Dagny v Dag & Company International Limited [2011] DIFC CFI 007

April 15, 2013 Court of First Instance -Judgments,Judgments

Claim No: XXXX

THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

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

IN THE COURT OF FIRST INSTANCE

BEFORE H.E. JUSTICE ALI AL MADHANI

Between

DAGNY

Claimant

and

DAG & COMPANY INTERNATIONAL LIMITED

Defendant

Hearing: 30 & 31 November 2012

Counsel: XXXX for the Claimant

XXXX for the Defendant

Judgment: 15 April 2013

JUDGMENT OF H.E. JUSTICE ALI AL MADHANI

Parties:

1.The Claimant is Dag, a British National and former employee of the Defendant, currently residing in Kuwait.

2. The Defendant is Dagny & Company International Limited, an independent investment bank specialising in the energy industry, and is a DIFC recognised company.

Background

3. This case was brought by the Claimant on 24 March 2011. According to the Claim Form and the last amended Particulars of Claim, the Claimant’s claim can be summarised as follows:

(a) The Claimant was approached by the Defendant and then employed by offer letter dated 4 July 2007 which is considered to be the Employment contract. The Claimant claims that he commenced work with the Defendant on 17 August 2007, as he was employed in the capacity of Vice President before being promoted to the position of Director and Senior Executive Director Officer at a later stage.

(b) During the pre-contract period the Claimant was told by the Defendant’s representatives that the Defendant’s establishment and operation was at an advanced stage.

(c) The Claimant stated that when he commenced work on 17 August 2007 he realised that he had to work from scratch as not much work had been done prior to his commencement.

(d) According to the Employment Contract the Claimant was entitled to US$200,000 per annum, a signing bonus, an annual bonus, a minimum guaranteed bonus, two return business class flights, end of service gratuity, together with other employment rights.

(e) The Claimant claims payment for the period 17 August 2007 to 10 September 2010, as he alleges that he was not put on the payroll according to his actual joining date, and claims payment of his bonus and gratuity for that period also.

(f) The Claimant is further claims the guaranteed minimum bonus of 85% of his annual salary for the year ending June 2010.

(g) The Claimant also requests that he be reimbursed for untaken flights from the year 2009 as the Defendant has failed to pay him in lieu.

(h) Compensation in lieu of Club membership is another contractual right that the Claimant seeks in addition to expenses reasonably incurred by him in the furtherance of his duties.

(i) The Claimant requests that the Defendant return some items of property to him.

(j) The overall value of the claim is US$268,095.77, return of items of property, interest and costs.

4. The Defendant submitted a defence and counterclaim in response to the Claimant’s claim and it can be summarised as follows:

(a) The Defendant denies that the Claimant commenced work on 17 August 2007 and insists that the actual commencement date was 10 September 2007, consequently the Claimant is not entitled to the claimed rights that are linked with the joining date argument.

(b) In regards to the Claimant’s bonus, the Defendant argues that the Claimant was not entitled to the minimum bonus as he should have continued working for the Defendant after June 2009 – which he did not do. Accordingly, the Claimant was not eligible for the bonus.

(c) The Defendant further argues that there was no breach of an implied term of trust and confidence as the Defendant terminated the Claimant’s contract with notice and with clear rational reasons to have given the said notice.

(d) With regard to the untaken flights, the Defendant contended that this benefit operated on a “take it or lose it” basis which the Claimant was aware of.

(e) With regard to reimbursement of expenses related to duty, the Defendant’s position is that either they have been paid or that there is no evidence in support of the newly claimed expenses.

(f) The Defendant denies it is in possession or control of any of the Claimant’s items of property.

(g) The Defendant in its counterclaim demanded that the Claimant repay it US$67,308, as he had been over paid for his minimum bonus in 2008.

5. The law of the Agreement is Scots Law. Although the legal treatment of the issues under Scots and English law are not materially different, the Defendant, in accordance with the Court’s directions, has provided a legal opinion from Scottish Queen’s Counsel to assist in how the issues should be disposed of under Scots Law.

Reasoning

6. In order to reach a conclusion, the Court shall deal with the issues of the case one by one and shall make a determination on each issue in detail in the following order:

The actual commencement date:

7. The first issue between the parties is the date of commencement of the Claimant’s employment with the Defendant.

8. The Claimant argues that he orally agreed with the Defendant’s Chief Financial Officer, that he would start immediately on 17 August 2007, which was the earliest opportunity. On 16 August 2007 he arrived in Dubai and found out that the Dubai office had not yet been established and did not have a DFSA license. The Defendant confirmed in writing that it had employed the Claimant on 17 August 2007 (TB 3.112) referring to a “Confirmation Letter”. The Claimant had started his work, including starting the process of finding premises, meeting Representative 1, investor lists, potential targets and business plans from 19 August 2007 to start the licencing process. All of that just before going on secondment to the Defendant’s office in Aberdeen in September.

9. He was not put on the payroll until 10 September 2007 despite his oral agreement with the Defendant’s CFO to back date payment. As a result of that, the Claimant denied payment for that period, gratuity, and the bonus which he is claiming now.

10. In support of his position the Claimant relies on the following evidence:

(a) His first witness statement, in which he asserted that he had started to work for the Defendant on 17 August 2007 and described the work he had done such as the evaluation of potential client target lists, the assessment of major trends in the Oil and Gas sectors, the assessment of setting up an office in Dubai, arranging for regulatory approval, drafting an initial contract for the client, finding office space in Dubai and liaising with the Defendant’s officers when conducting business from his hotel at the beginning and from his house after moving in to it. Internet and telephone calls were the means of communication he used to work with from 8am to 6pm and sometimes even later than that.

11. During the trial the Claimant referred to an email sent to the Defendant on 19 August 2007, including amongst other things a reference to a second day meeting.

12. The Claimant’s wife confirmed that her husband had been working from the first day he arrived in Dubai and that he had told her that he had attended a meeting with the Defendant’s officers in Dubai. She added that the Defendant had paid for the high speed internet connection in their house to allow the Claimant to undertake work from home as no office had been found yet.

13. The Claimant submitted a document (confirmation) in writing that was intended for official purposes (“To whom it may concern”) that the Claimant’s employment had started on 17 August 2007 (TB 3.112-113).

14. The Claimant refers to the offer letter of 4 July 2007 sent to him by the Defendant requiring him to commence his work at the earliest opportunity on a date to be agreed between them (TB 3.80-86). He also refers to the (proposed) employment contract which anticipated a start date in August/September 2007 and states that the earliest opportunity turned out to be 17 August 2007, insisting that he had agreed with Representative 2 of the Defendant to consider 17 August 2007 to be his joining date.

15. The Claimant takes the position that Representative 3 in his Reply Statement (TB 2.92) has confirmed that the Claimant paid for a business mobile telephone and credit that was bought on 19 August 2007, and reimbursed by the Defendant, which must indicate that he was employed at that time.

16. Furthermore, the Claimant argues that the Defendant’s case is that Representative 3, who has no direct knowledge of this issue, says in his evidence that the start date was September as he has seen ‘no evidence’ that the Claimant worked prior to 1 September 2007, which should not be admissible evidence .

17. Finally, the Claimant argues that when he received a new contract (proposal), he complained on 30 September 2008 about the wrong start date, although he erroneously referred to his start date as 10 August 2007 rather than 17 August 2007(TB 3.159).

18. The Defendant’s position regarding the commencement date is that, after arriving in Dubai on 16 August 2007 the Claimant settled into his new location until he commenced employment on 10 September 2007.

19. The Claimant provided no written communication supporting his allegation that he commenced employment on 17 August 2007 or any written evidence that he purportedly carried out any work before 10 September 2007. More compelling is the written evidence of Representative 4 recording the commencement date as 10 September 2007, which was only contested by the Claimant for the first time one year later.

20. The letter of 17 August 2007 (confirmation letter) was provided by the Defendant at the request of the Claimant to enable the Claimant to handle personal issues with the Dubai authorities. It is not suggested that either the Claimant or the Defendant intended to defraud the Dubai authorities, but the Claimant is perfectly aware that the letter did not confirm the actual commencement date of his employment.

21. In support of its defence, the Defendant relied upon three witnesses;

22. The first witness who affirmed that he had joined the Defendant about one year after the Claimant’s joining date, and that he had noticed extensive discussions between Dagny and the Claimant in regards to the employment agreement, but said that he was not part of those discussions. He added that when the Defendant through its HR Manager had asked the Claimant to sign the contract on 18 September 2008, the Claimant had begun to raise the issue regarding his start date.

23. The second witness who said that Representative 5 Gould was the direct supervisor of the Claimant and that Representative 6 reports to him. Representative 5 said he had not authorized Representative 5 to agree that the commencement date could be upon his arrival to Dubai. He has seen no single evidence that the Claimant had done any work for the Defendant before 10 September. He added that the Claimant had called him to discuss the issue of his joining date on 17 September 2007 and that he had agreed that the joining date should be 10 September.

24. The third witness for the Defendant was xxx who said in this regard that he had not been involved in the appointment of the Claimant, but his understanding was that the Defendant had engaged the Claimant in leading the establishment and thereafter the day to day management of the Dubai office.

25. The issue of the actual joining date was simply a matter of evidence, it was a matter generated by the circumstances in which there was no formal written employment contract with a fixed joining date. The only available written contractual reference is the offer letter sent by Dagny & Company, the Defendant to the Claimant on 4 July 2007.

26. The Court’s finding in this case in regards of the actual joining date is that the Defendant company, Dagny, which is a financial firm offered a senior employee of another company, namely, the Claimant to leave his current position in Kuwait in order to join them, which he took just over one month to do. The just over one month gap (notice period) between the offer of 4 July 2007 and the date the Claimant is asking the Courts to consider to be his joining date, 17 August 2007 is a natural and reasonable duration of time which would be expected from two parties at this level of negotiations.

27. That has been supported by:

(a) The time gap between the offer letter date and the date the Claimant is asking to be considered as his joining date, 17 August 2007 where the Claimant emailed the Defendant informing them that the last working date for him with his previous employer was 16 August through an email dated 29 July 2007.

(b) The reference in the offer letter to 4 July 2007 in the second paragraph where it was expressly stated that the Defendant wanted the Claimant to join at “the earliest opportunity, on a date to be agreed between us”.

(c) It is also supported by the email sent by the Claimant to the Defendant on 13 July 2007 informing them that he was ready to work in Dubai and asking when he would be put on the payroll. The Defendant’s argument that this email is evidence to the contrary as the Claimant said (in addition to work and pay roll enquiries) that he “would like to be in Dubai until approximately 10 of September to assist my wife and children settle into school/Dubai” is not a valid argument, as the Court takes the view that the confirmation of readiness to work in Dubai and then the enquiry regarding payroll meant that there was no real agreement yet as to the start date.

(d) This is further supported by the lack of any written records from a company expected to keep such issues in written record, and even against the unexpected and unreasonable situation in which the Claimant would accept to be unpaid in the period between 16 August to 10 September, and with extreme care to keep a “reservation” record against the employment confirmation letter given to the Claimant on 20 August 2007 instead of arguing that it was issued to help the Claimant to settle his family. That has led the Claimant to seek clarification in this mater throughout his career which stands as evidence that there is no other joining date rather than the expected and natural date claimed by the Claimant.

(e) The first of the Defendant’s witnesses added nothing to the joining date issue, as he affirmed that he had joined the Defendant about one year after the Claimant’s joining date, and had noticed extensive discussions between the Defendant company, Dagny and the Claimant as regards the employment agreement but said he was not part of that discussion. However, the witness confirmed that when the Defendant through its HR Manager asked the Claimant to sign the contract on 18 September 2008, the Claimant began to raise the issue of his start date, which stands as evidence that the joining date was not agreed upon against the natural reasonable joining date.

(f) The third of the Defendant’s witnesses said in this regard that he had not been involved in the appointment of the Claimant, but that his understanding was that the Defendant had engaged the Claimant to lead the establishment of and thereafter take care of the day to day management of the Dubai office. This even qualified to stand as evidence that the Claimant had come to Dubai to do initial work, and not in contradiction with the Claimant’s and his wife’s statements.

(g) The second witness of the Defendant is the only person involved in the employment of the Claimant, Colin Welsh, who said that XXXX was the direct supervisor of the Claimant and that XXXX reports to him. Representative 5 said that he had not authorised XXXX to agree that the commencement date could be upon the Claimant’s arrival in Dubai. He had seen no single evidence that the Claimant did any work for the Defendant before 10 September 2007. He added that the Claimant had called him to discuss the issue of his joining date on 17 September 2007, and that he had agreed that the joining date should be 10 September 2007. The Court does not have much to add to what was said by this witness apart from that he cannot have agreed unilaterally to fix the joining date, it should have been agreed by both parties whether in writing or in another form but not in the way that he asserts that it was agreed in his second statement at paragraph 30.

28. Thus the Court takes the view that the Defendant has failed to prove that there was any sort of agreement on the joining date against the natural and reasonable start date in the given circumstances, which is 17 August 2007 in this case. They have failed to prove before this Court why the Claimant is not entitled to be paid from the day on which he made himself available to work after entering into an employment agreement with them. Regardless of how much work there was to be done in the firm, the Defendant has not proved that the Claimant in fact refused to do any work allocated to him.

29. Therefore the Claimant is entitled to be paid for the period 17 August to 9 September 2007 (and not up to 10 September, the date on which he was put on the payroll) for his salary and other employment rights linked with that period - to be pro-rated as follows:

(a) Salary for the period 17 August to 9 September - US$14,666.64.

(b) Bonus for the period 17 August to 9 September - US$25,666.66

The Issue of the Minimum Bonus

30. The second employment right this Court is required to make a determination on is the Claimant’s demand for a minimum bonus of 85% of his annual salary for the fiscal year ending 30 June 2010 - in the sum of US$187,000.

31. According to the Claimant, Clause 3 of his Employment Contract entitled him to a minimum bonus of 85% of his salary in any one fiscal year, patently not on a discretionary basis, and with no conditions as to his continuing employment the following year.

32. If the Claimant is not successful on his primary case, then a rather complex issue arises on the basis of the implied term argument. The alternative case is whether the Defendant acted in breach of the implied term of mutual trust and confidence in dismissing the Claimant and depriving him of his bonus as it is common ground that all employment contracts contain an implied term regarding trust and confidence, see in this regard Malik v BCCI SA [1998]CA20;[1997]ALL ER 125.

33. In this connection, the Defendant’s first argument is that payment of a bonus of US$187,000 in terms of the Claimant’s contract of employment is essentially a matter of legal construction. Under Scots Law the general principles applicable to the interpretation of a commercial contract will apply to the interpretation of a contract of employment. The Defendant specifically refers to the principle in the case of Lloyds TSB Foundation for Scotland v. Lloyds Banking Group plc CA115/10 [2011]CSIH 87 as follows:

“The ultimate aim of interpreting a provision in a contract, especially a commercial contract, is to determine what the parties meant by the language used, which involves ascertaining what a reasonable person would have understood the parties to have meant. The relevant reasonable person is one who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the Contract”

34. According to the said principle, the Defendant insists that the true construction of the language of this part of the Agreement is that continued employment in at least part of the fiscal year beginning on 1 July 2010 was a necessary condition to entitlement to payment of a bonus calculated by reference to the fiscal year ending on 30 June 2010. The word “continue” refers to the specified months of September, December, March and June as there is no other date in the sentence to which the word “continue” can relate.

35. The Defendant takes the view that the foregoing construction is consistent with the overall purpose of a bonus scheme. A reasonable person would regard a bonus scheme as an incentive to an employee to work diligently and encourage loyalty so that the employee remains with his employer for a further period. Accordingly, as the Claimant did not continue working with the Defendant in that following year to the year ending 30 June 2010 and as such he is not entitled to the so called Minimum Bonus.

36. The Defendant during the trial and through its representative and witnesses also argued that the Minimum Bonus according to the true construction of the contract is on a discretionary basis in any event.

37. The second argument is against the Claimant’s alternative case which is that the Defendant acted in breach of the implied term of mutual trust and confidence, in dismissing the Claimant and depriving him of his bonus. The Defendant maintains that the interpretation of the express term is to be preferred.

38. The Defendant contends that there was no breach of the implied term of trust and confidence as there was a clear and rational reason to give notice to terminate when they did, no business can sustain losses indefinitely and the Defendant just used its contractual right to bring a declining situation “business could not afford the Claimant” to an end. The Court should look at the employer’s conduct as a whole to determine whether it is such that the employee cannot reasonably be expected to put up with it. It cannot be said that by exercising the unfettered contractual right to dismiss on notice the Defendant is, in consequence, behaving in a manner designed to destroy the essential bond of trust.

39. On the other hand, the Claimant’s view on the issue of the breach of an implied term of trust and confidence is that there is clear evidence that there was only one reason why the Defendant terminated the Claimant’s employment. It had tried to unilaterally reduce his minimum bonus (TB 3.184) and had failed. It had then tried to negotiate a reduced bonus and failed. It had then terminated the Contract with the aim of defeating the Claimant’s entitlement to a bonus. The termination date had been chosen in order to occur before the September date which the Defendant regarded as being applicable to the minimum bonus. The Defendant had served notice to terminate before this date even while the negotiations for the varied contract were continuing. There had been no redundancy, no performance concerns, no conduct concerns and no other reason for termination. That breach had served to deprive the Claimant of his accrued entitlement to a bonus, as the Defendant had no other reason for termination which in fact ran in conflict with the principle of implied terms in the case of Aspden v Webbs Poultry.

40. Considering both parties allegations, the Court is required to determine first the question whether the Claimant is entitled to payment of a bonus calculated on the basis of the Defendant’s fiscal year ending on 30 June 2010 with no condition of continuity or the Defendant’s discretion. In the case that the Court’s answer to the first question is that the condition as to continuing employment through to the following year is required in order for the Claimant to qualify for the Minimum Bonus, then the Court is to answer the alternative case whether the Defendant acted (by terminating the Claimant’s contract on that ground) in breach of the implied term of trust and confidence in depriving him of the Minimum Bonus?

41. In order to answer the first question, the Court simply needs to use its power and authority in interpreting the contract.

42. It was established by the parties that Scottish law is the governing law in this case, as there is no disagreement on this point, the reference principle in regards to the interpretation of contracts is the principle laid down by the case of Lloyds TSB Foundation for Scotland v. Lloyds Banking Group plc. CA115/10 [2011]CSIH 87 in the following terms:

43. There does not appear to be any difference between the said Scottish principle of law and the doctrine of the interpretation of contracts in the common law generally, and the DIFC Courts specifically. Accordingly, the DIFC Courts are competent to apply this law and need no expert evidence to assist them.

44. The Claimant’s Minimum Bonus entitlement is set out in the offer letter dated 4 July 2007, which the parties and the Court refer to as “the contract” and under the Salary Clause which states as follows:

“In your first year of employment only, you will be paid a total “signing bonus” of US$175,000 payable in four quarterly installments as follows (August (60%)). November (15%), February (15%) and May (10%).

This is not a post which attracts overtime, but you will be eligible for an annual bonus. The award of a bonus is discretionary and is based on the firm’s financial year end of 30 June. To give you some comfort on this, and assuming your start date commences in, (August/September) the Company agrees to pay you a bonus of not less than 175% of your gross salary in respect of the period to 30 June 2008. In accordance with the terms of the scheme payments are made in September (60%), December (15%), March (15%) and June (10%) following the year end and you must continue as an employee to retain your entitlement to bonus. Thereafter you would be part of the firm’s normal discretionary bonus award scheme however the company agrees to pay you a minimum bonus of not less than 85% of your gross salary in any one fiscal year. The award of a bonus in addition to your minimum bonus will be discretionary”.

45. It is quite obvious from the Salary/Bonus clause that the Defendant’s contract provides for different ranges of Bonuses. The first is the signing bonus which is not the subject of any kind of dispute. The second Bonus given to the Claimant is the Annual Bonus, the wording “but you will be eligible for an annual bonus. The award of a bonus is discretionary and is based on the firm’s financial year end of 30 June. To give you some comfort on this, and assuming your start date commences in, (August/September) the Company agrees to pay you a bonus of not less than 175% of your gross salary in respect of the period to 30 June 2008. In accordance with the terms of the scheme payments are made in September (60%), December (15%), March (15%) and June (10%) following the year end and you must continue as an employee to retain your entitlement to bonus” describes the annual Bonus, the quantum of which is 175% and, is discretionary, is subject to a condition of continuity and the method of payment of that Annual Bonus per month and its percentage.

46. The third range of Bonus then given is “Thereafter you would be part of the firm’s normal discretionary bonus award scheme” where reference to discretion and scheme is made. Then as the clause continues, the fourth type of Bonus is provided “however the company agrees to pay you a minimum bonus of not less than 85% of your gross salary in any one fiscal year.” This Bonus is called the Minimum Bonus and the word “however” suggests that in contrast to the types of bonus mentioned before, it is yet to come or just a different arrangement.

47. The Court’s interpretation of the term “Minimum Bonus” following the word however is that it is not subject to either the company’s discretion or the company’s Bonus scheme, or the continuity and timing conditions attached to the annual Bonus - which is referred to as the second type of bonus available in the above-mentioned analysis.

48. The clause provides for different arrangements in the context of the Minimum Bonus as compared with the previous types of Bonuses, and imposes no condition of continued employment. Furthermore, it is the minimum to be bestowed, and is not discretionary, which is supported by the last paragraph of that clause “The award of a bonus in addition to your minimum bonus will be discretionary”.

49. The Court takes the view that this interpretation or reading articulates what the parties meant by the language used and what a reasonable person would have understood, taking into account the signing and termination background and circumstances.

50. The incident in which the Defendant offered the Claimant new terms of remuneration which took place on 3 April 2010 in the email sent by Representative 3, and which connected all types of Bonuses with the continuity and timing conditions is evidence that the Defendant tried to change the situation from an unconditional guaranteed bonus to a bonus that was to paid in installments and according to the Defendant’s revenue status.

51. Two of the Defendant witnesses knew nothing about the bonus entitlement of the Claimant, as it was confidential to them, whereas Representative 3 said that the Minimum Bonus was subject to the company Bonus Scheme, and therefore it was discretionary and the Claimant was required to have continued working through to the following year. In his second statement, Representative 3 also said that in the year ending June 2009 the Claimant had not received his Bonus until the following September and had made no objection to that.

52. However, the Defendant has put forward no written evidence of any bonus scheme, neither have the other two Defendant witnesses expressed any awareness of any written bonus scheme on which the Court can rely in support of the Defendant’s contention in this regard.

53. Furthermore, it is for the Court to interpret the understanding between the Claimant and the Defendant at the time of contracting as to whether the minimum bonus was conditional. Mr Donald has given no evidence that what he is alleging was expressly communicated to the Claimant had become a certain term of the contract. Consequently, Representative 3 assertions are too vague and insufficiently certain to be binding on all the parties. .

54. As the Court takes the view that the wording in the contract regarding the Minimum Bonus is direct, not technical, not ambiguous or absurd, then according to the Parol Evidence Rule as referred to in Henderson v Arthur (1907) 1 KB 10, there is no need for this Court to advance the finding to determine what was the parties’ intention just because the Defendant and the witness Representative 3 try to do so. Had the Defendant taken the view that the Minimum Bonus was conditional, they could have been expected to put that in a written context in the contract or at least to have responded to the Claimant’s emails in that regard.

55. Accordingly, the Claimant is entitled to the Minimum Bonus in the sum of US$187,000 for the financial year ending 30 June 2010.

56. Having reached the above conclusion in regards to the Minimum Bonus, the Court will not need to go through and discuss the issue of a breach of an implied term of trust and confidence as it was an alternative issue to be dealt with if the Court finding favours the Defendant’s argument that the Claimant had been obliged to continue working through to the following year in order to qualify for the Minimum Bonus.

The Issue of Untaken Flights

57. The Claimant in this part of his claim demanded payment of US$30,000, or alternatively £25,000 in lieu of carried over untaken flights in the year 2009, as on 12 March 2008 XXXX had agreed that the value of one return business class flight would be carried over to 2009 (TB 3.148). The Defendant further agreed that it would offer the Claimant the capped sum of US$30,000 per annum in lieu of flights to the UK (see the Claimant’s statement at Para 52: TB 2.15 and TB 2.86 (Para 21). XXXX has not been called to dispute the agreement she reached with the Claimant.

58. The Claimant further argues that in October 2008 Representative 5 had orally agreed that the Claimant’s untaken flights for 2008 (one set for the Claimant and his family) would be paid in cash. There is a dispute of evidence between the Claimant and Representative 5 over what was said and what was agreed. However it can be seen that the Defendant removed the cap for the cost of flights on 21 October 2008 (TB 3.169). In September 2009 the Defendant tried to make the payment in lieu of flights conditional on replacement of his minimum bonus with a £40,000 discretionary bonus, but he did not agree to this condition (TB 3.189)

59.According to the Claimant, all of that is considered to be an express variation to the contract which provided an entitlement to “An amount equivalent to the cost of two business class return flights for you and your family from Dubai to the United Kingdom”.

60. The Claimant insists that his evidence about payment in lieu of flights is to be preferred. “He was subjected to extreme family inconvenience by the Defendant and it is highly likely that the Defendant did indeed agree to pay him in lieu when he was unable to take these flights for himself and his family. The Defendant has failed to pay the Claimant in lieu of two outstanding sets of flights to the UK. One set of flights for 2007/2008 was carried over to 2008/2008 meaning he had three sets that year. Two of those sets of flights were carried forward to 2009/2010 and two were taken, meaning the Claimant is entitled to damages for two untaken sets of UK flights”

61. The Defendant’s position in regards to the Claimant’s assertion that he is entitled to payment in lieu according to the express variation to the contract is that:

“By way of an email dated 12 March, 2008 xxxx allowed the entitlement to one return business class flight to be carried forward giving the Claimant an entitlement to three sets of flights in 2008. The email of 12 March 2008 did not give the Claimant any right to a cash replacement for flights not taken. The extra set of flights to which the Claimant had an entitlement in 2008 only was subject to the other terms agreed to include the fact that there was no cash replacement value. No subsequent agreement to any such cash payment was reached with xxxx. The Claimant’s averments on the alleged agreement first materialised in its Re-Amended Particulars of Claim.

The Defendant’s evidence on this issue is to be preferred. Reference is made to the Defendant’s letter of 23 September 2009 where an offer of a cash payment in lieu of untaken flights for the year 2008/2009 was made in return for agreement to a reduction in bonus.It would have made no sense to have made such a proposal if xxxx had in the preceding month agreed a “without strings” cash payment to the Claimant.”

62. Colin Welsh in his evidence said that he never agreed with the Claimant to payment in lieu of flights, and that he remembered making such an offer only if the Claimant agreed to reduce his bonus entitlements.

63. From all that has been said in this connection, the Court takes the view that the original understanding between the parties was that the flight entitlement given to the Claimant would not be: a) carried forward and; b) there was no payment in lieu. There is no evidence of any disagreement in this regard.

64. However, the Claimant based his claim for in lieu payment for carried-over flights on the ground that parties had expressly agreed to vary the contractual term relating to the flights (take it or leave it) to allow the Claimant to carry over one set of flights from the year 2008 to 2009, and then to allow him payment in lieu of that untaken carried over set of flights.

65. According to the email dated 12 March 2008 sent from XXXX to the Claimant:

“As the arrangements with the flights is a benefit we cannot offer a cash equivalent. However I appreciate it may have been difficult for you to take time off since joining in September so as a gesture of goodwill the company will allow you in this occasion to carry forward the value of one return business flight for you and your family.”

The Claimant was in fact entitled to carry forward one set of flights for him and his family, in contrast to what had originally been agreed (take it or leave it).

66. The remaining question now is whether the Claimant is entitled to a payment in cash in lieu of that untaken carried forward set of flights.

67. In his evidence the Claimant relied on his statement that it had been verbally agreed between him and Mr Colin Welsh that he would be paid US$30,000 in lieu of untaken flights, and that xxxx had confirmed that to him also verbally. xxxx has not been called to say otherwise.

68. The Claimant pointed to the removal of the flights cap in the letter of xxxx on 21 October 2008, and the letter sent from the Defendant on 23 September 2009 which had offered him payment in lieu of flights conditional on the replacement of his bonus, as evidence that he was entitled to payment in lieu of flights previously.

69. The Claimant’s statement contradicts the statement of Representative 5, who denied any agreement for payment in lieu and the letter of 23 September 2009 is evidence which goes against what the Claimant is alleging. It even suggests that there was no agreement in that and the Defendant bargaining a new position with the Claimant.

70. The removal of the cap for flights’ entitlement could be applied for either the cash or the booking by the company, and there is nothing to support the idea that it was meant to remove the cap from cash entitlement.

71. Therefore, the Court finds that the Claimant has put forward no good evidence that he is entitled to payment in cash in lieu of untaken flights against the original contractual agreement. There is no entitlement to a cash equivalent, and as such this part of the claim shall be dismissed.

The Issue of Expenses

72. Even though this issue was briefly mentioned by the Claimant in his claim, he did not further it in his first witness statement when he set out 3 items of expenses incurred by him during his employment with the Defendant with a total sum of US$3,810.32, saying that the Defendant had not paid them but not explaining why they had not done so.

73. The Defendant argues that they have always been prepared to reimburse expenses properly incurred against appropriate vouching and that the Claimant refused and/or failed to provide vouching “Only at his first witness statement, the Claimant produced documentation purportedly in support of his claim for expenses while he should prove expenses he claims have been properly incurred”.

74. The Defendant also referred to the third item of expense, namely the 28/03/2010 DEWA bill which was claimed by the Claimant on 8/07/2010 and paid in full on 9/08/2010.

75. The Court’s finding in this issue is that it was agreed between the parties that the Defendant should pay or reimburse the Claimant for utility expenses that he incurred upon vouching.

76. The Claimant submitted 3 different bills of DEWA expenses and the Defendant admitted paying the third one and argued that the Claimant did not vouch the two other bills.

77. At no point did the Defendant challenge that the two other bills had not been incurred properly, rather, they just argued that the Claimant had never submitted proper vouching, whilst the Claimant insisted that he had.

78. The appropriate response to the Defendant’s argument is that whether they were submitted to them at the time or presented to them at a later stage does not waive the Claimant’s right to recover the expenses that were properly incurred by him during his employment. Therefore whatever reason apart from limitation or payment shall not take away the Claimant’s properly incurred right.

79. Having said that, the Claimant submitted three different sets of Utility Bills either before or after the proceedings had been issued, and the Defendant submitted evidence that it had not challenged at any stage of the proceedings (see the evidence of Representative 3 and the supporting documents) - that they had paid for the third bill in the sum US$1,613.34, and therefore the Claimant is only entitled to recover the first (US$1,695.30) and second bill (US$1,295.96) of his claim with the total amount of US$2,991.26.

The Issue of Club Membership

80. The Claimant brought this branch of his claim with reference to club membership entitlement for him and his family in the offer letter of 4 July 2007. He argued that despite the fact that the contract provided for such a right up to US$4,500 with no condition of buying membership, the Defendant refused to pay him his entitlement.

81. On the other hand, the Defendant argued that they would not pay this item of the contract unless the Claimant submitted evidence of a membership, as in the evidence of Representative 3 who further said that “there was no entitlement to cash equivalent I have explained earlier in the context of the claim for flight. No receipt verifying this outlay has been produced and no sum is therefore due”.

82. The contractual term in this regard is “club membership for you and your family subject to a maximum of US$4,500 per annum.” It is obvious that what the Defendant was required to do was to provide the Claimant and his family a club membership up to the cap of US$4,500. Nothing in that text suggests or supports the Claimant’s view that the Defendant is obliged to make a payment in lieu of club membership. The wording of the term did not at least treat it as an allowance to be paid directly to him, as was the case concerning the housing and car entitlements - and the contract described them differently by referring to them as “allowances”, unlike the case of the club membership entitlement.

83. Having said that, the Claimant established no evidence that he had requested a membership or got one and submitted for reimbursement, therefore the Court dismisses this part of his claim.

The Claimant’s Properties Issue

84. In this part of the claim, the Claimant seeks recovery of three items of property or damages instead. “The Claimant returned to Dubai from London on 31 March 2010 and was on holiday from 1 until 18 April 2010. He was put on garden leave on 18 April 2010 whilst still on holiday. Thereafter he was not permitted to enter the Defendant’s offices in Dubai”.

85. He did not collect them because he was on holiday and did not know that he would not subsequently be permitted by the Defendant to enter into their premises any more.

86. The properties that the Claimant seeks to retain or obtain damages instead for are the following:

(a) Property A worth US$480;

(b) Property B worth US$66;

87. The Defendant had failed to return the Claimant’s property and the Claimant was entitled to damages for their value as set out in the claim, as the Defendant had advanced no real defence to this claim.

88. The Defendant rejected this part of the claim by denying that the said properties were in its custody and maintaining that the Claimant had failed to establish any evidence that they were in its custody or to prove their value “The Defendant does not have the items of property to which reference is made. The Claimant has not established that the items of property are or were in the Defendant’s custody and control. It is noted that this head of claim was withdrawn earlier in the proceedings but has now been reinstated without substantiation. No evidence of value has been produced. No legal basis under which the Defendant could be liable has been set out. In any event, as it appears this is a breach of obligation claim, evidence of loss e.g. the replacement cost would be required.”

89. Representative 3 in his statement said that all properties had been returned to the Claimant and nothing was still held by the Defendant.

90. Apart from what the Claimant stated in his Statement which is contradicted by Representative 3 evidence, nothing was put forward by the Claimant to suggest that the properties claimed are in the custody of the Defendant, and therefore this part of the claim is to be dismissed.

The Counterclaim

91. The Defendant brought this counterclaim on the basis that the Claimant had been mistakenly overpaid the sum of US$67,308 for his bonus at the year ending June 2008. “Pursuant to Clause 3 of the Agreement, the Claimant was entitled to a minimum bonus of 175% of his gross salary in respect of the period to 30 June 2008.The Claimant’s gross salary in respect of the period to 30 June 2008 was US$161,538. The Claimant’s bonus entitlement was accordingly 175% of that sum, namely US$282,692. In error the Defendant paid US$350,000 by way of bonus (175% of US$200,000 full annual salary). In so doing the Defendant erroneously overpaid a sum of US$67,308 which it seeks to recover in its counterclaim. The Claimant’s allegation that this sum is not repayable is misconceived and unsubstantiated.”

92. In order to seek repayment of the alleged overpaid bonus, the Defendant further argued that the sum of US$350,000 represented 175% of the Claimant’s full annual salary and did not contain a discretionary element. Moreover, he had joined the company in the later stage of 10 September 2007 and therefore the bonus should have been pro-rated accordingly.

93. The Defendant’s evidence in regards to the counterclaim is the witness statement of xxxx, whereas xxxx mentions nothing about it. Representative 3 averred that the bonus had been overpaid due to an error (payment for bonus for a full calendar year instead of from his joining date) on the part of the Defendant, and the Claimant was obliged to repay the over payment. Representative 5 evidence is just hearsay of the evidence of Representative 3.

94. On the other hand, the Claimant argues that the Counterclaim is hopeless. “There was in fact no mistake – there was a decision to pay a generous bonus in a year in which xxxx said was good for bonuses. Over the years since the bonus was paid, Dag has fundamentally changed his position; spending money to relocate his family to the UK and him to Kuwait, and the bonus is long spent relying on Dagny representation that this was a bonus to reward promotion and good performance. A stronger case of change of position could hardly be envisaged.”

95. The Claimant asserts that the counterclaim must fail for the reason that the Defendant granted the Claimant a bonus for 2008, who accepted that bonus in good faith as the proper bonus due for the first year and changed his position to his detriment by spending his remuneration.

96. The Claimant made reference to the bonus term which was stated in Clause 3 to be a “minimum” of 175% of salary and not capped at 175%. The Defendant awarded the Claimant the sum of US$350,000 by way of a bonus in June 2008 (TB 3.155). That is entirely consistent with the terms of the Contract and the amount is consistent with the congratulations on his promotion to Director (TB 3.156) and the Defendant’s argument that they had over-paid the Claimant was therefore not true.

97. The Claimant further argued that the counterclaim cannot be held to be successful unless it passes the test in Kleinwort Benson Ltd v Lincoln City Council [1990] 2 AC 349, where Lord Hope of Craighead (at 407H) held that a claim for restitution of money paid under a mistake raises three questions: (1) was there a mistake? (2) did the mistake cause the payment? (3) did the payee have a right to receive the sum which was paid to him? Only if the first two questions are answered in the affirmative and the third question in the negative, is it necessary to consider the defence of change of position.

98. The defence of change of position was accepted and explained in Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548. Lord Templeman analysed the question primarily in terms of the unjust enrichment of the recipient, noting (at 560) that an innocent recipient of money paid by mistake who has parted with it in good faith without retaining any of the benefit has ceased to be unjustly enriched and is therefore no longer under any liability to make restitution.

99. In the light of the above-mentioned legal reference, the Claimant accordingly insisted that there had been no mistake in payment as the he was entitled to the minimum of 175% of his annual salary, he also was an innocent recipient of that sum which he had spent on his obligations with good faith, believing that it had been paid to him as the minimum bonus he could receive after the time he had spent at the company and contemporaneous with his promotion to be a Director in the company.

100. I agree with the Claimant that the counterclaim is a claim for restitution based on unjust enrichment and that in order to qualify it must pass the test (was there a mistake) set in Kleinwort Benson Ltd v Lincoln City Council and (change of position) set out in Lipkin Gorman v Karpnale Ltd. Failing that, the claim should be dismissed. I also do not think that these two tests should be applied in order, as such the Court will bring the issue under the test of (change of position) as in Lipkin Gorman v Karpnale Ltd with the presumption (only presumption) that there was a mistake in the payment of the bonus.

101. The test in Lipkin Gorman v Karpnale Ltd “that an innocent recipient of money paid by mistake who has parted with it in good faith without retaining any of the benefit has ceased to be unjustly enriched and is therefore no longer under any liability to make restitution” requires that:

(a) someone innocent received money by mistake;

(b) parted with it in good faith;

102. As to the conditions (a) and (b) of the test, it is clear from the evidence submitted by the Claimant and not argued by the Defendant who is the claiming party in this part of the claim that there was nothing (before the start of these proceedings) to indicate to the Claimant that he had been overpaid or at least required to repay that money paid to him during the course of his employment or in a later stage at the time of his termination. Even on the assumption that the company made an error in paying to the Claimant more than what he should have been paid, the Court takes the view that the Claimant was still innocent in receiving that money as it was never brought to his attention otherwise, and whatever he spent that money on, was in nothing but good faith.

103. In the letter called (REMUNERATION ANNOUNCEMENT) dated 29 AUGUST 2008, which sets out the bonus entitlement, there was no mention of any calculation or information that might lead any reasonable person to believe that there might have been an error, over-payment or any indication that what was written made no sense. The very late discovery of the alleged error or mistake also points in favour of the conclusion that the Claimant would not know about any error until it had been raised in these proceedings.

104. As to the condition (c) of the test, the Defendant (the claiming party in this counterclaim and upon whom the burden of proof lies ) put nothing before this Court to show that the Claimant had retained any benefit from that US$67,308 which had been paid to him by the alleged mistake.

105. Lord Goff has said in Lipkin Gorman v Karpnale Ltd:

"In these circumstances, it is right that we should ask ourselves: why do we feel that it would be unjust to allow restitution in cases such as these? The answer must be that, where an innocent defendant's position is so changed that he will suffer injustice if called upon to repay or to repay in full, the injustice of requiring him so to repay outweighs the injustice of denying the plaintiff restitution. If the plaintiff pays money to the defendant under a mistake of fact, and the defendant then, acting in good faith, pays the money or part of it to charity, it is unjust to require the defendant to make restitution to the extent that he has so changed his position. Likewise, on facts such as those in the present case, if a thief steals my money and pays it to a third party who gives it away to charity, that third party should have a good defence to an action for money had and received. In other words, bona fide change of position should of itself be a good defence in such cases as these.”

Lord Goff also said:

“At present I do not wish to state the principle any less broadly than this: that the defence is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively to make restitution in full. I wish to stress however that the mere fact that the defendant has spent the money, in whole or in part, does not of itself render it inequitable that he should be called upon to repay, because the expenditure might in any event have been incurred by him in the ordinary course of things. I fear that the mistaken assumption that mere expenditure of money may be regarded as amounting to a change of position for present purposes has led in the past to opposition by some to recognition of a defence which in fact is likely to be available only on comparatively rare occasions.”

106. Therefore, what Lord Goff has opined in the above-mentioned authority about the principle of change of position is applicable to the Claimant’s situation and circumstances as regards receiving the bonus with the presumption of mistake and therefore it would be unjust to allow restitution in this case.

Conclusion

107. Having dealt with and determined all contractual rights that have been sought by the Claimant and the counterclaim advanced by the Defendant, the Court finds the following:

108. The Claimant is granted the following remedies:

(a) Salary for the period 17 August to 9 September 2007 - US$14,666.64.

(b) Bonus for the period 17 August to 9 September 2007 - US$25,666.66

(d) The Minimum Bonus - US$ 187,000 - for the financial year ending 30 June 2010.

(e) Payment for two Utility Expenses - US$2,991.26.

109. The Claimant is denied the following remedies:

(a) Payment in Lieu of carried over untaken flights;

(b) Payment in Lieu of Club Membership;

110. The counterclaim by the Defendant for restitution of a mistakenly overpaid Bonus is denied.

111. The Defendant is to pay simple interest at the rate of EIBOR + 1% as regards the Minimum Bonus - US$187,000 from 1 July 2010 to the payment day.

112. The Defendant is to pay simple interest at the rate of EIBOR + 1% in regards of all other granted remedies from the claiming day to the payment day.

113. The Court makes no order as regards to costs as they are not claimed in the Claimant’s submissions.

Issued by:

Mark Beer

Registrar

Date of issue: 15 April 2013

At: 5 pm

Dagny v Dag & Company International Limited [2011] DIFC CFI 007

DIFC Courts Registry

DIFC Courts Wills Service