Derk Koole v HG (Bermuda) Ltd

• Jurisdiction: Bermuda
• Judge: Shade Subair Williams J
• Judgment Date: 17 December 2019
• Neutral Citation: [2019] SC Bda 89 Civ
• Docket Number: COMMERCIAL JURISDICTION,COMMERCIAL JURISDICTION 2016 No: 459
• Court: Supreme Court (Bermuda)
• Date: 17 December 2019

Between:

Derk Koole

Plaintiff

and

HG (Bermuda) Ltd

Defendant

[2019] SC (Bda) 89 Civ

Judges: Wolffe, J

COMMERCIAL JURISDICTION 2016 No: 459

In The Supreme Court of Bermuda

Objection to use of Expert Opinion Evidence — Legal Principles on the Admission of Expert Opinion Evidence — Dispute as to the Plaintiffs claim to a Contractual entitlement to exercise a Company Warrant to convert unpaid Share Redemption — Non-compete Clause in Bye-Laws

Counsel for the Plaintiff: Ms. Lilla Zuill (Zuill & Co)

Counsel for the Defendant: Mr. Christian Luthi (Conyers Dill & Pearman Limited)

JUDGMENT of Shade Subair Williams J

Shade Subair Williams J

Introduction and Summary of Facts:

1 On 14 February 2017, the Plaintiff, Mr. Derk Koole, filed an Amended Generally Indorsed Writ of Summons against the Defendant, an exempted company incorporated in Bermuda (also referred to as “the Company”).

2 On or about 23 September 2015, HG (Luxembourg) S.à.r.l., a wholly owned subsidiary of the Company, was sold to a Delaware corporation, namely Korn/Ferry International (“Korn/Ferry”). The sale of the Company (“the sale”) is governed by a Stock Purchase Agreement. Prior to the sale, the Company was the ultimate holding company for the “Hay Group” human resource and management consultancy businesses. I will hereinafter refer to the Hay Group as “the KFHG”.

3 The Plaintiff's claim is made in his capacity as a retired employee and shareholder of the Company. On his pleaded case, he has a contractual entitlement under Clause 3.7 of the Company's Bye-laws to the benefit of a warrant (“the Warrant) which was triggered by the sale. The exercise of the Warrant would result in the conversion of any unpaid redemption of his preferred shares in the Company. The Warrant provided:

“Effective beginning October 1, 2012, a Previous Shareholder who has not elected to exercise any Retirement Option under the grace period transition rule set forth in Bye-law 3.11 and who has not received his or her Final Redemption payment shall have a warrant to convert his or her unpaid redemption payments into the consideration that such Previous Shareholder would have received as a holder of Preferred Shares of the Company in any sale transaction (as defined below) on a pro rata basis, as of September 30 following the year of his or her Employment Cessation, provided that such warrant may only be exercised upon the sale or other disposition by sale, amalgamation, merger, consolidation or otherwise, of more than 50% of the shares or assets of the HG Group taken as a whole to an entry that is not part of the HG Group (any such transaction, a “Sale Transaction “), the closing of which transaction occurs by September 30 of the third anniversary of the Previous Shareholder's effective date of Employment Cessation.”

4 It is common ground between the parties that on or about 1 December 2015 the sale was effected, in that Korn/Ferry paid the Defendant approximately $475,000,000.00 in consideration for the transfer of the Company's shares which constituted more than 50% of the shares or assets of the HG Group taken as a whole. Mr. Koole says that at the time of his retirement, his shareholding accounted for approximately 0.4% of the Company's share capital, at US$0.01 per share.

5 The Defendant, however, disputes that Mr. Koole has any lawful entitlement to the benefit of the Warrant. On its pleaded case, Mr. Koole breached the ‘good standing’ requirement for the exercise of the Warrant. Specifically, the Company says that the Plaintiff, having acted as a consultant to a competitor company (namely, Bright & Company (“B&C”)), was in breach of a non-compete obligation to the Company prescribed by Bye-law 78.1.

6 In the Plaintiff's Reply pleadings he explains that since 1 September 2015, he has been employed by K2M B.V., which acts as a consultant to B&C in the Netherlands. Under the Plaintiff s averments, B&C operates as a boutique consultancy business on HR related topics. The Plaintiff says that B&C is not a competitor and that it ‘advises solely Dutch clients on, and o ffers bespoke solutions to, issues of people strategy:, organization transformation, human capital analytics and HR organization effectiveness’. The alternative case advanced on behalf of the Plaintiff is that Bye-law 78.1 is an unlawful restraint of trade.

7 Mr. Koole accordingly seeks, inter alia, a Court declaration confirming his entitlement to the benefit of the Warrant upon the closing of the sale to Korn/Ferry in addition to an accounting of the sums due to him and a direction from the Court as to how such sums should be calculated.

The Application

8 The Parties have come before me with opposing positions on the scope of the expert evidence which ought to be allowed at the trial of this action.

9 By a summons for directions filed by the Plaintiff on 18 July 2019 the Plaintiff proposed the following direction to be made by the Court:

“The Parties have leave to adduce a single expert report each pertaining to the human resources market in the Netherlands, the business of Bright & Company and the business of the Hay Group. Each Party's expert evidence shall be limited to that of the single written report and oral expert evidence shall not be adduced. Neither Party's expert shall be required to attend for cross-examination”

10 Having heard from Counsel for both parties, on 15 August 2019 I directed:

“This matter be set down for 16th October 2019 for an estimated two-hour hearing in respect of the Plaintiff seeking leave for the Parties to each adduce a single expert report pertaining to the human resources market in the Netherlands, the business of Bright & Company and the business of the Hay Group (the Hearing)”

The Proposed Expert Report

11 The Plaintiff proposes to rely on an expert report (“the Report”) prepared by ALM Intelligence of ALM Media LLC (“ALM”), a copy of which was placed before this Court under a cover letter by ALM to the Plaintiff s attorneys, dated 5 July 2018.

12 In the letter, ALM introduces itself as follows:

Enclosed herein, please find ALM Intelligence ‘s (AIM) report on the Human Resources (HR) consulting market in the Netherlands. This analysis compares the businesses and capabilities of Korn Ferry Hay Group (KFHG), and B&C (Bright).

ALM is the global market leader in information for and about advisory and consulting firms, and has an extensive benchmark database complied over 20+years of surveys an syndicated research. As part of its research agenda, ALM conducts ongoing collection data on all aspects of advisory firms ‘ operations and possesses an existing knowledge base on engagement structure and fee levels.

As a result of its continuous coverage of global consulting markets, ALM possesses an unparalleled knowledge base of providers that have been collected over the last 20+ years. Beyond its own analyses, ALM sources additional information through several channels, including:

• - Buyers of consulting, and advisory services (e.g. procurement, sr executives)

• - Senior provider executives knowledgeable of pricing and P&Ls inside professional services

13 ALM's Vice President and Managing Director of Advisory Services, Mr. Tom Rodenhauser, is the author of the Report. At the final page of the Report there is a bio disclosing a short summary of Mr. Rodenhauser's 25 years of industry experience and knowledge and his network familiarity. His expertise on management and IT consulting industry trends is also explained by reference to the wide audience he addresses through globally leading media sources and frequent public speaking.

14 The Report itself is divided into two parts. The first part covers the size and composition of the Dutch HR consulting market. This area of the Report is not opinion-based and did not conjure any objections from the Defendant. However, Mr. Luthi objected to the admissibility of all of the opinion evidence contained in the second part of the Report which provides an analysis of the practice differentiation between KFHG and B&C.

The Competing Arguments

15 The two broad grounds of objection from the Defendant are stated in Mr. Luthi's written submissions at paragraphs 3 and 4:

3. Firstly, expert evidence is not admissible and in any event simply not necessary in order to determine the issues in this case.

4. Secondly, even if such evidence was admissible, the evidence is clearly not being adduced with the requisite degree of independence required of an expert witness.

16 Mr. Luthi argued that the Report seeks to resolve one of the principal issues in dispute: whether the Plaintiff was in breach of Bye-law 78. I by undertaking an activity in competition with the Company. Mr. Luthi contended that the factual information on the market in the Netherlands is admissible but maintained that the opinion evidence in the Report usurped the Court's role of judging the facts.

17 Ms. Zuill, on the other hand, criticized Mr. Luthi's proposals to redact the Report as an attempt at cherry-picking so as to remove the parts of the Report which might be construed as being critical aspects of the business model of the group of companies to which the Defendant belongs. On her arguments, it would be impossible to distinguish between pure fact and opinion out of the expert's conclusions.

18 Mr. Luthi pointed to nearly a dozen separate statements of opinion in the Report which deemed to be in breach of the legal boundaries of expert opinion evidence, particularly because they all related to a subject matter that did not require the assistance of any special knowledge or expertise in order for the Court to reach a sound decision on the issues in question.

19 Ms. Zuill submitted that expert evidence is needed to determine whether B&C is in competition with the Plaintiff or whether the Ownership Board of the Company (“the Board”) reasonably concluded that it was. She...