Phosagro Asia Pte Ltd v Piattchanine, Iouri

• Jurisdiction: Singapore
• Judge: Andrew Phang Boon Leong JA,Judith Prakash JA,Tay Yong Kwang JA
• Judgment Date: 28 October 2016
• Court: Court of Appeal (Singapore)
• Docket Number: Civil Appeal No 200 of 2015
• Date: 28 October 2016

Phosagro Asia Pte Ltd

and

Piattchanine, Iouri

[2016] SGCA 61

Andrew Phang Boon Leong JA, Judith Prakash JA and Tay Yong Kwang JA

Civil Appeal No 200 of 2015

Court of Appeal

Contract — Contractual terms — Fundamental breach — Whether employee's utilisation of ‘Expense Accounting Practice’ amounting to fundamental breach of contract

Employment Law — Contract of service — Misconduct — Whether employee's utilisation of Expense Accounting Practice amounting to serious misconduct — Whether employer entitled to terminate employee without notice

Facts

Civil Appeal No 200 of 2015 centred on the question of whether plaintiff-employee (‘the Respondent’), who was employed as the managing director of the defendant-employer (‘the Appellant’), had been guilty of serious misconduct or wilful breaches of his employment contract (‘the Employment Contract’) such that the Appellant was entitled to terminate his employ without having to make payment in lieu of notice.

The Respondent was previously the sole director and shareholder of Asiafert Trading Pte Ltd (‘Asiafert’) and in February 2013, he entered into a share purchase agreement (‘the SPA’) with Phosint Trading Limited (‘Phosint’) for the latter to purchase Asiafert from him. After Phosint bought over Asiafert, they named it to Phosagro Asia Pte Ltd (ie, the Appellant). Pursuant to the terms of the SPA, the Respondent's employment as managing director of Asiafert was to be continued on mutually agreeable terms. This led to the signing of the Employment Contract under which the Respondent had wide-ranging powers to run the Appellant's business and entertain actual or potential business partners. The Respondent did not have to report to anybody when making day-to-day financial decisions and there were no rules relating to the corporate governance of the Appellant imposed by the new owners. However, under cl 3 of the Employment Contract (‘Cl 3’), the Respondent was obligated to ‘faithfully serve the Company in all respects and use his best endeavours to promote the interests of the Company’. Further, pursuant to cl 20 of the Employment Contract (‘Cl 20’), if the Respondent was guilty of any ‘serious misconduct’ or ‘wilful breach’ of any of the contractual stipulations, the Appellant would be entitled to terminate his employment without any notice or payment in lieu of notice.

The factual matrix of the dispute concerned an expense accounting practice which was utilised by the Respondent in the running of the Appellant (‘the Expense Accounting Practice’). Under the Expense Accounting Practice, the Respondent would submit his credit card expenses together with supporting receipts to the Appellant's external accountant, Tricor Singapore Pte Ltd (‘Tricor’) on a monthly basis. The Respondent used the credit card primarily for corporate expenses, although he would occasionally use it for personal expenses as well. After submitting the credit card statements, the Respondent would then sign a cheque to himself as reimbursement for all his expenses. According to the Respondent, at the end of the financial year, Tricor would identify expense claims that the Respondent was not, or appeared not to be, entitled to and seek reimbursement from him.

On 28 February 2014, the Respondent received a termination letter from the Appellant wherein it was stated that the termination was made ‘pursuant to the terms of the [E]mployment Contract’. Subsequently, the Appellant discovered that the Respondent had been utilising the Expense Accounting Practice and sent him another termination letter, dated 18 March 2014, purporting to terminate his employment on the basis that he ‘[had] been guilty of serious misconduct and/or [had] not acted in the [Appellant]'s best interest and/or [had] acted in breach of [his] fiduciary duties to the [Appellant]’. The Appellant therefore refused to provide any payment in lieu of notice, which led the Respondent to commence Suit No 404 of 2014 to make a claim for such payment. The Appellant, on the other hand, brought a counterclaim for what it alleged to be unauthorised personal expense payments that the Respondent had reimbursed himself for under the Expense Accounting Practice.

In the suit below, the High Court judge (‘the Judge’) found, first, that the Appellant was justified in relying upon the misconduct of the Respondent to justify the termination of the Respondent's employment notwithstanding that it (the Appellant) was only made aware of such misconduct after the 28 February 2014 termination letter had been sent. Secondly, the Judge held that although the Respondent had breached Cl 3 by utilising the Expense Accounting Practice, this did not amount to ‘serious misconduct’ or a ‘wilful breach’ within the meaning of Cl 20 as the breaches complained of were not deliberate or so serious that they struck they struck at the root of the Employment Contract or destroyed the confidence underlying the Employment Contract. Therefore, the Judge held that the Appellant was not entitled to rely on Cl 20 to terminate the Employment Contract and, consequently, the Respondent was entitled to one year's salary under cl 14 of the Employment Contract as well as three months' salary for payment in lieu of notice. In so far as the Appellant's counterclaim was concerned, the Judge found that, apart from a few expense claims, the Respondent was able to provide reasonable explanations for the expenses which he was queried upon in cross-examination. The Judge therefore found that the Appellant had not discharged its burden of proof vis-?-vis its counterclaim, and only allowed the counterclaim in part.

This led the Appellant to commence the present appeal wherein the Appellant argued that the Respondent was guilty of ‘serious misconduct’ and ‘wilful breaches’ of the Employment Contract. Further, the Appellant sought to rely on s 108 of the Evidence Act (Cap 97, 1997 Rev Ed) to argue that it only had to show a prima facie case that the expense claims were personal in nature and that, thereafter, the burden was on the Respondent to show that the claims had, in actual fact, been properly and reasonably incurred.

Held, allowing the appeal in part:

(1) The central question that arose for consideration was what guidelines should apply in determining whether there had been ‘serious misconduct’ under Cl 20. In the absence of any guidance from the terms of the contract itself, there was a danger that any standard set by the court might be viewed as arbitrary. Therefore, the most principled approach would be to look to the common law principles relating to discharge by breach (ie, a repudiatory breach), as set out in RDC Concrete Pte Ltd v Sato Kogyo (S) Pte Ltd[2007] 4 SLR(R) 413 (‘RDC Concrete’), for guidance: at [49].

(2) While the Judge was correct in finding that for there to be ‘serious misconduct’, it had to have been misconduct which was so serious as to constitute a ‘repudiatory breach’, he did not apply all the principles laid down by the court in RDC Concrete and had only focused on Situation 3(b) in RDC Concrete. However, the legal principles set out in RDC Concrete was of general application to all contracts and therefore ‘serious misconduct’ would include the breach of important terms of the Employment Contract; such terms would be termed ‘conditions’ pursuant to Situation 3(a) in RDC ConcreteENR: at [51], [53] and [54].

(3) With respect to the issue as to whether Cl 3 was a condition, it was essential to ascertain the intention of the contracting parties by construing the actual contract itself in the light of the surrounding circumstances as a whole. On the present facts, the Appellant had formerly belonged to the Respondent, who was now its employee and whose duty was to ensure that he did not take advantage of his insider knowledge to advance his own interests, but prioritise the welfare of the Appellant instead. It had to be emphasised that the Respondent was in a unique position of being entrusted with a significant degree of authority, responsibility and independence in the conduct of the Appellant's affairs. This was made abundantly clear from the fact that the Respondent had the sole authority to reimburse himself for the expenses which he incurred. In the court's view, it was precisely because the Respondent had previously been the sole shareholder and director of Asiafert that he was accorded such autonomy in the running of the Appellant. With such trust being reposed in the Respondent, one would expect that a clause (ie Cl 3) which placed the obligation on the Respondent to ‘well and faithfully serve the [Appellant] in all respects and use his best endeavours to promote the interest of the [Appellant]’ would have been intended by the parties to be of the utmost importance. Therefore, Cl 3 was, in law, a ‘condition’ within the meaning of Situation 3(a) in RDC Concrete and given that there had been a clear breach of that particular clause, that breach did constitute ‘serious misconduct’ within the scope of Cl 20: at [57] to [59].

(4) The Respondent's breach of Cl 3, however, did not fall within the purview of Situation 3(b) in RDC ConcreteENR as this particular breach did not detract from the overall contributions of the Respondent to the Appellant, such that the Appellant could be said to have been deprived of substantially the whole benefit of the Employment Contract. However, even though Situation 3(b) was not applicable to the present case, Situation 3(a) was applicable, and this sufficed for the court to find that there had been ‘serious misconduct’ within the meaning of Cl 20: at [59] and [61].

(5) The Respondent had not committed ‘wilful breaches’ of the Employment Contract within the meaning of Cl 20 as the Respondent had genuinely believed that what he had done was correct (notwithstanding the fact that they constituted breaches of contract): at [64].

(6) Section 108 of the Evidence Act was the exception to the rule that the party who desired any court...