Signia Wealth Ltd v Vector Trustees Ltd & Ors

A contractual good-leaver/bad-leaver regime is construed according to its wording and purpose. An employee may be a leaver when employment ends even if a directorship continues. Constructive dismissal may constitute notice for a good-leaver provision, but the employee remains outside that provision if in breach of the employment contract. An employer’s right to dismiss summarily may be relevant even where it was never exercised. A contractual expenses clause requiring expenditure to be reasonable, necessary and wholly incurred in performing duties does not cover personal expenditure merely because it involves clients or may generate business. The civil test for dishonesty is subjective knowledge or belief assessed against the objective standards of ordinary decent people.

Signia sought declarations concerning the compulsory transfer of shares held for Nathalie Dauriac under the company’s articles. Dauriac disputed her classification as a leaver, the circumstances ending her employment, the valuation process and the value attributed to her B and C ordinary shares. She also advanced claims concerning constructive dismissal, breach of contract, inducement and conspiracy.

The court considered whether Dauriac was a good or bad leaver, whether the transfer process had been properly followed, and how the shares should be valued where no exit had occurred.

1. Leaver status. The definition of “Leaver” operated in the alternative. A person who was both employee and director became a leaver when either status ended. Dauriac therefore became a Leaver when her employment ended, notwithstanding that she purported to remain a director.
2. Employment termination. Signia’s attempt to impose onerous conditions on Dauriac’s continued employment, including a confession, financial responsibility for losses, a reduced role and psychiatric assessment, was a repudiatory breach of the implied term of trust and confidence. Dauriac accepted that breach on 21 January 2015 and was constructively dismissed.
3. Expenses and summary dismissal. Clause 9 required expenses to be reasonable, necessary and wholly incurred in the proper performance of employment duties. Client-related social trips, personal travel, gifts, hairdressing and similar expenditure fell outside that clause. Applying the civil dishonesty test, Dauriac knowingly submitted improper expenses and altered descriptions to conceal their nature. The conduct constituted gross misconduct and would have entitled Signia to dismiss summarily, although that right was not exercised.
4. Good or bad leaver. Constructive dismissal amounted to notice under Limb A, and the five-year requirement was satisfied. However, Dauriac was in breach of her employment terms and therefore failed Limb A. Limb B applied only where Signia itself terminated employment by summary dismissal or notice; it did not cover constructive dismissal. Dauriac was consequently a Bad Leaver.
5. Valuation. The company and Investor had not made a binding determination of Fair Value, and the objection to the provisional valuation was effective. Exit Value was irrelevant because no Exit had occurred. Fair Value required consideration of the rights attaching to the shares, including the materially inferior exit rights of B and C ordinary shares, and required net debt to be deducted. The court assessed Fair Value at £790,000, allocated £161,200 to the B shares and £628,680 to the C shares. Applying the bad-leaver provisions, damages were £511,510 less the nominal price paid.
6. The penalty doctrine did not apply. The compulsory transfer provisions were part of a shareholding regime triggered by events not necessarily involving breach, and served legitimate commercial purposes.