Super-Max Offshore Holdings v Malhotra & Anor

An employment contract must be construed in its contractual and commercial context. Where shareholder arrangements reserve appointment or removal of a chief executive to a shareholder, an executive chairman cannot evade that restriction by describing an indefinite suspension as temporary. Gross misconduct comprises breaches sufficiently serious to amount to repudiation, assessed by their effect on the employment relationship and mutual trust and confidence. A repudiatory breach cannot unilaterally be cured, although the innocent party may lose the right to terminate by unequivocal affirmation. A contractual discretion affecting parties with conflicting interests ordinarily carries an implied term against arbitrary, capricious or irrational exercise. The court reviews the decision-making process and applies a high threshold akin to Wednesbury unreasonableness.

The claimant, a Cayman Islands company heading a razor-products group, employed the defendant as executive chairman. The parties’ shareholder arrangements gave Actis, a minority investor, consent rights over reserved matters, including appointing or removing the group chief executive.

During a shareholder dispute, the defendant suspended the chief executive, assumed that role, dismissed senior employees, operated a parallel management structure and undermined senior management. The claimant, acting on Actis’s instructions, terminated his service contract for gross misconduct. The defendant challenged the validity and authority of the termination and counterclaimed that Actis had unreasonably withheld consent to the chief executive’s removal.

1. Construction of the contractual arrangements. The service contract had to be read with the shareholder deed, articles and Authority Matrix. The reserved-matter provisions required Actis’s written consent for appointment or removal of the chief executive. An indefinite suspension which removed the chief executive from performing his functions was a removal in substance. The defendant’s suspension, assumption of the chief executive role, dismissal of senior employees and restructuring therefore breached the service contract.
2. Gross misconduct. The defendant’s conduct breached express obligations to comply with the articles, Authority Matrix and Code of Conduct, and implied duties of good faith, fidelity and mutual trust and confidence. His conduct included a deliberate coup, sustained abuse and disparagement, encouragement of the exclusion of senior management, maintenance of parallel management through another employee, and an attempt to mislead the Advisory Board. Taken cumulatively, these breaches were sufficiently serious to amount to repudiation and gross misconduct.
3. Cure and affirmation. A repudiatory breach could not be unilaterally cured. The breaches were in any event continuing, and cessation would not have repaired the destruction of trust. The claimant had not affirmed the contract: it was investigating the conduct while continuing to assert its right to terminate, and the claimant lacked full knowledge of the relevant facts before termination.
4. Actis’s authority. Clause 16.3 authorised prosecution of accrued rights of action but did not authorise creation of new termination rights. Clause 16.4 did confer authority to instruct termination. Under the articles, the Actis-nominated director could give effect to that instruction because the other directors were bound to recuse themselves. The termination was therefore duly authorised.
5. Counterclaim. Actis’s consent discretion carried an implied term against arbitrary, capricious or irrational exercise. However, no request for consent had been made to Actis, and the counterclaim therefore failed. In any event, retaining the chief executive was a rational and tenable decision in light of the group’s circumstances and the absence of a suitable replacement.
6. The defendant was in breach of the service contract, which was validly terminated on 10 February 2017. The counterclaim was dismissed. The court reserved the appropriate form of relief.

First-instance decision. No appellate history is stated in the judgment.