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

The material questions are whether the defendant exercised its discretion to extend the period when the claimant could exercise his options (and, if so, on what terms) and, if so and the relevant action was taken by Mr Pyper, whether Mr Pyper had authority to do so. The question whether there was an exercise of discretion is logically prior to that of whether the person carrying out the discretion had authority to do so. There is no document in this case expressly stating that it is or purports to be an exercise of the rule 7.1 power. The questions whether Mr Pyper did in fact purport to exercise the power on behalf of the defendant and, if so, whether he was authorised to do so are accordingly interlinked.

The claimant’s primary case is that, as a result of the way in which his Settlement Agreement was negotiated with Mr Pyper and agreed, the defendant made an exercise of discretion in his favour, pursuant to rule 7.1 of the Plan. Paragraph 14 of the amended particulars of claim sets out the claimant’s position in this way:

In the re-re-amended defence, the defendant pleads that its remuneration committee was authorised to exercise the power at rule 7, that such committee made no exercise of the power, and that Mr Pyper was not authorised to exercise the power. Paragraphs 3 and 5 of the re-re-amended reply make the following points relevant to an understanding of the claimant’s case as to authority.

In commencing his closing submissions, Mr Parfitt submitted that this is a claim about enforcing a bargain. The claimant, however, does not plead that as a result of the facts relied on he entered into a new contract with the defendant upon entering into the Settlement Agreement with Canadean, or that his existing contractual relationship with the defendant in accordance with the Plan rules was varied absent an exercise of discretion in his favour. He pleads that the defendant exercised the rule 7.1 power in his favour. His primary case clearly relies upon there having been such an exercise, and the submissions at trial proceeded accordingly.

The claimant’s argument proceeds in this way. The power in rule 7.1 is to be exercised by the Grantor. In relation to an option granted by the company, the Grantor is defined by rule 1.1.15 as the Board. The Board is then itself defined by rule 1.1.5 as ‘the board of directors of the Company or a duly authorised committee thereof’. The defendant’s articles as they stood in 2014, consistent with Table A, permitted delegation of any of the board’s powers, authorities or discretions to a committee of one or more other persons. It is also clear on authority that such delegation may be made to an individual: see Re Taurine Co Ltd (1883) 25 ChD 118.

Mr Parfitt submitted that Mr Pyper had either actual or ostensible authority to exercise the power. He relied on the decision of the Court of Appeal in Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 and, in particular, to the summary of Lord Denning MR at 583:

Mr Parfitt acknowledged that, for there to have been actual authority, the board of the defendant would have needed to make an express decision. He did not suggest that actual authority to exercise the rule 7.1 power might be implied merely from Mr Pyper’s appointment as CEO; reliance was placed instead on the circumstances of the case. Accordingly, the submission is that Mr Dixon was given every indication that Mr Pyper was fully authorised to exercise the rule 7.1 power. He thus had ostensible authority to exercise it and also to agree the revised settlement deal with Mr Dixon.

Pausing there, I would note that Mr Nicholls accepted that it would in theory have been possible for an individual to be given actual authority to exercise the rule 7.1 power. The defendant’s case is that the evidence does not support the conclusion that Mr Pyper was so authorised or that he in fact did exercise the power.

With the above points on authority in mind, the claimant’s case on the exercise of rule 7.1 on the facts proceeds further as follows.

As at September 2013, the claimant had already validly exercised his options for the purposes of tranche 1. By paragraph 6.3 of the Plan rules, options normally cease to be exercisable as soon as an option holder is given notice of termination of employment. No further results were to be published before the claimant’s employment within the group was to end, on the basis of the extension of that employment to 31 December 2014. Accordingly, there was no possibility in accordance with the rules as they stood, and the application of the performance targets set out in the option certificate (even as already varied by the company such that the targets required to be satisfied in only one year rather than three years), of the claimant receiving any further benefit before his employment came to an end. And a strict application of paragraph 2.6 of the terms in the option certificate would provide for the period for ascertainment of the performance conditions in the option certificate to end with the termination of employment. Accordingly, submits Mr Parfitt, Mr Pyper on behalf of both the defendant and Canadean must have been offering the claimant something other than what he would have been entitled to merely by his options remaining enforceable until the end of his employment in December 2014.

The claimant further relies on the circumstances in which Mr Pyper came to be involved in negotiations. It is, he submits, apparent from the unchallenged evidence and from the face of the 29 September 2014 letter that Mr Pyper stepped in because it was considered that something had gone wrong with the way in which the claimant had been informed that his employment was to end. It is also apparent that the defendant believed that it was in its interests for Mr Dixon’s employment to be extended beyond the initially intimated termination date and that something ought to be offered to him in return for that.

The claimant relies also on what was described as a ‘black hole’ in the evidence. This refers both to the absence of documentary evidence from 2014, because the defendant had not retained its records following its change of IT system in 2019, and the absence of evidence, notably from Mr Pyper or from Mr Danson, who must given his position have known what was going on in 2014. There are no contemporaneous records of communications with the remuneration committee, nor any contemporaneous internal email correspondence. Mr Parfitt submitted that I should make adverse inferences from the failure to call evidence from others who would be better placed to comment on what the defendant did in 2014 than was Mr Lilley, who was not directly involved at that time and gave evidence of the defendant’s procedures from information he had acquired later. In particular, Mr Pyper agreed as part of his own settlement agreement on departure from the defendant to assist the defendant in any way, including by preparing witness statements and giving evidence in legal proceedings. Mr Lilley indicated that he had spoken to Mr Pyper following intimation of the claim and the absence of evidence from him should be taken as an indication that he could not give any evidence that was helpful to the defendant and an adverse inference should be drawn from the lack of such evidence.

Mr Parfitt made a number of forensic points about the 29 September 2014 letter, and its covering email:

The claimant’s position is that Mr Pyper exercised the rule 7.1 power himself, not by writing the 29 September 2014 letter, but that letter is evidence that the power was so exercised. As I have stressed in setting out this discussion of the claimant’s primary case, Mr Dixon accepts that on such case he must demonstrate that the rule 7.1 power was exercised. His case is that it was exercised by Mr Pyper.

Mr Nicholls responded by submitting that any exercise of the power would have to contend with the requirements of rule 7.1 itself. That rule states that any exercise will be to permit the continuing exercise of share options ‘at any time during such period and on such basis and subject to conditions as the Grantor determines’. The Grantor is, as set out above, the Board of the defendant or its appointed committee. If Mr Pyper was the appointed committee then, in order to exercise the power, he would have had to determine the matters required by the rule.

Two points are then derived from this analysis. First, the failure or apparent failure of Mr Pyper to specify the basis on which the claimant’s options might be exercised shows that he never purported to exercise the power, and/or was not authorised to do so (and I will mention ostensible authority separately further below). Secondly, the lack of determination on these points means that even if Mr Pyper was authorised to and did purport to exercise the rule 7.1 power, his exercise was invalid on the grounds of uncertainty. No conditions were ever determined, unlike in the case of Mr Pyper’s own settlement agreement (which was with the defendant and not with Canadean), which expressly included an exercise of the rule 7.1 power, including a statement of the basis on which it could be exercised.

Mr Parfitt responded to the second point on certainty, that it was a matter of interpretation, and that the usual principles of contractual interpretation should be applied to ascertaining what was intended. On the claimant’s case, what was intended by the words of the 29 September 2014 letter – ‘will vest in line with current conditions’ – is that the claimant would be left in the same position following the end of his employment as he was before he was given notice of termination of his employment, and therefore in the same position as all the other initial option holders granted options in January 2011. This would leave him subject to any revisions in entitlement applied by the company to other option holders, and not subject to the unrevised initial performance targets etc.

Mr Nicholls in turn responded to this interpretation by contending that the words in the letter mean no more than that the options would continue in existence until the end of Mr Dixon’s employment, at the end of 2014. As I have noted, under rule 6.3 of the Plan, options cease to be exercisable as soon as an option holder is given notice of termination of their employment. This would mean the disapplication of that rule. In practice, no benefit could accrue to Mr Dixon between September and December 2014, no further results would be announced in that period, and Mr Dixon would be restricted by paragraph 2.6 of the terms in the Option Certificate to reliance on results announced in previous years.

The difficulty with an approach to the issue relying on the principles concerning the interpretation of contracts or other instruments is that it relies on the 29 September 2014 letter as itself being an exercise of the rule 7.1 power, and then seeks to apply the canons of construction to that letter. But the letter is not, on the claimant’s case, an offer by the defendant to enter into a contract or to vary its existing agreement with him. It is an offer by Canadean (on whose behalf Mr Pyper was acting) to enter into the Settlement Agreement, which offer was accepted. Further, the claimant’s statements of case eschew the argument that the letter itself was an exercise of discretion by Mr Pyper acting on behalf of the defendant. Paragraph 5(c) of the amended reply pleads that the letter is evidence of an exercise of the discretion under rule 7.1 of the Plan. If the alleged exercise was undocumented, then it is unclear to what the principles of construction could apply. To repeat, it is not the claimant’s case that the words used in the letter became part of a contract; it is his case that they evidence the exercise of the rule 7.1 power. The rules as to the interpretation of contracts are used to construe the wording of documents. Whilst I agree that it is a relevant question whether the 29 September 2014 letter evidences the exercise of the rule 7.1 power, I do not consider that an interpretation of the words of the letter can determine whether the power was exercised.

I consider, rather, that the evidence as a whole supports the defendant’s case, that the rule 7.1 power was not exercised. Mr Lilley was not challenged on his evidence that it was the remuneration committee of the board, or the full board, which exercised the power. The other settlement agreements belatedly disclosed show that it was generally recognised, at least at the later times when they were executed, that a conscious exercise of the power was required, and that the terms on which the options could in future be exercised required to be determined and set out. Mr Lilley also gave evidence that, from the outset, Mr Dixon’s name was removed from the spreadsheet of option holders, suggesting that the then holder of the spreadsheet was not informed that a decision had been made that Mr Dixon’s options should continue. Mr Lilley was cross-examined as to what the remuneration committee would have done if the matter had been brought to its attention at the time when Mr Dixon left the company, and he readily accepted that it would have warranted proper consideration. That all points to the need for an exercise of the rule 7.1 power having been overlooked in 2014.

Further, it seems to me as a matter of logic that the power would in practice not be exercised before the relevant settlement agreement had been entered into. Whilst in theory the power might be capable of exercise contingently on a satisfactory settlement agreement later being made, the way in which the power was dealt with in the other settlement agreements which were (belatedly) disclosed by the defendant is coherent. In those cases, the rule 7.1 power was expressly exercised within (i.e. at the same time as) the settlement agreement in question, or new options were granted. It was no part of the claimant’s case that Mr Pyper might have exercised the power after he wrote the 29 September 2014 letter; this is said to be evidence of an exercise of the power. In my view that must mean an exercise by the time when that letter was written.

I do not consider that this is a point on which I can draw adverse inferences either from the lack of disclosure by the defendant (i.e. from the fact contemporaneous documents are no longer available) or from the failure to call Mr Pyper, Mr Danson or others. The way in which Mr Dixon’s options were treated at all material times as having lapsed, and Mr Lilley’s evidence as to how the tracking of options operates, suggests that the requirement for an exercise of the rule 7.1 power was overlooked by all concerned. It was not the claimant’s case that there was a lost or undisclosed minute of a meeting of the board, or of a signed written resolution, at which the power was delegated by the board to Mr Pyper, or that there was a similarly lost record of Mr Pyper having exercised the power unilaterally.

For these reasons, I find that there was no exercise by the defendant of the rule 7.1 power.

Strictly, there is no need separately to consider questions of authority. Mr Parfitt appeared, however, to suggest that the fact of an exercise of the power could be discerned in the circumstances of the case by reference to the principles of ostensible authority. He did not strongly press the suggestion that Mr Pyper had been expressly authorised by the board to exercise the rule 7.1 power, i.e. by the board applying its mind to that question and delegating the power in accordance with articles 102 or 103.1 of its articles as then in force. I agree with Mr Nicholls that there is no evidence that the board ever authorised Mr Pyper to exercise the rule 7.1 power as a delegated committee of one.

If it were possible to find that Mr Pyper had exercised the power, I accept that such an exercise would likely have fallen within his ostensible authority. See the analysis of Arden LJ in Smith v Butler [2012] BCC 645 at [28]–[30]:

This in principle affords wide ostensible authority to a CEO. I consider it probable that a CEO such as Mr Pyper could on the basis of this authority have ostensible authority to exercise a power such as the power at rule 7.1 of the Plan, if that were a necessary part of a transaction. So, if he had executed a written instrument purporting to exercise the power, the option holder would have been entitled to assume that he had been authorised to do so. Delegation to him would have been possible in accordance with the articles of the company, of which the person dealing with the director is deemed to have knowledge.

The question whether the CEO had such ostensible authority would arise, however, only if the power was in fact exercised. I agree with Mr Nicholls that that is not something that can be proven through reliance on ostensible authority. It must separately be established that the power was exercised before any question of ostensible authority can arise. Whilst Mr Parfitt did not put the point quite so starkly, his position when boiled down appears to be that, because Mr Pyper might unilaterally have exercised the power and his assurance could be given effect only if it was so exercised, the court should find that the power was exercised as Mr Dixon would have been entitled (if he had been aware of the point) to assume that Mr Pyper had authority to do so, and because he did assume that Mr Pyper did have authority to do whatever was required to give effect to his assurances. I do not consider that an analysis of this kind can show that Mr Pyper did in fact exercise the power, which would have required a conscious decision on his part and an awareness on his part that that is what he was doing.

For these reasons, I am not persuaded either that Mr Pyper was actually authorised by the board of the defendant to exercise the rule 7.1 power in favour of Mr Dixon or that he did in fact exercise it on behalf of the company. Accordingly, the questions whether the claimant was included in the tranche 2 options or the new scheme, and the Braganza issue, do not arise. The defendant did not resolve to extend the claimant’s options despite, as I go on to discuss, providing the claimant with an assurance that it would do so.