Reinhard v Ondra LLP & Ors (Rev 1), Court of Appeal - Chancery Division, January 14, 2015, [2015] EWHC 26 (Ch)

Resolution Date:January 14, 2015
Issuing Organization:Chancery Division
Actores:Reinhard v Ondra LLP & Ors (Rev 1)
 
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Case No: HC12C01765

Neutral Citation Number: [2015] EWHC 26 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 14/01/2015

Before :

MR JUSTICE WARREN

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Between :

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Jeremy Callman and Naomi Winston (instructed by Charles Russell Speechlys LLP) for the Claimant

Robert Howe QC and Thomas Croxford (instructed by Mishcon de Reya) for the Defendants

Hearing dates: 20th, 21st, 24th, 25th, 26th, 27th, and 28th of March 2014, and 3rd and 4th April 2014

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JudgmentMr Justice Warren :

Introduction

  1. This is the trial of liability of the claim by the Claimant (``Mr Reinhard'') for damages, declarations and other relief relating to a written contract with the first Defendant (``Ondra'') dated 15 July 2009 and countersigned by Mr Reinhard on 11 September 2009 (``the Contract''). Mr Reinhard joined Ondra on the terms of the Contract. The principal issues in dispute are whether, under the Contract, he became, or was entitled to become, a member of Ondra and if so on what terms as to profit share and capital interest.

  2. Mr Jeremy Callman and Ms Naomi Winston appear for Mr Reinhard. Mr Robert Howe QC and Mr Thomas Croxford appear for all three defendants (collectively ``the Defendants'').

  3. Mr Reinhard is an investment banker. Ondra, a limited liability partnership, is a financial advisory firm providing strategic advice and consultancy services in the investment banking industry. The second Defendant, Michael Tory (``Mr Tory''), and the third Defendant, Benoit d'Angelin (``Mr d'Angelin'') were two of the Founding Partners of Ondra and were registered members at all material times. Two other individuals, Michael Baldock and Simon Morgan, are shown in Companies House records to have been registered as members as from 1 May 2009, but this would appear to have been a backdated entry. The four members have been referred to throughout as ``the Founding Partners'' and I will use that expression accordingly. Mr Tory and Mr d'Angelin were (and remain) members of Ondra at all material times. I am not sure whether it was common ground by the end of the hearing - I believe it was - that they were also the controlling minds of Ondra; whether or not it is common ground, I am satisfied from all that I have heard and read that they were.

  4. Prior to entering the Contract, Mr Reinhard received a copy of a draft of a proposed LLP deed (``the April 2009 Draft LLP Agreement'') (marked ``Draft 17.04.09''). I consider this in some detail starting at paragraph 78 below. Ondra contends that the essence of the April 2009 Draft LLP Agreement was that membership of Ondra was to be coterminous with the provision of services to Ondra as a member. The structure of Ondra was that the firm was to be owned by the active partners each of whom gives up his interest in the firm upon departure, without compensation for the loss of his share of the equity. The goodwill and value of any partnership share is thus kept within the firm and passed through the generations. Ondra's case is that the April 2009 Draft LLP Agreement was consistent with the vision for Ondra which the Defendants say was outlined to Mr Reinhard by Mr Tory and Mr d'Angelin in meetings prior to Mr Reinhard being offered employment, namely that ownership would cascade through the generations, and that departing partners would therefore not retain their share of the profits, nor be entitled to any payment for their share of Ondra.

  5. Mr Reinhard, in contrast, contends that, under the Contract, he was granted immediate membership of Ondra on such terms that his share could not be removed from him, and that he was, and remains, entitled to an ongoing share of the entire assets of the business, and of the profits, proportionate to his share. He contends that the Contract entitled him to a 1% share in Ondra including, but not limited to, its profits. This share, he says, increased to 2% in 2010 and should have increased to 3% in 2011. The Defendants' case is that the Contract gave Mr Reinhard only what they call a ``notional share''; they accept that that share, whatever rights it conferred, was increased to 2% in 2010. They dispute that it should have increased to 3% in 2011. It has been suggested during the course of the hearing that a full 3% share in Ondra, conferring income and capital rights, may be worth as much as £10 million. Mr Reinhard makes an alternative claim in misrepresentation.

  6. The Defendants point out that Mr Reinhard claims an interest which no other members of the firm have and claims that interest without being subject either to the terms of the LLP Agreement governing Ondra at the time of the Contract or on the terms which, according to the Defendants, were then proposed for such an LLP Agreement. In essence, as Mr Howe and Mr Croxford put it in their closing submissions, Mr Reinhard ``claims to be entitled to be a member of a club without being subject to any of its rules''. I will be looking closely later at what the club was and what its rules actually were. Mr Callman might put it another way and say that Mr Reinhard joined a club in its early days and that the committee of the club then attempted to impose rules on him which he had never agreed to and which they were not entitled to impose.

  7. Ondra terminated Mr Reinhard's employment in mid-2011; on the Defendants' case, this brought an end to any rights which he might have had in Ondra. He says that this dismissal was wrongful. Ondra's case is that it was entitled summarily to dismiss Mr Reinhard for breaches of Ondra's internal share dealing policy and for sending certain confidential information to his home email address. Mr Reinhard disputes the allegations and the Defendants' interpretation of Ondra's policy documentation; and he contends, in any event, that even on the Defendants' approach, his breach would not have justified summary dismissal. He claims for unpaid dividends, wrongful dismissal, underpayment of bonuses and unpaid expenses, all of which claims are denied by the Defendants. Ondra counterclaims for breach of fiduciary duty for a sum equivalent to the amount of Mr Reinhard's 2011 bonus.

    The Contract

  8. The construction of the Contract is central to the case. It was the culmination of negotiations which I will come to in due course and was contained in an offer letter dated 15 July 2009 from Ondra to Mr Reinhard by which Ondra made a formal offer of employment to Mr Reinhard. The relevant provisions of the Contract include the following:

    ``We are delighted to extend to you the formal offer to join our firm. This letter sets out the terms and conditions of your employment with Ondra LLP (``Ondra''), and constitutes the principal statement of your employment particulars, as required by employment law.

  9. Your employment with Ondra will begin on 1 October 2009, or such later date as determined, but not later than 1 January 2010 (the ``Commencement Date'')...

    Your employment will continue for the standard initial period of three months from the Commencement Date (the ``Initial Period'') and thereafter until it is terminated by either you or Ondra giving to the other not fewer than three months notice in writing, such notice to be given to expire at any time after the Initial Period.

  10. You will be based in Ondra's offices and you will initially report to the founding partners. You will join as a Managing Director and whilst your overall job description is to work as a core part of Ondra's senior professional team to help our clients and in this way to contribute to building Ondra's business over the longer term, your initial focus will be to build a strong M&A execution practice and longer term to help develop the firm's broader relationships in the continent more generally.

  11. You will initially be granted a 1.0% share of the partnership. This level of ownership interest will be reviewed each year in the light of your performance. Every two years, starting from the 1 March 2009, Managing Directors will be formally reviewed for potential election to the corporate title of Partner.

  12. Upon finalization of your exit from your existing employer we are prepared to review whether an upwards adjustment to the initial ownership % may be appropriate.

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  13. During your employment you will:

    ...

    · comply with all regulations, policies, reasonable requests and instructions made by Ondra;

    ...

    · comply with any Ondra policy from time to time in force in respect of share dealing and in particular, will not deal in any shares or securities in any company where you have, or may have material non-public information. Further, before dealing in any event in any shares or securities, you will always ensure that you give me two full working days' prior notice, to enable me to ensure that there is no possible conflict in you dealing in any such shares or securities.

  14. Your basic annual salary when you join will be £200,000 (the ``Salary'') and is payable, less statutory and voluntary deductions, monthly in arrears in equal instalments by direct bank transfer on or about the last working day of each month.

    The Salary will be reviewed annually by Ondra and any change notified to you.

    ....

  15. In addition to the Salary, you will be reimbursed for all reasonable expenses properly, wholly, exclusively and necessarily incurred by you in the performance of your duties for Ondra, upon production of receipts or other evidence for them that is satisfactory to Ondra. You will also be eligible to receive a discretionary bonus. The partnership will take into account various factors in exercising its discretion, such as the performance of Ondra as a whole and your individual contribution to the partnership.

    ....

  16. Ondra will assist with relocation expenditure and will reimburse expenditure on...

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