right to operate other restaurants under the same Name, with no territorial restrictions.”
35. It is recorded, at Clause 3.2, that the Company’s share capital is US$2 million divided into 2,000 shares of US$1,000 each; and that, at the date of that agreement “and contrary to the Articles”, the share capital was held as to 1998 shares (99%) by Mr Kadrie and as to 2 shares (2%) by Mr Rella. But that Clause must be read with Clause 3.5. In the document as signed that Clause is in these terms:
“3.5 The Second Party (and subsequently the Third [Mr Turgul] and the Fourth Party [Mr Mugavero]) has no right to dispose of his shares in any way whatsoever before the Share Capital and the Loan are repaid to the First Party in full or before the expiry of a five-year period, which ever is later. Shareholders of the Company are as follows:
| Shareholder | Percentage Ownership | No of Shares |
| Emain Kadrie | 70% | 1400 |
| Roberto Rella | 17% | 340 |
| Mustafa Turgul | 6% | 120 |
| Andrea Mugavero | 7% | 140 |
| Total | 100% | 2000 |
36. For the purposes of Clause 3.5, “the Share Capital” means the share capital of the Company (Clause 1.1) and “the Loan” has the meaning given to that expression in Clause 3.4. The provisions for repayment to Mr Kadrie of the Share Capital and the Loan are set out in Clauses 3.3 and 3.4:
“3.3 The First Party has contributed the total capital of the Company amounting to US$2,000,000…to be paid back from the profits of the Company on annual instalments over the period of five years starting the date the restaurant starts its operations in the DIFC until it is fully paid. Where in any given year the Company realizes net profits, the profits shall be dedicated to the repayment of the Share Capital, and no dividends shall be distributed before the payment of the Share Capital in full. The Share capital may be increased or decreased in accordance with the terms and conditions of this Agreement, the Articles and the Applicable Laws.
3.4 The First Party has contributed in addition to the Share Capital, the total of the financing/working capital to start and run the Company amounting to US$2,000,000 . . . as a shareholder’s loan (‘the Loan’) to be paid back from the revenues (before profits) of the Company over the period of five years starting the date the restaurant starts its operations in the DIFC. The Loan shall bear annual interest at the rate of Eibor + 3% until the Loan is paid back in full. The Loan will be paid on monthly instalments as per the availability of the cash flow and any reasonable and moderate operational requirements for the restaurant. No dividends will be distributed before the payment of the Loan in full. The repayment of the Loan shall take precedence over the repayment of any other loan or liability.”
It seems likely that, when agreeing to the inclusion of Clause 3.3 in the Shareholders’ Agreement, the parties (or their advisers) may have overlooked the principle that monies subscribed by way of share capital are not repayable to the shareholder without a formal reduction of capital; and the need to comply with the provisions of Articles 47(2) and 90(2) of the DIFC Companies Law (Law No 2 of 2009) when effecting a reduction of capital.
37. Clause 3.6 of the Shareholder’s Agreement (in the document as signed) is in these terms:
“3.6 The Parties agreed that only the First Party [Mr Kadrie] and the Second Party [Mr Rella] will actually be shareholders of the Company and will be registered as owners of Shares before the DIFC. The First Party shall hold 70% of the capital and the Second Party shall hold 30% of the Capital, 17% for his benefit, 6% on trust for Mustafa Turgul and 7% on trust for Andrea Mugavero.”
38. Clause 3.7 prescribes what is to happen in the event that the Share Capital and the Loan are not repaid within the five-year period:
“3.7 In case the Share Capital and the Loan are not fully settled to the First Party during the period of five years stipulated at 3.3, the First Party shall opt between the following two options (i) the Second Party, the Third Party and the Fourth Party shall become shareholders on prorate basis; or (ii) the Agreement is terminated without the need to any judicial recourse and upon the service of a notice of termination in writing.”
39. Clause 3.8 of the Shareholders’ Agreement provides for the repayment of the US$100,000 paid to Mr Rella, Mr Turgul and Mr Mugavero pursuant to the July 2010 Agreement. It is in these terms:
“3.8 The Second Party, Third Party and Fourth Party have been paid by the First Party an advance of USD 100,000…(“the Advance”), which should be reimbursed to the First Party on annual basis during a period of five years as follows: A total of USD 20,000 per annum totalling USD 100,000 over the five years and made up of (i) USD 56,666 by the Second Party (iii) USD 20,000 by the Third Party and (iii) USD 23,333 by the Fourth Party based on their share percentage in any full budget duration, should the approved and signed off budget be reached and exceeded over the said duration, the annual payments would be forfeited and treated as an incentive for the second, third and fourth party.”
40. Clause 3.9 of the Shareholders’ Agreement contains a provision for forfeiture of the interests of Mr Rella, Mr Turgul and Mr Mugavero in the Company. It is in these terms:
“3.9 Although the Share Capital, the Loan and the Advance are paid in full in case the Second, Third and/or Fourth Party leave the Company and/or the Restaurant and resigns from his position before the completion of five years from the date of operation of the Restaurant, or is dismissed from his duties and/or position for serious cause, the concerned Party is considered having forfeited its right in becoming a shareholder in the Company and shall render his shares immediately upon first notice.”
It will be necessary, later in this judgment, to consider how Clause 3.9 is to be given effect (if at all) in the event that it be established by the Claimants that Mr Rella was dismissed from his duties for serious cause at a time (3 April 2013) which was within the five year period.
41. Clause 9.2 of the Shareholders’ Agreement provided that:
“9.2 The Board of Directors shall consist of the First Party and the Second Party. The First Party shall be the Executive Manager and Chairman of the Board and the Second Party shall be manager member of the Board of Directors.”
Clause 9.4 provides that the Executive Manager (Mr Kadrie) “shall have full control of the management of the Company and shall be in charge of the day-to-day management and administration of the Company” with the powers there set out. Those powers include (at Clause 9.4.4), a power to “employ all persons required for the Company’s business . . . as well as the right to terminate their services” which is in the same terms as that in Clause 15D (iii) of the Articles of Association (to which I have referred earlier in this judgment).
42. Clause 15.1 of the Shareholders’ Agreement provides that it shall be governed in all respects by the laws and regulations of the DIFC. Clause 17 (“General”) contains the following (amongst other) provisions:
“17.1 Valid Provisions. In the event that any provision of this Agreement should be or become incomplete or ineffective, such invalidity or ineffectiveness shall not affect the validity of the remaining provisions hereof. . . .
17.2 Entire Agreement. This Agreement and any documents referenced herein, including the Articles, constitute the complete and exclusive statement of the agreement between the Parties with reference to the subject matter hereof and supersede all prior agreements, promises, proposals, representations, understandings and negotiations, whether or not reduced to writing, between the parties in respect of such subject matter.
…
17.5 Correcting Conflicts with Articles. In the event of any conflict between this Agreement and the Articles, the terms of this Agreement shall prevail as between the Parties and they shall exercise their voting rights as Shareholders to amend the Articles to reflect the terms of this Agreement to the extent permissible by Applicable Law.”
(v) The Alcoholic Drinks Licence
43. The Alcoholic Drinks Licence – Type ‘C’ issued 14 April 2012 by the Director, General Department of Criminal Investigation, Dubai Police, permitted the Authorised Person – described as “Mr Paolo Roberto Rella (Roberto Club) - to purchase Alcoholic Drinks from an authorized importer or a dealer in the Emirate of Dubai”. The Licence was endorsed with “Police Conditions concerning a Licence to serve alcoholic drinks in any specified Club in the Emirate of Dubai”. Those conditions required that:
“Apart from the provisions of the law pertaining to a licence granted for the sale of alcoholic drinks, the following extra conditions imposed by the Commandant General, Dubai Police, will be complied with: . . .”
Those extra (or additional) conditions included:
“a) “No alcoholic drinks may be sold at the bar or served in lounge between 2359 and 1100 hours daily.
…
e) Holder of this licence (Type C) will keep stock registers and stocks open to Inspection at all times by me or any police officer in uniform.
…
h) The licence will be withdrawn if any of the provisions of the Law and Rules or the Conditions set out above are infringed.”.
The term of the Licence was from 12 April 2012 to 31 March 2013.
44. By a letter dated 2 October 2011 from the Deputy Commandant General, Dubai Police, the time periods during which the service of alcoholic drinks at restaurants within the DIFC was permitted were revised to the hours of 12.00 noon to 4.00pm and 6.00pm to 2.00am. The letter concluded with the instruction that restaurants were to abide strictly with the law and the rules relating to the service of alcoholic drinks.
(vi) The Company’s drugs and alcohol policies
45. On or about 25 August 2012 the Company issued a document headed “Business Policies: Drugs and Alcohol”. The document was prepared by Mr Mostert at the request of Mr Kadrie. The document was reviewed by Mr Rella (as “Managing Partner”) and approved by Mr Kadrie (as “Chairman”). The purpose of that policy document was set out under section 1 (“Purpose”): it was expressed to be “to provide a safe and productive working environment for employees, contractors, customers and business associates”. It was said that the policy document “details the standards and expectations associated with alcohol and other drug use”; and was to apply to “all employees while they are engaged in company business, working on company premises . . .”. For the avoidance of doubt, “all employees” included “Executive Management of Roberto’s Club LLC”. The policy was to be “applicable at all times whilst an employee is at the company premises”. It was stated that violation of the provisions in the policy document might result in disciplinary action “up to and including termination of employment”.
46. Section 3 of the policy document issued on 25 August 2012 was headed “Policy”. Section 3.2 was in these terms (so far as material):
“Standards
Workers must report Fit for Duty and remain Fit for Duty throughout their work day or shift and whilst present on company premises. Workers must also comply with the following standards:
…
The following are prohibited while on company business or premises…
…
The words “and/or Managing Partner” were added in manuscript and initialled by Mr Rella when reviewing the document. So, also were the words “Managers duty meal (at end of shift) alcoholic beverages to be authorise (sic) at Managing Partner discretion” which appear in section 1 (“Purpose”).
47. Following an incident, involving Company employees at its premises, there was a meeting at the beginning of December 2012 attended by Mr Kadrie, Mr Rella, Mr Turgul and Mr Mugavero. That meeting was followed by an e-mail sent by Mr Kadrie to the other three shareholders on 6 December 2012. That e-mail recorded eight points said to have been “unanimously agreed between the Partners”. Those points included the following:
“8) It was unanimously agreed by all the partners that Roberto’s cannot afford to lose their alcohol license because one of our employees/managers get caught drinking on duty or after duty in the restaurant by the CID. Therefore, the partners all agreed, effective immediately, that there would be no more alcohol drinking by any manager working in Roberto’s while on duty or after his duty, including no daily drink with his/her duty meal. It was agreed that there would be no exceptions to this and the Manager in charge each night would enforce this policy decision without exception.”
The concluding paragraph of the e-mail was in these terms:
“The meeting ended with all the partners promising to continue to work together for the success of Roberto’s and to support the new policies.”
(vii) The resolution of 26 January 2013 and the suspension letter
48. The document described as “Board Resolution of Roberto’s Club LLC adopted on 26 January 2013” which records the decision to suspend Mr Rella from his position as Managing Partner was in these terms:
“The shareholders of Roberto’s Club LLC (‘the Company’) discussed the unlawful actions performed by the Managing Partner, Roberto Rella by continuing to personally drink and serve alcohol to customers at the premises of the Company after the closing hours of the Company and legal hours as stipulated by the CID Dubai. It is agreed that Roberto has breached the trust of the Company and compromised his position as the Managing Director of the Company and that these actions could severely negatively impact the operations of the Company and is against company policy, illegal and endangers the lives of Roberto and other employees.
Therefore the undersigned, being all shareholders of Roberto’s Club LLC, hereby sign and agree to the following resolutions:
The document was signed by Mr Kadrie, Mr Turgul and Mr Mugavero.
49. The Company would face obvious difficulties if it sought to rely on that document as recording a board resolution or as recording a resolution of the shareholders - in that (given Clauses 3.6 and 9.2 of the Shareholders’ Agreement) neither Mr Turgul nor Mr Mugavero were directors or shareholders of the Company - – and there is nothing to suggest that Mr Rella had been given notice of the meeting. But, first, there can be no doubt that Mr Kadrie had power, as Executive Manager (under section 15D(iii) of the Articles and Clause 9.4.4 of the Shareholders’ Agreement), to suspend an employee without the need for a resolution of the board or of the shareholders; and, second, the document is of importance in that it shows that the decision to suspend Mr Rella was not taken by Mr Kadrie alone. The decision to suspend was taken by Mr Kadrie in consultation with Mr Turgul and Mr Mugavero.
50. On the same day, 26 January 2013, Mr Kadrie, as Chairman of the Company purporting to act on its behalf, wrote to Mr Rella in these terms:
“RE: SUSPENSION
Following a meeting of the shareholders of Roberto’s Club LLC held on 26 January 2013, I am writing to confirm your suspension from work and your position as Managing Partner immediately until further notice due to the following:
1)Breach of Trust in your position of Managing Partner
2) Engaging in unlawful activities by drinking in the company premises after the legal hours with customers
3) Unauthorised consumption of alcohol during working hours
4) Unauthorised consumption of alcohol on the premises after working hours
5) Breach of various company policies in regard to:
a)Drinking whilst in the company premises
b) Serving alcohol to customers after hours
c)Keeping employees working during unauthorized work periods
d) Approving alcohol consumption to other employees without authority
e) Not recording any usage of the alcohol through the company’s Micros system
6) Being absent from work without permission
7) Allowing customers on the premises during non-working hours
8) Negligence of duty
9) Violating the terms of Employment as stipulated in your employment contract dated 5 June 2011
You will continue to be employed throughout your suspension. You will remain bound by your terms and conditions of employment. In particular you must not disclose any confidential information, undertake any paid employment from a third party or solicit any customers or employees whilst on suspension. You will continue to uphold the interest of the Company and the employees and shall do nothing to prejudice them.
You are required to co-operate in any further investigations and may be required to attend the company’s premises for investigative interviews or disciplinary meetings. You are not otherwise required to carry out any of your day-to-day duties, unless otherwise notified.
You should not attend the workplace unless authorised by the chairman, Mr Emain Kadrie to do so. You must not communicate with any of our customers or suppliers nor discuss this matter with any work colleague. Your work e-mail account has been suspended and you will not have access to our computer network during the term of your suspension.
When we have conducted our investigations, we will write to you to confirm whether the company proposes to take any further action. If we consider any disciplinary action against you, we will inform you of this in writing and will provide you with the opportunity to state your case at a hearing in accordance with the company’s disciplinary procedure.
If you have any queries about the terms of your suspension, please feel free to contact me.”
The letter was countersigned by Mr Rella, who acknowledged that he had read and understood the terms of his suspension; and that he agreed to adhere to them “and cooperate in any and all events as required.”
(viii) The dismissal letter of 3 April 2013
51. Suspension was followed, some ten weeks later, by dismissal. On 3 April 2013 there was a meeting between Mr Kadrie and Mr Rella. Immediately following that meeting, on the same day, Mr Kadrie wrote to Mr Rella in these terms:
“This letter confirms the actions taken at our meeting today. Your employment with Roberto’s is terminated immediately due to:
Your employment, as discussed during the termination meeting is terminated because of your failure to adhere, and continually violating company expectations and policies. You, as the Managing Partner have been party to establishing the company’s policies and procedures, which you have acknowledged and signed and were also party to numerous management meetings where the importance of the non-use of alcohol by employees was discussed.
At this point in time, you have missed numerous days of work due to your excessive use of alcohol which has put severe pressure on the business and the restaurant team to successfully perform their duties
You are hereby informed to return all your company related equipment, documentation, access cards, etc. to the Human Resources Department whereupon your visa will be cancelled and once your visa is cancelled, your final remuneration settlement as stipulated by the DIFC Employment Law will be calculated. Any dues to you will be paid in accordance with the DIFC Employment Law and any payables from you must be settled before your passport will be released
You are also reminded of the Conflict of Interest Clause 10 of your Employment Contract which you must adhere to.
Please let me know if I can assist you during your transition.”
52. It can be seen that the most (but not all) of the grounds for suspension, set out in the letter of 26 January 2013, were relied upon as grounds for termination in the letter of 3 April 2013. The grounds in the suspension letter which were not relied upon as reasons for dismissal were those set out under heads (1) (“Breach of trust in your position of Managing Partner”), (7) (“Allowing customers on the premises during non-working hours”) and (8) (“Negligence of duty”). Head (9) (“Violating the terms of Employment as stipulated in your employment contract dated 5 June 2011”) in the suspension letter is particularised in the dismissal letter as “6. Breach of Employment Contract in particular reference to Clause 8(H)”. As I have said, earlier in this judgment, Clause 8b(H) of the Management Employment Contract provides that “Cause” – in the context of “termination for Cause” – includes “Executive’s use of alcohol or drugs which materially interferes with the performance of his duties”. Further, again mentioned earlier in this judgment, the dismissal letter includes, as a summary of the reasons for the termination of Mr Rella’s employment, the paragraph in these terms:
“Your employment, as discussed during the termination meeting is terminated because of your failure to adhere, and continually violating company expectations and policies. You, as the Managing Partner have been party to establishing the company’s policies and procedures, which you have acknowledged and signed and were also party to numerous management meetings where the importance of the non-use of alcohol by employees was discussed.”
53. On or about the same date, 3 April 2013, Mr Kadrie signed, as chairman of the Company, a document described as a “Certified True Copy” of a Board Resolution said to have been passed by the Board of Directors of the Company on 3 April 2013 in these terms:
“Resolved That Mr Roberto Rella is removed from office and his position as Manager of Roberto’s Club LLC with effect from 3 April 2013.”
“Further Resolved That Mr Roberto Rella be removed from any company documentation including but not limited to the Roberto’s Club LLC trade license”.
“Further Resolved That Mr Roberto Rella be removed as authorized signatory for Roberto’s Club LLC.”
54. In his response to Mr Kadrie’s termination letter of 3 April 2013, Mr Rella wrote, on 13 April 2013:
“With regret I received your letter dated 3 April 2013 with reservation to its content. It was a pleasure working as manager for Roberto’s Restaurant. I wish you the best to proceed with the same success in the future for the benefit of our company.
At the same time, it seems there are no longer the conditions to continue our business collaboration together, I will appreciate to know if you will have the intention to settle the end of my employment and partnership agreement in an amicable way voiding to both of us the unpleasant situation of legal actions and their consequences.”
(ix) The schedule of amounts due on termination of employment
55. As I have said, earlier in this judgment, following the meeting on 3 April 2013, Mr Mostert prepared a schedule which purported to show the amounts due from Mr Rella to Mr Kadrie and the Company (or to Skelmore). The schedule was in these terms:
| Amounts due to Amin Kadrie 17%/30% of USD 100k loan from Amin USD 27k paid to Dr Rogers in USA
Amounts due to Skelmore 0.5% incentive for 2012 City Ledger Expense Non-reimbursed claim from operation Pending Credit Card Settlement Unexpired Housing Rent
Grand Total End of Service Settlement (Salary, Leave) Grand Total Due by Roberto – Termination with Cause
| Amount (AED 208,250 99,360307,610
-114,419 146 2,700 4,618 41,041(65,914)241,696 (44,360)197,336 |
The relief sought in these proceedings
56. These proceedings were commenced by the Company and Mr Kadrie against Mr Rella by the issue of a claim form on 7 July 2013. The relief sought by the Company included (so far as now material):
(1) an order that Mr Rella transfer all his shares in the Company to Mr Kadrie and execute all such documents as were necessary to effect such a transfer;
(2) an order that Mr Rella execute a DIFC visa cancellation form; and
(3) an order that Mr Rella repay to the Company (i) a number of relatively small amounts (the hospital fees, the dinner bill and the credit card balance) and (ii) repayment of an advance of AED 41,000 in respect of rent.
In addition Mr Kadrie sought:
(4) an order for repayment of US$56,667, being Mr Rella’s pro-rata share (17/30) of the US$100,000 Advance made pursuant to the July 2010 agreement (and to which reference had been made in paragraph 3.8 of the Shareholders’ Agreement of November 2011); and
(5) an order for repayment of US$27,000, being monies paid by Mr Kadrie in respect of surgeon’s fees incurred in July 2012.
57. By way of counterclaim, Mr Rella sought the following relief:
(1) An order for payment of (i) “notice pay” equivalent to 90 days’ salary, (ii) end of service gratuity equivalent to 21 days’ salary, (iii) holiday pay (in respect of holiday entitlement accrued but not taken), (iv) outstanding wages, and (v) outstanding management fees equivalent to 0.5% of annual turnover.
(2) A declaration that Mr Rella is the legal owner of 30% of the share capital of the Company.
(3) The partial avoidance, or rectification, of the shareholders’ agreement which he signed by the deletion of Clause 3.9 pursuant to section 37 of the DIFC Contract Law (Law No. 6 of 2004); or a declaration, pursuant to section 37 of the DIFC Law of Damages and Remedies (Law No 7 of 2005), that Clause 3.9 is unenforceable.
(4) Additional damages pursuant to section 40(2) of the DIFC Law of Damages and Remedies.
(5) Orders – including a “buy-out order”, an order that Mr Rella cease to be a director of the Company and an order requiring the transfer to him of the ownership of the “RS Roberto’s” trademark – by way of relief in respect of unfairly prejudicial conduct of the Company’s affairs, pursuant to Article 134 of the DIFC Companies Law (Law No. 2 of 2009).
(6) In the alternative, a declaration that the Company is the lawful owner of the trademark and an order requiring Mr Kadrie to transfer ownership of the trademark to the Company.
The issues for determination
58. The principal issues for determination may be summarised as follows:
(1) Whether Mr Rella’s contract of employment was terminated on 3 April 2013 for “Cause” within the meaning of Clause (8)b of the Management Employment Contract; and, if so, (i) whether he was dismissed from his duties and/or position as Managing Partner for “serious cause” within the meaning of Clause 3.9 of the Shareholder’s Agreement and (ii) whether he was dismissed in circumstances “where a reasonable employer would have terminated the employment” within the meaning of Article 59A of the DIFC Employment Law (so as to deny him the notice period to which he would otherwise have been entitled under Article 59(2) of that Law and the end of service gratuity to which he would otherwise have been entitled under Clause (8)c of the Management Employment Contract and Article 62 of that Law). For convenience I shall refer to these as “the termination of employment issues”.
(2) Whether Mr Rella is now the legal owner of 600 shares (30%) in the Company; and, if not, whether he is the owner of some lesser number (and, if so, what number) of shares in the Company (“the share ownership issue”).
(3) Whether, if Mr Rella was dismissed from his duties and/or position for “serious cause” within the meaning of Clause 3.9 of the Shareholders’ Agreement, he should be ordered to transfer to Mr Kadrie (or to the Company) the shares of which he is now the legal owner; or whether Clause 3.9 of the Shareholder’s Agreement should be rectified, partially avoided or declared unenforceable (together “the share forfeiture issue”).
(4) Whether Mr Rella should be ordered to repay, the various monetary amounts claimed by the Company and/or Mr Kadrie in these proceedings (“the repayments issue”).
(5) Whether the Company should be ordered to pay to Mr Rella (i) “notice pay” and end of service gratuity, in so far as not determined under issue (1), and (ii) holiday pay, (iii) outstanding wages, and (iv) outstanding management fees (and, if so, in what amounts) (together “the employee benefits issue”).
(6) Whether Mr Rella is entitled to additional damages under section 40(2) of the DIFC Law of Damages and Remedies (the additional damages issue”).
(7) Whether the affairs of the Company have been conducted in a manner unfairly prejudicial to Mr Rella; and, if so, whether the Court should make an order (and, if so, what order) under Article 134 of the DIFC Companies Law (“the unfair prejudice issues”).
(8) Whether (if not subsumed in any order made under Article 134 of the Companies Law), the Court should make any (and, if so, what) order in relation to the trade mark (“the trade mark issue”).
The termination of employment issues
59. As I have said, Clause (8)b) of the Management Employment Contract provided that Mr Rella’s employment could be terminated by the Company for “Cause”. Termination for Cause was to be effected by written notice, specifying the grounds for Cause in reasonable detail. “Cause” included material violation of any material Company policy (paragraph (C) of Clause (8)b), material knowing and intentional failure to comply with applicable laws with respect to the execution of the Company’s business operations (paragraph (F)) and the use of alcohol which materially interferes with the employee’s performance of his duties (paragraph (H)).
60. The termination letter of 3 April 2013 specified the grounds for Cause upon which the Company relied in terms which I have set out earlier in this judgment:
“1. Engaging in unlawful activities by drinking in the company premises after the legal hours with customers
And, as I have said, the grounds relied upon as justifying dismissal were summarised in these terms:
“Your employment, as discussed during the termination meeting is terminated because of your failure to adhere, and continually violating company expectations and policies. You, as the Managing Partner have been party to establishing the company’s policies and procedures, which you have acknowledged and signed and were also party to numerous management meetings where the importance of the non-use of alcohol by employees was discussed.”
It was submitted on behalf of Mr Rella in the course of his counsel’s closing submissions (see section B(1)(a) of “Defendant’s Note of Closing Submissions”) that the termination letter of 3 April 2013 failed to comply with the requirement that termination was to be by written notice, specifying the grounds for Cause in reasonable detail.
61. In my view that submission cannot be sustained. First, as it seems to me, it is impossible to contend that the grounds set out in the letter (if made out on the facts) – with the exception of ground 4c (keeping employees working during unauthorized work periods) - were not “grounds for Cause” within the meaning of Clause (8)b of the Management Employment Contract. Ground 1 – “Engaging in unlawful activities by drinking in the company premises after the legal hours with customers” – falls within paragraph (F) of Clause (8)b – “material knowing and intentional failure to comply with applicable laws. So, also, given the condition (condition e)) attached to the Company’s alcohol licence, does ground 4e (“Not recording any usage of the alcohol through the company’s Micros system”). Having regard to the Company’s policy in relation to the consumption of alcohol by employees on the premises – “that there would be no more alcohol drinking by any manager working in Roberto’s while on duty or after his duty” - which I have set out earlier in this judgment, grounds 2, 3 and 4a, b and d fall within paragraph (C) – “material violation . . . of any material Company policy”. Grounds 5 and 6 – “Being absent from work without permission” and “Breach of Employment Contract in particular reference to Clause 8(H).” – must be read with a later paragraph in the letter, which is in these terms:
“At this point in time, you have missed numerous days of work due to your excessive use of alcohol which has put severe pressure on the business and the restaurant team to successfully perform their duties”
Read in context, those grounds fall within paragraph (H) of Clause (8)b) – “use of alcohol or drugs which materially interferes with the performance of his duties”.
62. Second, the requirement that the grounds must be specified “in reasonable detail” must be understood as requiring such detail as is reasonable in the circumstances to enable the employee to know why his employment is being terminated. In the present case, the circumstances include the suspension letter of 26 January 2013, which Mr Rella acknowledged that he had read and understood. The grounds set out in the termination letter had each been stated in the suspension letter, in substantially the same terms, as grounds which had led to Mr Rella’s suspension some ten weeks earlier. They had been the subject of discussion at meetings between Mr Kadrie and Mr Rella. At paragraph 57 of his second witness statement, made on or about 20 April 2014, Mr Kadrie had said this:
“57. I attended the meeting with the Defendant on 26 January 2013 together with Mr Mostert. During the meeting, I told the Defendant that I had seen CCTV recordings that showed he had been regularly drinking alcohol in the restaurant, from late in the evening and through the night and into the morning, together with unidentified guests and that he had kept employees behind to serve him alcohol…”
That account of what Mr Rella had been told at the meeting on 26 January 2013, when the reasons for his suspension were explained to him, was confirmed by Mr Mostert at paragraph 24 of the witness statement which he made on 20 April 2014. It was confirmed by Mr Kadrie and Mr Mostert in the course of their oral evidence at the trial; and was not challenged. In my view it is impossible to contend that, when he received the termination letter of 3 April 2013, Mr Rella did not know (from the contents of that letter, read with knowledge of the discussions which had preceded it) the reasons why his employment had been terminated. Had he been in any doubt as to those reasons, he could have requested a further written statement, pursuant to section 60 of the DIFC Employment Law. The fact that he did not do so lends support to the view that he was satisfied that the grounds had been specified with sufficient detail in the termination letter.
63. It was submitted on behalf of Mr Rella that the grounds specified in the termination letter were a pretence, or sham; and that the true position was that “by April 2013 Mr Kadrie had decided that for whatever reason he would prefer to get rid of Mr Rella (possibly having taken full advantage of his contacts and clients) and take back the shares that had been given him”. In those circumstances, it was said that, on a true analysis (whatever grounds may have been given in the termination letter), the termination was not for “Cause”. The contention that the termination letter did not reflect the true reason for the decision to dismiss Mr Rella was put to Mr Kadrie in the course of his cross-examination. He rejected that suggestion. No such contention was put to Mr Turgul or to Mr Mugavero; who were parties to the decision. In my view there is no evidential basis upon which that submission can be supported.
64. In particular, the submission that the grounds specified in the termination letter were a pretence, or sham, finds no support in the contemporary documents. Following his suspension, on the instructions of Mr Kadrie, Mr Rella was assessed by Dr Hany Shafey, a consultant psychiatrist. In a consultation note, dated 18 February 2013, Dr Shafey wrote:
“This gentleman is a 44-year-old married Italian male . . . who was initially seen by the undersigned on the 28th of January 2013 at the instruction of his employer after the above was found, according to his employer, drinking excessively up to early hours of the morning. The patient himself indicated that he has chronic anxiety and uses alcohol to control his symptoms. He reported drinking an excess of 2.5 bottles of vodka a week plus 3 bottles of wine a week plus the occasional beer here and there. The day of the assessment he experienced some mild tremors and slight irritability. . . .”
Dr Shafey diagnosed alcohol abuse and mild anxiety. He described the treatment that he had prescribed; and went on to say this:
“During the course of the last few weeks, he has been seen at least four times during which he has been attending regularly AA meetings and he believes it is helping him. During the last meeting, he indicated that he is only drinking a glass of wine or a beer with his meal and that does not signify any problem for him, and he is starting to take care of himself and exercise.”
65. On 7 March 2013 Mr Rella sent an email to Mr Kadrie which (so far as material) included the following passages:
“It has been good to talk to you today…
Honestly it feels as if I have been through a kind of ‘global’ hell and back with all the anxiety, radical withdrawals, humiliation, ego bruising, professional and friends isolation and to a certain extent many ‘exaggerated rumors’. At the end of the day I am no criminal, nor am I thinking to have committed a real crime or harmed a single person and to be sure it has never been my intention.
I am almost sure I’m not the only one unhappy and unease with the latest events and decision around my person but I must also accept to take a big part of this responsibility on my shoulder caused by a specific delicate moment of stress and body weakness.
Said this and try having this chapter behind me, I have been to all the sessions with various field professionals and I hope you will read soon my health reports (all recorded in Dr Shafey file) where all statistics are now well within the norm and show a clear healthy body and mind.
As I’ve also told you, I keep ‘Hammering’ with my PhysioGym Therapy and group session on regular bases
During this time out, I have done a lot of thinking & reasoning with my own self and I would like to suggest that the two of us as partners and respectful professionals meet and agree on certain principles and disciplines to ease my entry to my home, dream job, my ‘adobe’: Roberto’s.
…”
The email continued with a list of “principles and disciplines” in the form of proposals for Mr Rella’s re-integration into the business.
66. On 19 March 2013 Dr Shafey wrote a medical report in much the same terms as those contained in his earlier consultation note of 18 March 2013. He concluded by recording that Mr Rella had indicated that he had reduced his alcohol intake dramatically; and said this:
“…His prognosis as in the case of any person with Alcohol abuse is guarded to say the least (alcohol abuse tends to be an addictive chronic recurrent condition if at any time the motivation of the individual declines)…”
67. On 21 March 2013 Mr Kadrie sent a long email to Dr Shafey. It is, I think, necessary to set out the contents of that email in full:
“I had a long meeting today with Roberto on his request. The bottom line from Roberto’s view is that he is no longer drinking heavily (only 5-8 glasses of red wine a week he claims), he is going to AA 2-3 times a week, he has followed your instructions and his test results show he is not drinking and his body (liver, etc.) is nicely recovering from the alcohol abuse. In other word, he is ‘ready to come back to work’!
I told him that I am happy to see the improvement and commitment to getting better but the subject is more complicated than that and would require more time and analysis before we can come to any conclusion, let [alone] his return to work. I was forced once again to remind him of the serious nature of the problem and the exposure and problems he caused! I repeated that the business decision at the time would have been simply to terminate him but I wanted to give him the chance to prove to me that he was able to get better and rehabilitate himself, not because he had [to], but because he wanted [to]!
Until now, he does not believe he has done anything seriously wrong and went into great length to repeat the story that he and the ‘boys’ would often stay after work and ‘have a few drinks’ when they were managing Bice Restaurant at the Hilton! This to him was ‘normal’ and common in this ‘industry’. He feels that maybe he ‘drank a little too much’ and it was affecting his behaviour and judgment, but not to the extent that he had lost control or deserved what happened. Interestingly enough, in spite of all the therapy and AA classes, Roberto does not feel sorry or apologetic or guilty or ashamed and does not believe the problem was so big and has been exaggerated somewhat!
Furthermore, on further questions when I asked him what he would do on his first day back, his response was that he would go easy and maybe have a meeting with the management to explain he is back and in charge again! He did not say that he would acknowledge his problem, request their assistance, apologize for letting them down, etc. To him it would be business as usual (please see his earlier e-mail below which he sent me last week on the same subject).
He was surprised when I told him that his action and behaviour resulted in a major breach of trust between us and that the damage was [severe]. I asked him how he intended to address that and he could not answer. He lied to me on a number of matters relating to his communication with the other partners claiming that they were asking when he was coming back to work and expressing fears that ‘they may be the next to go’. The same partners are the ones who requested a meeting with me and expressed fear of Roberto coming back and getting revenge on them! They also reported separately on their meeting with Roberto that he was very upset at their betrayal and ‘how could they sign the partners’ resolution agreeing with the suspension for Roberto’s conduct. He also said he was infuriated with them for not calling him for 27 days after his suspension, after all, they were close friends and he did not ‘commit any crime’ to be treated this way!!
When I asked him if he considered himself an ‘alcoholic’ he said ‘NO’! He does not need alcohol like alcoholics and evidenced how he has managed so well over the past 8 weeks and how he is getting better. He feels it was a matter of ‘alcohol abuse’, not being an Alcoholic. By the way, his eyes were swollen and he was shaking the entire time of the meeting and looked very restive and apprehensive.
Interesting, near the end of our discussion, he became somewhat aggressive in relation to you and your failure to properly analyse him and his problem. He feels that you did not take his case seriously enough and that you should have given him more attention, especially in the first week and that he was not so comfortable with your professional opinion or recommendation to me. Yet, when I challenges him on why did he feel this way, he had difficulty in justifying his point except to say, you were too busy! I informed him that the decision to see you was his decision and that he was free to see any doctor he wished but do not agree with his opinion nor his accusations. I feel he was trying to argue that the final decision to take him back or not should not rely on your judgment and indirectly was really attacking me.
I told him to send me an e-mail on the subject of his report from you and I would follow up. I also told him that the decision either to allow him to return or not was not your decision, but my decision. Your assessment and report would only be one of a number of factors I would consider in making a final decision to let him return or not. I repeated that the decision would also be based on his ability to regain or not regain my trust and what was best for the business. In the end, he must take full responsibility for his actions and he must be patient enough to allow the process to be completed. I told him frankly, if this was a simple business decision, he would have been terminated on the spot. I also made it clear that it would not be his opinion but my opinion that counts in respect to if and when we would consider to bring him back to work. I told him that I was not convinced that he was ready or that it would necessarily be in the best interest of the company at this point and time. I also informed him that, depending on the final review, all options were still on the table including his termination.
Clearly Roberto is anxious to get back to work and is now experiencing internal stress and anxiety staying at home and is trying to put pressure on me to accept this return. He is also putting pressure on the other two partners. In the meeting today, he tried hard to convince me that he was better and ready. The facts of the matter, he is neither ready, nor competent to return. He is delusional, and still going through denial. He still does not feel apologetic. Nor sorry for what he has done. Nor does he realise the seriousness for his breach of trust and negligence of duty. I also feel that he has significant pent up aggression and wants revenge against those responsible for squealing on him and showing everybody that he is in charge and the ultimate power behind ‘Roberto’s’. He definitely has worked hard on his physical health, but I see no improvement on his mental health and believe he would be high risk returning to work and would only undermine the business, but also my authority and leadership.
At this point and time, I am reviewing the options and await your final assessment and opinion before I make the final decision. In all cases, based on what I witnessed today, we cannot wait for much longer to make a decision one way or another.”
Mr Kadrie attached to that email the email which he had received from Mr Rella some two weeks earlier (on 7 March 2013), to which I have already referred.
68. Dr Shafey responded, on 22 March 2013, saying that he was concerned about Mr Rella’s comments “and the fact that there continue to have denials”. He sent Mr Kadrie a copy of his report dated 19 March 2013. On the same day, 22 March 2013, Mr Rella sent an email to Dr Shafey – with a copy to Mr Kadrie – to confirm that “As you know things improved quite well under the medical and physical view”; that “I keep attending since more than 7 weeks AA avg. 2/3 meeting a week”; and that “My alcohol consumption is radically decreased and under control.”
69. In the light of those contemporary documents I am satisfied that I should accept the evidence of Mr Kadrie (at paragraph 68 of his second witness statement and confirmed at the trial) as to the reasons why he concluded that Mr Rella’s employment should be terminated. Mr Kadrie said this:
“68. By the end of March 2013, I had considered all of the evidence that had been gathered in the investigation of the Defendant’s conduct and the medical reports from Dr Shafey and I came to the view that there would be too much risk of harm to the First Claimant’s business if the Defendant returned to work. . . .”
In reaching that view, I take account of the evidence that Mr Kadrie consulted Mr Turgul and Mr Mugavero. Mr Kadrie said this (at paragraph 69 of his second witness statement):
“69 On or shortly before 3 April 2013, I called a meeting with Mr Mugavero and Mr Turgul and explained to them that I thought the Defendant should not be permitted to return to the business. I discussed with Mr Mugavero and Mr Turgul the evidence that had been gathered in the investigation and my discussions with the Defendant where he failed to express any regret for his actions or any concern about the risk that his conduct had presented to the restaurant and its employees. We also discussed the risk that the Defendant would be focussed on carrying on a vendetta against those who he believed were responsible for informing me of his conduct which would disrupt the operations and expose the restaurant to further risks. Mr Mugavero and Mr Turgul agreed that it would not be good for the business if the Defendant was permitted to return and they supported the decision to terminate the Defendant.”
Mr Turgul and Mr Mugavero agreed with Mr Kadrie’s conclusion that Mr Rella should be dismissed. At paragraphs 35 and 36 of his witness statement made on 1 April 2014, Mr Turgul said this:
“35.On 3 April 2013, Mr Kadrie called me and Mr Mugavero to another meeting and explained that he had seen a lot more evidence that Mr Rella had been drinking alcohol in the restaurant with guests through the night and into the early hours after 3:00 am, keeping employees behind to serve him alcohol and that this had put the restaurant at risk. Mr Kadrie also said that Mr Rella was not following his doctor’s instructions and Mr Kadrie did not believe that Mr Rella had resolved his alcohol problems. Mr Mugavero and I discussed with Mr Kadrie our concerns that it would not be comfortable working with Mr Rella if he came back to the restaurant. I agreed with Mr Kadrie that Mr Rella would not be able to stop drinking alcohol.
36. I supported Mr Kadrie’s recommendation to terminate Mr Rella. If I had thought this was wrong, I would have resigned immediately and supported Mr Rella. I thought Mr Kadrie had given Mr Rella a very good deal by financing and setting up the restaurant and that Mr Rella had treated Mr Kadrie badly. The UAE Criminal Investigation Department could have made an undercover visit to the restaurant at any time and, if they had seen Mr Rella drinking alcohol in the restaurant or staying after 3:00 am with bar staff and guests, the restaurant could have received a big fine or could have lost its alcohol licence.”
Mr Mugavero’s evidence (at paragraph 29 of his witness statement made on 2 April 2014) was in much the same terms:
“29 In early April 2013, Mr Kadrie called me and Mr Turgul to a meeting and proposed to us that Mr Rella should be terminated. I told Mr Kadrie that I believed Mr Rella would seek revenge against us for suspending him if he was allowed to return to the restaurant. Mr Kadrie explained that he had now seen a lot of additional evidence that showed Mr Rella had been drinking alcohol with guests after the restaurant had closed, through the night until the morning and that he had kept employees behind to serve him alcohol. After these discussions, I supported Mr Kadrie on the decision to terminate Mr Rella. I felt very sad about this as I had worked closely with Mr Rella for many years and he was like a family member. I also did not want to see the restaurant close after all the hard work and effort that I had put into the business. I knew that I could never agree to him coming back to the restaurant as I have worked with him for many years and I knew that he could not change his behaviour.”
I accept the evidence of Mr Turgul and Mr Mugavero as to the reasons why they concurred in the decision to terminate Mr Rella’s employment.
70. I turn, therefore, to the question whether the grounds specified in the termination letter of 3 April 2013 were established by evidence. As I have said, earlier in this section of the judgment, the grounds relied upon fall under three main heads: (i) drinking in the company premises after the legal hours (ground 1); (ii) consumption of alcohol during and after working hours in breach of company policies (grounds 2, 3 and 4a, b and d) and (iii) being absent from work without permission and/or due to excessive use of alcohol (grounds 5 and 6).
Mr Kadrie had little or no direct knowledge of the facts on which those grounds were based. In his second witness statement, at paragraphs 50 and 51, he had said this:
“50.In January 2013, on a day when I was attending the restaurant, a DIFC security guard approached me and told me that he had seen the Defendant leaving the restaurant after 4:00 am and that he thought the Defendant had been drinking alcohol in the restaurant after hours. . . . Although I was concerned by what he had said, I did not believe him and thought it was a false rumour. A short time later, I asked the security staff at the restaurant about what I had been told by the DIFC security guard and they confirmed that the Defendant had been regularly staying at the restaurant through the night, drinking alcohol. I immediately went to speak with Mr Turgul to ask him about this and, to my surprise, he confirmed that it was true.
And he went on, at paragraphs 54, 60 and 61, to say this:
…
But, when cross-examined on this evidence (transcript, 20 May 2014, page 50, line 19 to page 54, line 9), Mr Kadrie appeared to accept that he had not, himself, seen Mr Rella drinking at the restaurant.
72. Mr Mostert, also, had little or no direct knowledge of the facts on which the grounds specified in the termination letter were based. At paragraph 20 of his second witness statement he described his review of the CCTV recordings of the bar area at the restaurant. He said this:
“20.I reviewed some of the First Claimant’s security camera recordings from the bar area and saw the Defendant being served with and drinking alcohol on the premises during working hours and late into the night and early morning, beyond 3:00 am and sometimes until 8:00 am, often with unidentified third parties who were also drinking alcohol and being served alcohol by bar staff who had stayed after hours. . . .”
He went on, at paragraphs 25 to 33, to say this:
“25. Following 26 January 2013, I carried on with the investigation into the Defendant’s conduct by:
(a) reviewing camera recordings of the First Claimant’s bar area between midnight and 8:00 am on a range of dates from 1 December 2012 to 28 January 2013 (see Tab 25 of Exhibit JM2);
(b) interviewing the employees who had served the Defendant drinks in the camera recordings (see paragraphs 28 - 33 inclusive below for further details); and
(c) reviewing a bar log book (that was kept at the initiative of the bar staff due to concerns that they had about being blamed for stocktaking shortfalls) in which the bar staff recorded alcohol that was served to the Defendant after 2:00 am, after the First Claimant’s electronic (Micros) system was shut down for the night.
(a) Jude Sudath Liyanarachchige Don, a bartender;
(b) Nuwan Amalkaweerasuriya Weerasuriya Arachchige, a bartender; and
(c) Saleh Setiawan, a mixologist and the assistant lounge manager.
(a) consumed alcohol on the premises before and well beyond 3:00 am;
(b) asked employees to stay behind after 3:00 am to serve him alcohol;
(c) invited third parties to stay on the premises and drink alcohol with him beyond 3:00 am; and
(d) had not processed drinks through the First Claimant’s electronic system (the ‘Micros’ system).
“7. I regularly saw the Defendant drinking alcohol in the restaurant. The Defendant would usually start drinking alcohol at approximately 1:30 am or 2:00 am and would ask me and other bartenders to stay behind our shift times to serve him and his guests alcohol sometimes up to 5:00 am, 6:00 am and 8:00 am. He was usually served, amongst other drinks, vodka tonic, Jack Daniels and Pepsi or Coke.
He went on, at paragraphs 13 and 14, to explain that he was concerned that because the alcohol being consumed after hours was not being recorded on the Micros system and could be considered effectively missing; a matter which would reflect adversely on him and the bartenders. He said this:
“14. …I therefore suggested to Mustafa Turgul, the First Claimant’s Operations Manager, that the bartenders who stayed behind to serve the Defendant and his guests could keep a “log book” to keep track of everything that left the bar after hours…This log book records the dates, times and types of alcohol the Defendant was served e.g. at 2.26 am and 3.51 am on 27 December 2012, the Defendant consumed Smirnoff vodka.”
and, at paragraphs 15 to 17, he said this:
“15. In early December 2012, I became aware from my immediate line manager, Luca Gagliardi, that following a fight between two employees, the First Claimant’s alcohol policy had changed so that employees were no longer permitted to drink any alcohol at the restaurant…
Mr Setiawan confirmed that evidence at the trial; and that evidence was not challenged in cross-examination (transcript, 20 May 2014, page 220, line 20 to page 233, line 19).
74. I accept the evidence of Mr Setiawan; and I accept Mr Mostert’s interpretation of the CCTV evidence and the logbook evidence. I am satisfied that, of the grounds relied upon in the termination letter , those which fall under heads (i) - drinking in the company premises after the legal hours (ground 1) – and (ii) consumption of alcohol during and after working hours in breach of company policies (grounds 2, 3 and 4a, b and d) have been established on the facts. Indeed, it became clear in the course of Mr Rella’s evidence at the trial – transcript, 19 May 2014, page 42, lines 4 to 6, page 44, lines 7 to 15, page 45, line 19 to page 46, line 6 and page 55, lines 1 to 20 - that he did not dispute that he had been drinking in the restaurant after the legal hours and in breach of company policies.
75. It follows that I am satisfied that Mr Rella was dismissed for Cause on 3 April 2013 by a notice properly given under Clause (8)(b) of the Management Employment Contract.
76. It is necessary, therefore to address the further questions: (i) whether Mr Rella was dismissed from his duties and/or position as Managing Partner for “serious cause” within the meaning of Clause 3.9 of the Shareholder’s Agreement and (ii) whether he was dismissed in circumstances “where a reasonable employer would have terminated the employment” within the meaning of Article 59A of the DIFC Employment Law (so as to deny him the notice period to which he would otherwise have been entitled under Article 59(2) of that Law and the end of service gratuity to which he would otherwise have been entitled under Clause (8)c of the Management Employment Contract and Article 62 of that Law). In my view the answer to each of those questions is “Yes”.
77. In reaching that conclusion I reject the submission, made on behalf of Mr Rella by his counsel in the course of his closing submissions, that “serious cause” should be given “a very narrow meaning” in the context of Clause 3.9 of the Shareholders’ Agreement. I accept, of course, that a cause for dismissal cannot be a “serious cause” for the purposes of Clause 3.9 of the Shareholders’ Agreement unless it is a “Cause” within the meaning of Clause (8)b of the Management Employment Contract; for the obvious reason that the parties to the Shareholders’ Agreement must have had in mind that “serious cause” meant, at the least, a cause for which the employee could lawfully be dismissed under his employment contract. And I accept that there may be circumstances in which conduct which justifies dismissal for Cause under the Management Employment Contract may not be conduct amounting to “serious cause” for dismissal within the meaning of Clause 3.9. But it seems to me that those circumstances will be rare; in most cases conduct which justifies dismissal for Cause under the Management Employment Contract can be expected to be conduct amounting to “serious cause” in the context of Clause 3.9. In particular, conduct by an employee occupying the position of Managing Partner which constitutes “material violation…of any material Company policy”, or “knowing and intentional failure to comply with applicable laws with respect to the execution of the Company’s business operations”, or “the use of alcohol which materially interferes with the performance of his duties”, can be expected to be constitute “serious cause” within Clause 3.9.
78. It is important to keep in mind the requirement, in Article 51 of the DIFC Contract Law, that – in construing the language of a written contract – “regard shall be had to all the circumstances”. The circumstances, in the present case, include the admission of employees (who made no financial contribution to the joint venture) as participants in that venture with the financial backer (who has made the whole of the substantial financial contribution without which the joint venture could not have been carried into effect). The joint venture was founded upon the premise that the financial backer could continue to rely on (or trust) the employees to make their contribution, as employees, to the success of the business. Clause 3.9 of the Shareholders’ Agreement provided, in effect, for the exclusion of an employee participant from further participation in the joint venture in circumstances where he had shown himself to be no longer trustworthy; in the sense that he had demonstrated that he could not be relied upon to make the contribution on the basis of which he had been admitted as a participant. In my view, “serious cause”, in the context of Clause 3.9, exists where the circumstances in which the employee participant has been dismissed demonstrate that he can no longer be relied upon to make the contribution on the basis of which he was admitted to participation in the joint venture.
79. As I have explained, Mr Rella was dismissed because – to adopt the summary in the termination letter – he failed to adhere to, and violated continually, company expectations and policies in relation to the consumption of alcohol at the restaurant which he had, himself, been party to establishing. That failure to adhere to – and that violation of – those company expectations and policies in those circumstances seem to me to demonstrate, in ample measure, that he could no longer be relied upon to make the contribution on the basis of which he was admitted to participation in the joint venture; and so constituted “serious cause” within the meaning of Clause 3.9 of the Shareholder’s Agreement.
80. Article 59A of the DIFC Employment Law poses the further question: “would a reasonable employer have terminated Mr Rella's contract of employment in the same circumstances”. It is submitted on behalf of the Company that the concept of the reasonable employer is plainly an objective one: it is not for a court to substitute its own opinion for that of the employer as to whether the dismissal is reasonable or not: rather the task is to determine whether the employer has acted in a manner which a reasonable employer might have acted, even if the court would have acted differently.
81. It is submitted that decisions in the Courts of England and Wales provide guidance on this point. In Vickers v Smith [1977] IRLR 11, the Employment Appeal Tribunal (Mr Justice Cumming-Bruce presiding) commented:
“. . . not only is it necessary to arrive at the conclusion that the decision of the management was wrong, but that it was necessary to go a stage further, if they thought that the management’s decision was wrong, and to ask themselves the question whether it was so wrong, that no sensible or reasonable management could have arrived at the decision at which the management arrived . . .”
This, it is submitted, is not to set the bar too high. In Iceland Frozen Foods v Jones [1982] IRLR 439the Tribunal observed:
“Since the present state of the law can only be found by going through a number of different authorities, it may be convenient if we should seek to summarise the present law. We consider that the authorities establish that in law the correct approach for the Industrial Tribunal to adopt in answering the question posed by [ERA 1996 s 98(4)] is as follows:
(1) the starting point should always be the words of [s 98(4)] themselves;
(2) in applying the section an Industrial Tribunal must consider the reasonableness of the employer's conduct, not simply whether they (the members of the Industrial Tribunal) consider the dismissal to be fair;
(3) in judging the reasonableness of the employer's conduct an Industrial Tribunal must not substitute its decision as to what the right course to adopt for that of the employer;
(4) in many (though not all) cases there is a band of reasonable responses to the employee's conduct within which one employer might reasonably take one view, another quite reasonably take another;
(5) the function of the Industrial Tribunal, as an industrial jury, is to determine whether in the particular circumstances of each case the decision to dismiss the employee fell within the band of reasonable responses which a reasonable employer might have adopted. If the dismissal falls within the band the dismissal is fair: if the dismissal falls outside the band it is unfair.”
82. It is said that the various iterations of “cause” for dismissal in this litigation are effectively the same concept. The test is similar to that for gross misconduct under English common law. The conduct in question was clearly brought to Mr Rella’s attention as being serious and even if not he must have known the catastrophic consequences to the business of the loss of the alcohol license. The breach by Mr Rella is particularly egregious given that he agreed to the management email of 6 December 2012, his senior position in implementing the same and his blatant breaches of the alcohol policy.
83. Counsel for Mr Rella submits that the Company, acting through Mr Kadrie, failed to act as a reasonable employer: that is to say, that the Company’s decision to dismiss Mr Rella fell outside the band of reasonable responses which a reasonable employer might have adopted. In particular, it is said that it was unreasonable to raise an expectation at the suspension meeting on 26 January 2013 that Mr Rella would be reinstated if he “rehabilitated” himself; and then, when Mr Rella had done all that could be asked of him towards that end, to fail to recognise and give effect to that expectation.
84. I accept that it was established by the evidence that one of the reasons why Mr Rella was suspended, rather than dismissed, on 26 January 2013 was to give him an opportunity to overcome what was seen by Mr Kadrie and the Company as a problem with alcohol abuse; and that he took steps to do so. I do not accept either (i) that that was the only reason why he was suspended rather than dismissed – the other reason was to enable the Company (through Mr Mostert) to complete its investigations – or (ii) that Mr Rella was given any assurance or promise that he would be reinstated if he did succeed in overcoming that problem. The evidence does not support the conclusion that any such assurance or promise was given at the suspension meeting. The most that can be said is that, if he had succeeded in “rehabilitating” himself by the time that the decision whether or not to terminate his employment came to be taken, that was a matter which would be taken into account.
85. In the long e-mail sent by Mr Kadrie to Dr Shafey on 21 March 2013 (set out earlier in this judgment), Mr Kadrie wrote that, at his meeting with Mr Rella on that day, he had repeated that the decision whether or not to reinstate him “would also be based on his ability to regain or not regain my trust and what was best for the business”. In my view there is no reason to think that that was not an accurate statement of the position as Mr Kadrie saw it at the time; and there is no basis upon which it could be said that that was not a reasonable position for an employer to take in the circumstances of this case. As I have already observed – in the context of considering the meaning to be given to “serious cause” in Clause 3.9 of the Shareholders’ Agreement – trust was the basis upon which the employee participants had been admitted to participation in the joint venture; the venture was not viable if the financial backer (Mr Kadrie) did not have trust in one of the key employees (Mr Rella). That trust had been lost by Mr Rella’s failure to adhere to the Company’s policies on alcohol consumption; and, before it could be sensible to reinstate Mr Rella, that trust had to be regained.
86. I am satisfied that the underlying reason why Mr Rella was not reinstated was that he did not regain Mr Kadrie’s trust: Mr Kadrie was not persuaded that he could rely on Mr Rella to adhere to the Company’s policies on alcohol consumption in the future. It is pertinent to have in mind Dr Shafey’s comment, in his e-mail to Mr Kadrie of 19 March 2013: “to say the least (alcohol abuse tends to be an addictive chronic recurrent condition if at any time the motivation of the individual declines)”; and his concern, expressed in his e-mail of 22 March 2013, “that there continue to have denials”. Mr Kadrie was faced with a decision whether to terminate Mr Rella’s employment for Cause – in circumstances in which, as I have held, Cause was established – or to reinstate him after suspension. The latter course involved the risk his trust would be abused by Mr Rella in the future. He decided that it was not in the interests of the joint venture that he should take that risk, I find it impossible to hold that that decision fell outside the band of reasonable responses which a reasonable employer might have adopted.
87. It follows that I hold that the circumstances in which Mr Rella was dismissed fell within Article 59A of the DIFC Employment Law. Accordingly, I hold that Mr Rella was not entitled to the notice period to which he would otherwise have been entitled under Article 59(2) of that Law; and was not entitled to the end of service gratuity to which he would otherwise have been entitled under Clause (8)c of the Management Employment Contract and Article 62 of that Law. Those claims to payment of employee termination benefits fail.
The share ownership issue
88. As I have explained, Clause 5C of the Company’s Articles of Association stated that the initial registered paid up capital was held as to 1,400 shares by Mr Kadrie; and as to the remaining 600 shares by Mr Rella. That is the position as shown on the register maintained by the DIFC Registrar of Companies as at 19 May 2014: as appears from View Form DIFCSTAT downloaded on that date.
89. Nevertheless, it is recorded, at Clause 3.2 of the Shareholders’ Agreement, that, at the date of that agreement “and contrary to the Articles”, the share capital was held as to 1998 shares (99%) by Mr Kadrie and as to 2 shares (2%) by Mr Rella. That might have had the effect of estopping Mr Rella from contending, as against Mr Kadrie, that (at the date of the Shareholders’ Agreement) he was the owner of more than two shares; but, in my view, it did not have the effect, as between Mr Rella and the Company, of altering the position as shown in the Articles of Association.
90. In any event, Clause 3.2 of the Shareholders’ Agreement must be read with Clause 3.5. In the document (as signed) that Clause states that “Shareholders of the Company are as follows”: that is to say, are as set out in the table which Clause 3.5 contains. That table shows that Mr Rella, Mr Turgul and Mr Mugavero are (together) the owners of 600 shares.
91. Clause 3.5 of the Shareholders’ Agreement must be read with Clause 3.6. Clause 3.6 in the document (as signed) provides that the parties agree that only Mr Kadrie and Mr Rella will actually be shareholders of the Company and will be registered as owners of Shares before the DIFC. It contains the following statement:
“The First Party [Mr Kadrie] shall hold 70% of the capital and the Second Party [Mr Rella] shall hold 30% of the Capital, 17% for his benefit, 6% on trust for Mustafa Turgul and 7% on trust for Andrea Mugavero.”
92. I have referred, in the preceding paragraphs, to the provisions of the Shareholders’ Agreement “in the document (as signed)”. In the earlier draft of 10 July 2011, the text of the second sentence of Clause 3.5 appears as:
“…After repayment of the Share Capital and the Loan within a period of five years, the Parties have agreed that the Parties become shareholders of the Company as follows:...”
and the text of Clause 3.6 commenced with the words:
“3.6 After repayment of the Share Capital and the Loan, the Parties agreed that...”
If the text of Clauses 3.5 and 3.6 had remained as in the earlier draft, it could have been argued with some force that the intention of the parties was that Mr Rella, Mr Turgul and Mr Mugavero were not to be treated as shareholders unless and until the Share Capital and the Loan had been repaid to Mr Kadrie. It is not clear from the documents before the Court why the text of Clauses 3.5 and 3.6 was altered between the earlier draft and the document as signed. But it is clear that the text of those Clauses was altered; and, in my view, effect must be given to the document as signed and not to the earlier draft.
93. In those circumstances, I hold that – as matters now stand (but subject to the share forfeiture issue) – Mr Rella is the legal (or registered) owner of 600 of the issued shares in the Company; but he holds only 340 of those shares beneficially. As to the remaining 260 shares of which he is the registered owner, he holds 120 of those shares in trust for Mr Turgul and 140 of those shares in trust for Mr Mugavero.
The share forfeiture issue
94. Clause 3.9 of the Shareholders’ Agreement is in these terms:
“3.9 Although the Share Capital, the Loan and the Advance are paid in full in case the Second, Third and/or Fourth Party leave the Company and/or the Restaurant and resigns from his position before the completion of five years from the date of operation of the Restaurant, or is dismissed from his duties and/or position for serious cause, the concerned Party is considered having forfeited its right in becoming a shareholder in the Company and shall render his shares immediately upon first notice.”
It is, I think, reasonably clear that the opening words - “Although the Share Capital, the Loan and the Advance are paid in full” – have been carried into the document as signed by a draftsman who did not appreciate that they could have no application given the alterations which had been made to the text of Clauses 3.5 and 3.6. In my view, it is impossible to give effect to those opening words in the context of the Shareholders’ Agreement which the parties signed.
95. There is a dispute on the pleadings as to whether Clause 3.9 in the form which I have just set out was contained in the document which Mr Rella signed. In my view there is no reason to doubt that it was.
96. There is a further issue on the pleadings as to whether, if the Clause in that form was contained in that document, it is binding on Mr Rella in the circumstances that, it is said, the Clause was not brought to his attention or he was given an indication that the document did not contain such a Clause. Again, as it seems to me, there is no substance in that contention. It is plain from the material before the Court that Mr Rella received legal advice in respect of the document which he signed; and there is nothing in the evidence to support the view that he was told (by Mr Kadrie or by anyone else) that the document which he signed did not contain a Clause in the terms of Clause 3.9.
97. By his re-amended defence, dated 26 February 2014, Mr Rella asserted that Clause 3.9 of the Shareholders’ Agreement was penal in nature and so unenforceable; and (in the alternative) that, when he signed the agreement which he did sign, he was unaware of the meaning and effect (if any) of Clause 3.9. It is said that, if he had been aware that Clause 3.9 of the agreement which he signed might have had the effect for which the Claimants contend, he would not have agreed to it. Further, it is said, that Mr Kadrie was aware of the provisions of Clause 3.9 and its intended effect; but failed to draw those provisions (or their intended effect) to Mr Rella’s attention. Again, in my view, there is no substance in that contention. As I have said, Mr Rella received legal advice in respect of the document which he signed – as set out in detail in the schedule headed “Chronology of Legal Advice Obtained by the Defendant” annexed to the Claimants’ written closing submissions – and Mr Kadrie was under no obligation to draw to the attention of Mr Rella or his advisers the terms (or any specific term or terms) of that document.
98 . The Claimants submit that Clause 3.9 is not a penalty Clause. Further, it is said that there is no reason to import the concept of “penalty” from the law of England and Wales. The Court was referred to Article 8 of the Law on the Application of Civil and Commercial Laws in the DIFC (DIFC Law No.3 of 2004), which is in these terms:
“8. Application
(1) Since by virtue of Article 3 of Federal Law No.8 of 2004, DIFC Law is able to apply in the DIFC notwithstanding any Federal Law on civil or commercial matters, the rights and liabilities between persons in any civil or commercial matter are to be determined according to the laws for the time being in force in the Jurisdiction chosen in accordance with paragraph (2).
(2) The relevant jurisdiction is to be the one first ascertained under the following paragraphs:
(a) so far as there is a regulatory content, the DIFC Law or any other law in force in the DIFC; failing which,
(b) the law of any Jurisdiction other than that of the DIFC expressly chosen by any DIFC Law; failing which,
(c) the laws of a Jurisdiction as agreed between all the relevant persons concerned in the matter; failing which,
(d) the laws of any Jurisdiction which appears to the Court or Arbitrator to be the one most closely related to the facts of and the persons concerned in the matter; failing which,
(e) the laws of England and Wales.”
It was pointed out by counsel for the Claimants that, by Clause 15.1 of the Shareholders’ Agreement, the parties chose DIFC law as the governing law; that none of the parties is English; and that no lawyer involved was English. Although the DIFC Contract Law may be said to be based on common law principles - and the common law jurisprudence of England and other common law countries may be of persuasive authority on the interpretation of statutory provisions in DIFC Law - it is not necessary or permissible to import concepts from the law of England and Wales in the absence of relevant statutory provisions of DIFC Law. Reliance was placed on the decision of the DIFC Courts in Forsyth Partners Group Holdings Limited.
99. If (contrary to their primary submission) the concept of “penalty” is to be imported from the common law, the Claimants submit that – on a proper understanding of that concept - Clause 3.9 of the Shareholders’ Agreement is not to be treated as a penalty under common law principles. It is said that the Clause has a legitimate commercial intention; it has not been included with the predominant intention of deterring a breach of the employment contracts. The purpose of the Clause, it is said, is to lock the key individuals into the business: it makes no commercial sense to allow an individual who has been dismissed for serious cause to remain a shareholder with voting rights and access to financial information concerning the Company.
100. In support of those submissions, the Claimants advance the following propositions:
(1) The classic definition of a penalty is set out in the judgment of Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79. There it was held that parties who use the words 'penalty' or 'liquidated damages' may prima facie be supposed to mean what they say but their use of particular words is not conclusive. Here the Clause is silent.
(2) It is for the court to ascertain whether the term is in truth a penalty or liquidated damages. The essence of a penalty is a payment of money arising for breach. Here the shares can be lost simply on lawful exit. The damage caused by any, or all, of the signatories to the agreement if they left would be substantial to this fledgling business. Mr Kadrie, who invested significant capital would be at risk of losing his investment and any future income (see Clauses 3.3 and 3.4 of the Shareholders’ Agreement).
(3) It is a matter of construction in each case as to whether a sum stipulated is a penalty or liquidated damages, to be decided on the terms and inherent circumstances of each particular contract; judged at the time of the making of the contract, not at the time of its breach. Each case will be fact dependent, but one test which has been applied is if the sum stipulated is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach, the Clause will be held to be a penalty. Dunlop Pneumatic Tyre Co Ltd (ibid) at pages 86, 87. In Clydebank Engineering and Shipbuilding Co Ltd v Don Jose Ramos Yzquierdo y Castaneda [1905] AC 6, 10, Lord Halsbury considered that the basis for interference by the courts in an agreement between the parties was whether the Clause was unconscionable and extravagant.
(4) Some modern examples assist. In Tullett Prebon Group Ltd v El-Hajjali [2008] IRLR 760, Mr Justice Nelson upheld a Clause requiring payment (by a very senior new recruit) of 50% of basic salary in the case of a 'no show'. Key factors in that case were (i) equality of bargaining and arm's length dealing, (ii) the fact that both sides had taken legal advice on the Clause and (iii) the fact that the potential value of the individual to the employer was so great that even 50% of basic salary was an under-estimate of actual loss. Mr Justice Nelson held (ibid, at paragraph [31]):
“The notion that the courts might be moving away from the position set out in Dunlop and adopting a broader discretionary approach was rejected in Jeancharm Ltd, Keene LJ at paragraph [21]. The Supreme Court of Canada in Elsey v J G Collins Insurance Agencies Ltd [1978] 83 DLR 15 had said:
‘It is now evident that the power to strike down a penalty Clause is a blatant interference with the freedom of contract and is designed for the sole purpose of providing relief against oppression for the party having to pay the stipulated sum. It has no place where there is no such oppression.’
Whilst the question of oppression cannot be regarded in English law as the sole test and the Dunlop approach is still extant (Philips at 58) it is nevertheless a relevant factor to take into account as Lord Woolf said in Philips at 59:
'Likewise, the fact that two parties who should be well capable of protecting their respective commercial interests agreed the allegedly penal provision suggests that the formula for calculating liquidated damages is unlikely to be oppressive.'
The fact that the parties state that the Clause is not a penalty Clause and the fact that they are of equal bargaining power are not decisive factors but they are certainly relevant to the consideration of the court. It has to be borne in mind that it is clearly established that the burden of proving that a Clause is a penalty Clause lies upon the person who seeks to escape liability under it, Robophone, 1447, where Diplock LJ also said that the court should not be astute to descry a penalty Clause in every provision of a contract which stipulates a sum to be payable by one party to another in the event of a breach by the former. As was noted by Arden LJ in Murrayboth the Dunlop case and the Philips case showed that a contractual provision does not become a penalty simply because the Clause in question results in over payment in particular circumstances. 'The parties are allowed a generous margin' (paragraph [43]).”
And at paragraph [74]:
“Where a bargain has been struck by two parties of equal bargaining power, with each party legally represented, a court should consider long and hard before permitting one of the parties to resile from that agreement. In such circumstances it is in my judgment only where a stipulated sum is extravagant or unconscionable in amount compared with the greatest loss or range of losses that could conceivably prove to follow breach that the Clause should be held to be a penalty.”
In Imam-Sadeque v Bluebay Asset Management [2013] IRLR 344, the Claimant was a highly paid manager who wished to leave the respondent’s employment. Normally this would have made him a 'bad leaver' under his contract; but he and the employer entered a compromise agreement under which he was deemed to be a good leaver (and so entitled to benefits amounting to £1.7m) on condition that he agreed not to solicit custom or other staff in the process of leaving. In fact, he did so and the respondent, on discovering this, refused to pay the amounts under the compromise agreement. Mr Justice Popplewell heard his claim for payment in which he argued that the compromise agreement should be enforced as it stood and, in the alternative, that in any event the conditionality of the agreement was void as a penalty Clause. The judge found that the Claimant had on the facts breached the conditions and then as a matter of law went on to uphold the conditional nature of the compromise agreement, to hold that those conditions were simply part of his agreement and not a penalty Clause at common law and finally to state that even if they had been a penalty Clause it would have been enforceable on ordinary principles as a reasonable estimate of loss to the employer. As a matter of policy, the judge stated clearly that any other result would have been an injustice to the employer and contrary to the commercial rationale of the compromise agreement. At paragraph [197], on the question of commercial justification, he held:
“Two aspects relevant to the question of commercial justification are worth emphasising. The first is that it will be easier to justify a provision for the payment of a single sum, or equivalent, upon breach where the loss which might foreseeably be caused by breach may be difficult to quantify or prove; or where it may not be recoverable in law because, for example, it is too remote; or where financial recompense cannot fully compensate for such loss. Because the test requires a focus, albeit not an exclusive focus, on the relationship between the contractual sum and the loss which may foreseeably be caused by the breach, a Clause may well be held to be a penalty if it provides for payment of a single amount upon the occurrence of any breach, where the breaches which can be contemplated at the time of the contract, and their consequences, may range from the serious to the trivial; and which may therefore involve payment of the same sum in circumstances where the innocent party has suffered loss which ranges from the serious to the trivial, or none at all.”
And at paragraph [199]:
“The second aspect of commercial justification which requires emphasis is that the court must take account of all the terms of the bargain, and of the circumstances of the contracting parties. What must be justifiable is the Clause itself, but it is not to be looked at in isolation from the other terms of the contract. It is to be judged as one of the bundle of obligations undertaken by both parties to the contract, which must be looked at as a whole. The relative sophistication and bargaining power of the parties are also relevant considerations. The fact that the parties are of equal bargaining power does not itself displace the doctrine (see Lansat Shipping Co Ltd v Glencore Grain BV (The Paragon) [2009] 2 Lloyd's Rep 688). But the court should be reluctant to hold that there is no commercial justification for a term which has been freely negotiated by sophisticated parties with equal bargaining power and access to legal advice.”
And at paragraph [201]:
“In such circumstances the parties are the best judges of whether it is in their commercial interests to agree to all the terms of the contract, including the term for payment upon breach. The party who subsequently wishes to be relieved of his bargain, by asking the court to treat one term as an unenforceable penalty, bears a heavy burden in seeking to establish that there is no commercial justification for such a term, when he has freely agreed to the term as part of the consideration for the benefits he secures under the contract. It must be rarely that such a Clause can be described as unconscionable or extravagant when judged against the background that, at the time of the contract, the obligation was freely undertaken in consideration of the benefits to be gained under the contract, by a party who regarded it as in his commercial interests to do so.”
101. It is pointed out on behalf of the Claimants that Clause 3.7 of the Shareholders’ Agreement provides that if the Share Capital and Loan are not repaid during the 5 year period, Mr Kadrie may decide either to allow Mr Rella and the others to become shareholders on a pro rata basis (that is proportionate to the extent to which the loan has been paid off) or to terminate the Shareholders’ Agreement.
102. The Claimants rely on what is said to be the most recent authority to revisit this area: El Makdessi v. Cavendish Square Holdings BV and another [2013] EWCA 1539. In that case Lord Justice Christopher Clarke reviewed the principles underlying this area at paragraphs [57]-[69]. He then went on to outline the `New Approach’ at paragraphs [85]-[104]: that approach is founded on the proposition that there is no simple dichotomy between a genuine pre-estimate and a penalty Clause. At paragraph [88] he referred to the proposition that where there is a good commercial justification for a Clause that may be a ground for deducing that deterrence of breach is not the purpose. A Clause designed to effect a swift decoupling would not be a penalty, although on the facts of that case this was not the purpose of the relevant Clause (see paragraph [122]).
103. In summary, it is said, the Shareholders’ Agreement was an agreement drawn up by parties with full access to individual legal advice. It is not a penalty as it does not arise on breach of that agreement and there is a legitimate commercial justification for it in that it ensures the safety of the venture and removes an individual in breach of his employment contract from participating in the future fruits and management of the business. In the alternative it is a reasonable valuation, or an undervaluation, of the damage that would be caused were the parties to resign or be terminated at an early stage. It is a Clause designed to effect a swift decoupling of an individual with no ongoing mutual interest in the business.
104. It is said on behalf of Mr Rella that Clause 3.9 is draconian on any view, in that:
(1) There is no time limit to the dismissal for “serious cause” element (compare the five year limit for resignation): Mr Rella could spend 10 years toiling in the business, seeing the value of his stake increase many times over and lose it all with one act of folly in a single evening’s service.
(2) There is no provision for any compensation whatsoever: not even the nominal value of his shares as is usual in the conventional “bad leaver” Clause.
(3) There is no right of appeal or redress: the forfeiture of his rights in the Company is in the hands of Mr Kadrie (the majority shareholder) alone.
(4) There is no real commercial advantage conferred on the business. A shareholder (as opposed to an employee) who has been dismissed and removed from the business does not pose any risk to the goodwill of the business. There seems to be some confusion (which persists in the Claimants’ evidence) between the need to keep employees in line and obviously the need to protect the business/goodwill, and a perceived need to take employees’ assets away and vest them in Mr Kadrie, which at first sight do not seem to be causally related to one another (one might say: a drunken employee can do far more harm than a drunken minority shareholder).
(5) In determining whether to remove Mr Rella as manager, Mr Kadrie would be faced with an obvious conflict of interests.
105. In my view the Claimants are correct in their contention – for the reasons which they advance – that Clause 3.9 would not be regarded, under common law principles, as a “penalty”; and so unenforceable. I am satisfied that the Clause was included for sensible commercial reasons; and not for the purpose of deterring a breach of the employment contracts. Put shortly, the parties must be taken to have agreed that there was no place in the joint venture for employee participants who left the employment of the Company in circumstances which fell within Clause 3.9 – whether by resignation or by dismissal for serious cause. I am not persuaded that the factors advanced on behalf of Mr Rella lead to a contrary conclusion. Having reached that conclusion, it is unnecessary for me to decide whether the common law concept of “penalty” has been imported into DIFC law. My provisional view is that the concept does not form part of DIFC law.
106. It is said on behalf of Mr Rella that the word “render” in Clause 3.9 means no more that to “Give in return; give back, hand over, deliver give up, surrender” according to the Concise Oxford English Dictionary (6th Edition). Mr Rella submits that this means return to the Company, not return to Mr Kadrie. But that, in my view, ignores the structure of the Shareholders’ Agreement: in particular, it ignores the effect of Clauses 3.2 and 3.3, read with Clause 3.5. It was agreed between the parties (and was the fact) that Mr Kadrie had “contributed the whole of the capital of the Company”. In those circumstances, as it seems to me, the proper interpretation of “render” in Clause 3.9 is that the shares (or interest) of the outgoing employee participant should be returned to Mr Kadrie.
107. Accordingly, I hold that Mr Rella is obliged, under the provisions of Clause 3.9, to transfer to Mr Kadrie 340 of the shares in the Company now registered in his name. Unless and until the parties agree otherwise -or steps are taken by Mr Turgul and Mr Mugavero to require him to transfer the shares of which he is trustee - he will remain the registered holder of the 260 shares which he holds upon trust for Mr Turgul and Mr Mugavero.
The repayments issues
108. The repayment claims raise the following questions: (i) whether Mr Rella is bound to repay any part of the US$100,000 advance – or “entry fee” - made pursuant to the July 2010 agreement, (ii) whether Mr Rella is bound to repay any part of his medical expenses (as an advance or possibly by way of unjust enrichment); and (iii) whether Mr Rella is bound to repay certain other sums (for example, housing rent).
109. As to (i) it is submitted on behalf on behalf of the Company that the wording of Clause 3.8 of the Shareholder’s Agreement is clear. The sum was an advance to be reimbursed over a 5 year period. This period was one negotiated by Mr Rella. I accept that submission.
110. As to (ii), it is accepted on behalf of Mr Rella that Mr Kadrie paid US$27,000 in respect of the surgeon’s fee, but denied that Mr Rella was under any obligation to reimburse Mr Kadrie in respect of that payment; and it is accepted that the Company paid the other medical expenses claimed, but denied that Mr Rella was under any obligation to reimburse the Company in respect of those payments. It is submitted on behalf of Mr Rella that the funding of the medical expenses was without recourse and is not repayable. It is said that this is understandable in the circumstances that the Company had undertaken in the Management Employment Contract that it would ensure that Mr Rella was held harmless from medical expenses. I accept those submissions. There is no evidence to support a finding that those payments were made on the basis of an express undertaking by Mr Rella that he would repay them; and no evidence that the payments were made at the request of Mr Rella in circumstances in which an obligation to repay is to be implied.
111. The Claimants seek to advance a case based on unjust enrichment in their pleaded Reply. It is said on behalf of Mr Rella that the Claimants cannot satisfy Article 48 of the DIFC Law of Damages and Remedies 2005: in particular, it is said that where medical expenses are paid it is difficult to see how there has been “enrichment” within the meaning of that Article; or that any such enrichment has been “unjust” in circumstances where the beneficiary had a legitimate expectation that these expenses would be covered by medical insurance. I accept those submissions.
112. As to (iii) the Company seeks repayment of the housing allowance – in so far as it is attributable to a period after the termination of Mr Rella’s employment - and the other sums set out in Mr Mostert’s schedule. The housing claim is based on the fact that the Company paid the rent a year in advance and it is said to be repayable in the event that there is termination for cause. I accept that submission, It is said that Mr Rella will settle the outstanding bill for a dinner “on receipt of the invoice”. The balance said to be due in respect of the Company issued credit card is not admitted; but no basis of challenge has been advanced on behalf of Mr Rella. In my view, those amounts have been properly included in Mr Mostert’s schedule.
The employee benefits issues
113. Mr Rella claims the following pecuniary relief: (i) a management fee equivalent to 0.5% of the Company’s turnover for the relevant period; (ii) notice pay equivalent to 90 days’ salary; (iii) unpaid holiday; (iv) unpaid wages; (v) damages for wrongful dismissal. I have held, earlier in this judgment, that the claims to notice pay and gratuity fail. As to management fee, untaken holiday and outstanding wages the Claimants assert that any monies due have been taken into account in Mr Mostert’s schedule. There are amounts in the schedule which relate to these items; and no evidence has been adduced to support a challenge to those amounts.
The additional damages issue
114. Mr Rella advances a claim for additional damages under Article 40(2) of the DIFC Law of Damages and Remedies. The Article empowers the court to apply a multiplier not exceeding three to any award of damages if satisfied that the paying party’s conduct giving rise to the award has been: “deliberate and particularly egregious or offensive”. In the light of the findings which I have made – and, in particular, in the absence of any award of damages in respect of wrongful dismissal - there is no basis for a claim under Article 40(2) of the Law of Damages and Remedies.
The unfair prejudice issues
115. In response to the claims in the proceedings, Mr Rella has brought a counterclaim. In the counterclaim – which, in its amended version, is dated 13 October 2013 - Mr Rella seeks relief pursuant to Article 134(1) of DIFC Law No. 2 of 2009 (the DIFC Company Law 2009). The Article provides that:
“134 (1) Where a company’s affairs are being or have been conducted in a manner whereby the conduct is unfairly prejudicial to the interests of its shareholders or members generally, or of one or more shareholders or members, or an actual or proposed act or omission of the company, including an act or omission on its behalf, would be so prejudicial, the Court may, on the application of one or more members, make one or more of the following orders:
(a) an order regulating the conduct of the company’s affairs in the future;
(b) an order requiring a person to do or refrain from doing any act or thing;
(c) an order authorising proceedings to be brought in the name of, and on behalf of the company by such person or persons, and on such terms as the Court may direct;
(d) an order providing for the purchase of the rights of any members of the company by other members of the company or by the company itself, and in the case of purchase by the company itself the reduction of the company’s capital amounts accordingly, or (e) any other order as the Court sees fit.”
An order under subparagraph (d) is commonly known as a “buy-out” order: if the order is for the purchase by the company of the member’s shares it is called “a company buy-out order”.
116. It is said on behalf of Mr Rella that, in relation to unfair prejudice, there are four issues: (i) whether the Company was operated as a “quasi-partnership”; (ii) whether Clause 3.9 (the forfeiture Clause) was a penalty; (iii) whether Mr Rella was dismissed for “serious cause”; (iv) whether Mr Kadrie’s reliance on the forfeiture Clause is “unfair”.
117. It is submitted on behalf of Mr Rella that the joint venture carried on by the Company was plainly a quasi-partnership. I do not understand that to be in dispute; but, if it were necessary to determine the issue, I would accept that submission. But, on the findings which I have made in the course of this judgment, Mr Rella has not established that he is entitled to succeed on the other three issues. I am not persuaded that this is a case in which it would be appropriate to make a company buy-out order. Whether some other form of relief is appropriate, given that, as I have held in earlier proceedings, Mr Rella remains a director of the Company, is a matter upon which I invite further submissions: following the approach adopted by Mr Justice Warren in Cobden v RWM Langport [2008] EWHC 2810 (Ch) at paragraph [810. I said this:
“The proceedings did not seek, and do not seek, a declaration that Mr Rella ceased to be a director of the company. He became a director of the company because the shareholders’ agreement nominated him as one of the first two Managers of the company. The Articles of association of the company provided that those who were its "Managers" should constitute its board of directors. The office of director was to be vacated pursuant to Article 17 of the Articles; which included removal by resolution of the members. But, in the circumstances that it has not been alleged that there was a meeting of the members called to pass a resolution removing Mr Rella from directorship, it is difficult to see how that provision could be relied upon. The only document that has been advanced in support of the proposition that Mr Rella has been removed from his office as a director, or Manager, is what purports to be a signed written resolution of three members in January purporting to suspend Mr Rella as a manager. That document is described, in its heading, as a board resolution of the company adopted on 26 January 2013, that is some months before the letter of dismissal; but the text is inconsistent with that description, in that it purports to record the discussion of a meeting of the shareholders (other than Mr Rella).
On the basis of the material before the Court - and in the absence of any claim in the proceedings that Mr Rella has ceased to be a director - it seems to me that, for the purposes of the application now before me, Mr Rella must be treated as continuing in office as director until steps are taken in accordance with the Articles to remove him.”
Given the findings that I have made in this judgment, Mr Rella remains a shareholder (as trustee) and a director of the Company.
The trade mark issue
118. It is submitted on behalf of Mr Rella that the ownership of the name “Roberto’s” and the associated IP rights are to be owned by him or in the alternative by the Company.. It is said that:
(1) The parties contracted assuming that the name “Roberto’s” had accumulated goodwill and that it was Mr Rella’s to license; this is clear from the terms of the May 2010 Agreement, where there is specific reference to Mr Rella and his team bringing “goodwill (clients)” and Mr Rella agreeing to “give his name” to be used “during his permanence in the NEWCO”.
(2) The trademark is one aspect of the intellectual property associated with the name that the parties were seeking to regulate by.
(3) Alternatively Mr Kadrie’s attempt to take the benefit of the goodwill which Mr Rella brought to the venture by registering the trademark in his own name was a breach of his duty as a director (see Article 53 of the DIFC Companies Law 2009) for which he is accountable to the company.
119. Mr Kadrie maintains that he is the owner of the name and all Intellectual Property rights associated with the name by virtue of the terms of the Shareholders’ Agreement. The Claimants submit that:
(1) Mr Kadrie is the registered proprietor of the trademark.
(2) A trademark was developed and designed by a third party company and paid for by Mr Kadrie and overseen by his son. It was well known to Mr Rella at all relevant times that Mr Kadrie wished to retain ownership of this as he had plans for other developments of the brand beyond the DIFC. This was made clear in the earlier versions of the Shareholders’ Agreement and in the final version. Mr Kadrie made no secret of the fact that the trademark had been submitted to the UAE Ministry of Economy Trademarks Department on 5 September 2011.
(3) Mr Rella had legal advice in relation to the Shareholders’ Agreement and in fact was pressing for it to be finalised. The records of Mr Rella’s legal advice include a request from Mr Rella to his lawyer about the ownership of the name and for advice as to what would happen if a partner was terminated or decided to leave. It can be inferred that he was satisfied with the legal advice that he received in answer; and, further, that this point was discussed between Mr Rella and Mr Kadrie in the negotiations of the Shareholders’ Agreement before Mr Rella entered into the agreement. Mr Rella sought various amendments in his negotiations with Mr Kadrie, following the legal advice that he received, which were included in the final version of the Shareholders’ Agreement. These amendments included a more generous repayment period for the advance.
120. It is pointed out on behalf of the Claimants that:
(1) The first draft of the Shareholders’ Agreement, sent to Mr Rella on 8 August 2011 and forwarded by Mr Rella to his lawyer on the same day includes the text of Clause 2.2. in a form that remained unchanged from the first draft to the final version that was signed on 21 November 2011:
“The Name [Roberto’s LLC] is fully owned by the [Second Claimant] and/or its Affiliates and in case this Agreement is terminated and/or the Company liquidated, the Name and all intellectual property rights deriving out of the name such as trade marks, logos and trade names shall stay the full ownership of the [Second Claimant]. The [Second Claimant] reserves the right to operate other restaurants under the same Name, with no territorial restrictions”.
(2) In Mr Rella’s email to his lawyer dated 3 September 2011, the following item is identified as a point to be discussed with Mr Kadrie at a first meeting to negotiate the draft terms of the Shareholders’ Agreement: “Ownership of the name”. In Mr Rella’s email to his lawyer dated 19 November 2011 he stated: “He [Mr Kadrie] insists 100% on keeping the name […]”. This is advice sought from his Italian lawyer. Therefore it was raised as an issue and Mr Rella was aware of the issue.
(3) The Trademark Registration Certificate confirms that Mr Kadrie applied to register an image as a trademark on 5 September 2011, and that this was registered on 10 September 2012. The trademark name is “RS Roberto’s” but it is the image (i.e. the logo) that has been registered as the trademark and not the name.
(4) Mr Rella filed a complaint “in relation to the RS ROBERTOS trademark” with the UAE Ministry of Economy.. The Ministry of Economy issued its decision on 7 January 2014 :
“After reviewing the application for deleting such trade mark and studying the file of the same, the following has been resolved: - To reject the deletion of the trade mark (RS Robertos) as it has been duly registered pursuant to Federal Law No. (37) of 1992 regarding trade marks. / Otherwise you can approach the competent court pursuant to Article (21) of the above mentioned law”.
121. It is further submitted on behalf of the Claimants that it cannot be contended that the 2010 agreements are of any significance. It is said that the letters are properly described as comfort letters or understandings and not just by the Claimants. In the words of Mr Rella’s own lawyer, they were “Memorandum of Understanding”. Further the Shareholders’ Agreement of 21 November 2011 contains an entire agreement Clause (Clause 17.2) which expressly states that it supersedes all other prior agreements.
122. In my view the Claimants are right to submit that Mr Rella is bound by the terms of Clause 2.2 of the Shareholders’ Agreement. I am not persuaded that it would be appropriate to make any order for the transfer of the trademark, either to Mr Rella or to the Company.
Conclusions
123. For the reasons which I have set out I hold:
(1) That Mr Rella’s contract of employment was terminated on 3 April 2013 for “Cause” within the meaning of Clause (8)b of the Management Employment Contract; and, further, (i) that he was dismissed from his duties and/or position as Managing Partner for “serious cause” within the meaning of Clause 3.9 of the Shareholder’s Agreement and (ii) that he was dismissed in circumstances “where a reasonable employer would have terminated the employment” within the meaning of Article 59A of the DIFC Employment Law.
(2) That Mr Rella is now the legal owner of 600 shares in the Company; and that he holds 260 of those shares as trustee for Mr Turgul (as to 120 shares) and Mr Mugavero (as to 140 of those shares).
(3) That Mr Rella should be ordered to transfer to Mr Kadrie 340 of the shares of which he is now the legal owner.
(4) That Mr Rella should be ordered to repay the various monetary amounts claimed by the Company and/or Mr Kadrie in these proceedings, other than the medical expenses.
(5) That the Company is under no obligation to pay to Mr Rella “notice pay” and end of service gratuity; and that its liability for holiday pay, outstanding wages, and outstanding management fees has already been taken into account in Mr Mostert’s schedule.
(6) That it would not be appropriate to make a company buy-out order under section 134 of the DIFC Companies Law in this case.
(7) That it would not be appropriate to make any order in relation to the trade mark.
Issued by:
Natasha Bakirci
Assistant Registrar
Date of Issue: 29 October 2014
At: 4pm
