BL-2023-001505 - [2025] EWHC 2156 (Ch)

Despite the requirement in paragraph 2.1 of the Option Certificate that the EBITDA performance targets be exceeded in three consecutive years, in practice the Plan was operated to apply where the target was met in any one year, thus enabling tranche 1 options to be exercised based on 2013 results alone. The performance targets were then later amended, and tranche 2 was sub-divided into tranches 2A and 2B such that, by 2018, the normalised EBITDA targets were £32 million (2A), £41 million (2B), and £52 million (3). It is implicit in this, and in the way in which option holders were permitted to exercise their options, that the requirement for targets to be met by no later than 2017 was also amended.

Mr Dixon diligently checked the defendant’s financial results each year after his departure from Canadean. It is clear that he subjectively understood that his share options had not lapsed and that he would remain entitled to exercise them. Whilst he accepted in cross-examination that he did not read the Plan rules when the Settlement Agreement was negotiated, and that he was not familiar with the provisions of rule 7.1, his subjective understanding was not challenged.

He indicates that he became aware on 6 March 2020, on reading the defendant’s annual report for the previous year, that the tranche 2 EBITDA targets had been met. After several exchanges with Mr Graham Lilley, the defendant’s Chief Financial Officer, and others, the defendant indicated to Mr Dixon that his options had lapsed when he left Canadean’s employment, Mr Lilley writing to him on 29 April 2020:

After taking legal advice, and after communications between the parties’ solicitors, Mr Dixon sent an exercise notice in relation to tranche 2 on 15 December 2020 in exercise or purported exercise of his rights under the Plan.

Having seen that the defendant had extended the right to exercise the third tranche of options by an additional year, Mr Dixon exercised or purported to exercise rights in relation to tranche 3 by an exercise notice sent on 1 April 2022.

No point is taken on the form of notice served by the claimant. That is not the objection taken by the defendant to the claim.

Mr Lilley’s evidence on behalf of the defendant is that a record is maintained by the defendant of those option holders who continue to hold options capable of being exercised. In his witness statement, he said this:

There is no reference to ‘good leaver’ or ‘bad leaver’ status in the Plan rules or in any documentation provided to Mr Dixon concerning his own options. The concept of a ‘Bad Leaver’ was introduced as an amendment to the Plan in 2022 for those who had deferred their right to exercise options. It was there defined narrowly, to exclude the right to exercise for those who were summarily dismissed, in continuing breach of their contract of employment or had breached post-termination restrictive covenants.

Mr Lilley explained that option holders under the Plan, whose options were due to lapse in January 2021, were permitted to exercise their options outside the ten-year period stipulated in the Option Certificate. He said:

Consideration of the Share Option Tracker or spreadsheet reveals that the individuals other than current employees were mostly former employees who had departed in order to work for another company controlled by Mr Michael Danson, majority shareholder in the defendant, who was its Chairman in 2014 and is now its Chief Executive Officer. Mr Pyper himself also retained options. Mr Joe Terreni, another former employee, also retained options after his departure; his settlement agreement provided that he would retain his options ‘in lieu of [his] existing grant’, to ‘vest on the Tranche 3 performance trigger being satisfied’. Mr Parfitt suggested that roughly 5/9ths of the subsisting options showing on the spreadsheet and due to lapse in January 2021 were held by current employees, and 4/9ths by former employees. It was not suggested that this calculation of the split was inaccurate. The spreadsheet shows Mr Dixon’s options having lapsed after 2014.

Mr Lilley’s evidence is that the revised performance target for tranche 3 was not going to be met in 2020, i.e. before the options granted in 2011 would lapse in accordance with rule 6.2 of the Plan rules. This was because of the effect of the COVID pandemic on the defendant’s operations.

The defendant created a new plan in 2020, which gave those who had extant, expiring options at the end of the term of the Plan an equivalent number of new share options in the new plan. Mr Dixon was not included. As with the tranche 2 exercise, Mr Lilley’s evidence was that he was advised that Mr Dixon’s options had not been extended beyond his departure from Canadean, and so he was not included in the new 2020 plan.

By the time the defendant came to consider how to give effect to the third tranche of entitlement, which was not to be met before the expiry of extant options granted in January 2011, the defendant was very much aware of Mr Dixon’s claim. Thus, Mr Lilley wrote to Mr Danson on 31 July 2020, saying the following in relation to that point:

The other individual referred to is Mr Mark Meek, CEO of the defendant until 1 July 2012. In his evidence on the first day of the trial, Mr Lilley indicated that he was unaware of a settlement agreement with Mr Meek, but a copy of such an agreement dated 5 April 2012 was disclosed by the defendant on the second day of the trial, together with an undated and draft copy of Mr Pyper’s settlement agreement and a complete copy of that entered into with Mr Terreni on 24 May 2019.

Further, a document headed ‘Review of the 2010 Share option Scheme’ and dated 3 December 2020, referred to the previous remuneration committee meeting on 17 November 2020, and noted the expiry of options on 1 January 2021. The paper went on:

Mr Lilley accepted in evidence that the proposal that was approved was for all option holders whose names appeared on the spreadsheet to be included in the new plan. That included the former employees on the list, but not Mr Dixon, whose claim was known but whose options appeared from the spreadsheet to have lapsed when he left employment.

In the event that the claimant succeeds, accordingly, questions will arise as to his entitlement to the value of the tranche 2 exercise. I did not understand the defendant to deny that, if the options were extended to the end of the ten-year term, Mr Dixon would have been entitled to exercise them, because the revision of the performance targets to enable that exercise (as tranche 2A and 2B) was for all existing option holders. The correct date for valuation is, however, not agreed. The claimant also contends that the defendant either in fact included the claimant within the new scheme created to give effect to the tranche 3 entitlements, alternatively that his exclusion from the new scheme was irrational within the meaning of Braganza v BP Shipping Ltd [2015] 1 WLR 1661.