Koole v HG (Bermuda) Ltd
| Jurisdiction | Bermuda |
| Judgment Date | 20 October 2021 |
| Docket Number | Commercial Jurisdiction 2016 No 459 |
| Court | Supreme Court (Bermuda) |
[2021] Bda LR 110
Commercial Jurisdiction 2016 No 459
In The Supreme Court of Bermuda
Construction of bye-laws and use of extrinsic information in a holding company structure — Meaning of “competition” — Restraint of trade in a shareholder agreement — Employer/employee or vendor/purchaser relationship
The following cases were referred to in the judgment:
Kuczkiewicz v HG (Bermuda) Ltd [2018] Bda LR 26
Capital Partners Securities Co Ltd v Sturgeon Central Asia Balanced Fund Ltd [2017] Bda LR 78
Arnold v Britton [2015] UKSC 36
Beckett Investment Management Group Ltd v Hall [2007] EWCA Civ 613
Cosmetic Warriors Limited v Gerrie [2015] EWHC 3518
Re Coroin Limited [2011] EWHC 3466
Egyptian Salt and Soda Co Ltd v Port Said Salt Association Ltd [1931] AC 677
Re Cherry Tree Investments Ltd v Landmain Ltd [2012] EWCA Civ 736
Henry Leetham & Sons v Johnstone–White [1907] 1 Ch 322
Business Seating (Renovations) Ltd v Broad [1989] ICR 729
Stenhouse Australia Ltd v Phillips [1974] AC 391
Systems Reliability Holdings plc v Smith [1990] IRLR 377
Kynixa Limited v Hynes [2008] EWHC 1495
Argus Media v Halim [2019] EWH 42
Allied Dunbar (Frank Weisinger) Ltd v Weisinger [1988] IRLR 60
One Step (Support) Ltd. v Morris-Garner [2016] EWCA Civ 180
Hepworth Manufacturing Co Ltd v Ryott [1920] 1 Ch 1
Petrofina (Great Britain) Ltd v Martin [1966] Ch 146
Provident Clothing & Supply Co. Ltd v Mason [1913] AC 724
Cyrus Energy v Stewart [2009] CSOH 53
Dawnay, Day & Co. Ltd v D'Alphen [1998] ICR 1068
Bridge v Deacons [1984] AC 705
Thomas v Farr plc [2007] EWCA Civ 118
Reiter v Ness [1998] Bda LR 12
Herbert Morris v Saxelby [1916] 1 AC 688
Vancouver Malt and Sake Brewing Co v Vancouver Breweries Ltd [1934] AC 181
Office Angels Ltd v Rainer-Thomas [1991] IRLR 214
Sadler v Imperial Life Assurance Co of Canada Ltd [1988] IRLR 388
Sadler and Bull v Pitney-Bowes Ltd [1967] 1 WLR 273
Ms L Zuill for the Plaintiff
Mr C Luthi and Mr R Williams for the Defendant
JUDGMENT of Mussenden J
1. The present action was commenced by Generally Indorsed Writ of Summons issued 30 November 2016 and amended 14 February 2017. A Statement of Claim was filed on 14 February 2017 and an Amended Statement of Claim (“ASOC”) was filed on 5 September 2017.
2. The Defendant is an exempted company incorporated on 31 August 2000 with limited liability under the laws of Bermuda. The company was (prior to the events set out below) the ultimate holding company for the “Hay Group” human resource and management consultancy businesses, being human resource (“HR”) consultancy companies in 49 countries.
3. The Plaintiff was employed by two Hay Group companies (firstly in the Netherlands and then in Russia) between 1 April 1996 and 23 May 2013 when he retired. At his retirement, the Plaintiff was a shareholder of the Defendant, owning approximately 0.4% of the redeemable preferred shares of US$0.01 each in the share capital of the Company.
4. In general terms, as a preferred shareholder, the Plaintiff qualified by operation of a warrant to a share of the proceeds of any sale of the Hay Group business within a certain period (the “Warrant” as further defined below). If he left the employment of the Hay Group, then he would retain his entitlement under the Warrant for a period of three years after leaving. That entitlement came with some conditions including that, once he left the employment of the Hay Group, he would not, for a period of three years, breach a non-compete obligation under Bye-law 78.1 in respect of the Hay Group (the “Non-Compete” or “Covenant”).
5. On 23 May 2013 the Plaintiff retired from the Hay Group eventually returning to the Netherlands from Russia.
6. In September 2015, the Plaintiff, through his own company, engaged as a consultant with a company Bright & Company (“Bright”) in the Netherlands which was a small firm focusing on the niche area of HR strategy for which he was paid a monthly fee.
7. On or about 23 September 2015, within the three years of the Plaintiff's retirement, the Hay Group entered into a Stock Purchase Agreement with Korn/Ferry International, a Delaware Corporation (“Korn/Ferry”) which provided for a number of things, including the acquisition by Korn/Ferry (the “Korn/Ferry Transaction”) of all the issued and outstanding shares and non-interest bearing convertible preferred equity certificates of the Hay Group's wholly owned subsidiary, HG (Luxembourg) S.a.r.l., a private limited liability company organized under the laws of Luxembourg (“HG Luxembourg”).
8. The Plaintiff claims that he became entitled to the benefit under the Warrant.
9. However, on 7 October 2015 the Defendant informed the Plaintiff by email that its Ownership Board had determined that he was in breach of the Non-Compete, he having acted as a consultant to a competitor HR company, that is, Bright. Consequently, the Defendant refused to pay the Plaintiff his benefit under the Warrant. The Plaintiff brought these proceedings to make good his claim for his share of the proceeds of the sale of the Hay Group.
10. The trial was in order to establish liability with a further trial of quantum as necessary. The trial accordingly centred on the Bye-laws, the determination of factual disputes of the conduct of the Plaintiff, the HR services offered by Bright, officers/employees of the Defendant and expert evidence on behalf of the Plaintiff. There were also issues in respect of the Non-Compete in the Bye-laws.
11. Having received evidence at trial, together with submissions by Counsel, I reserved judgment which I now provide with reasons as set out below.
12. The Amended Generally Indorsed Writ of Summons set out that the Plaintiff's claim arose out of his contractual entitlements pursuant to the Bye-Laws of the Company, including but not limited to a “Warrant” at clause 3.7 of the Bye-Laws of the Company. It claimed a declaration that the Plaintiff is entitled to the benefit of the Warrant arising out of the Stock Purchase Agreement. It sought directions in respect of the assessment of monies owed to the Plaintiff.
13. In the Amended Statement of Claim (the “ASOC”), Mr Koole pleaded further details including that he would rely on the whole of the Bye-laws for their true meaning and effect, that he was and remained in “Good Standing” pursuant to Bye-law 3.6(b) and that he was entitled to the Warrant.
14. In respect of the Korn/Ferry Transaction, Mr Koole pleaded that for the purposes of Bye-law 3.7 he is a Previous Shareholder, but he had not received his Final Redemption payment. Further, the Korn/Ferry Transaction was effected on 1 December 2015 and the consideration paid by Korn/Ferry to the Defendant for the transfer of the Shares, which was more than 50% of the shares or assets of the Hay Group, was approximately US$475 million. As the Korn/Ferry Transaction closed before the third anniversary of his Employment Cessation, defined to be 30 September 2016, he was entitled to and had benefit of the Warrant provided by Bye-Law 3.7.
15. In essence, the Defendant:
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i. Denied that the Plaintiff was and remains in Good Standing within the meaning of the Bye-laws.
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ii. Denied that the Plaintiff is entitled to the benefit under the Warrant.
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iii. Pleaded that the Plaintiff ceased to have the benefit of the Warrant upon his breach of the Non-Compete Bye-law 78.1; and
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iv. Denied the claims.
16. Further, in its Defence, in relation to the Bye-laws the Defendant stated as follows:
“4. The Defendant will rely upon the full terms of the Bye-Laws for the true meaning and effect. In particular, the Defendant will rely upon:
a. Bye-law 3.6(b), which provides:
““Good Standing” shall mean not terminated for Cause, not in breach of any obligations at date of termination and thereafter not in breach of any obligations of these Bye-laws.”
b. Bye-law 3.6(c), which provides, inter alia,:
“Departure not in good standing” shall mean a departure of a Shareholder… coming thereafter into breach of these Bye-laws or other contractual obligations to HG Group, including undertakings upon withdrawal or Retirement. Whether a Previous Shareholder made a Departure Not in Good Standing or remains in Good Standing may be determined by the Ownership Board at any time prior to payment in full of the Redemption Amount…Departure Not in Good Standing may arise, without limitation, by reason of breach of a Shareholder's obligations under these Bye-Laws existing on or prior to the date of Withdrawal or by reason of breach of the obligations not to compete contained in these Bye-laws.”
c. Bye-law 3.7, which provides, inter alia:
“If a Shareholder shall breach the provisions of Bye-law 78.1 after the two year period but prior to the three year period after his or her Employment Cessation, then this warrant shall be deemed forfeited.” 1
d. Bye-law 78.1, which provides, inter alia:
“No Shareholder… shall compete with or undertake any investment or activity in competition with the Business…for a period of the longer of:
(a) two (2) years after the HG Person…ceases to be an active employee; or (b) any period which the Redemption Amount paid on account of the Shareholder's…Preferred Shares is not yet paid under any deferral required or permitted as on option pursuant to Bye-law 3.”
17. The Plaintiff gave evidence and called one expert witness.
18. The Plaintiff's witness statements stood as his evidence-in-chief. He stated that the Hay Group was founded in 1943 and grew to become one of the top HR consulting firms globally, employing more than 2,000 professionals serving more than 7,000 clients from 88 offices in 47 countries providing a range of HR services...
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