Leiman, Ricardo v Noble Resources Ltd [2020] SGCA 52: A photo of Noble Group. (Photo credits: Reuters)

CASE SUMMARY

The rules of natural justice comprise 2 elements. First, every party to a dispute shall be entitled to a fair hearing. Second, the tribunal tasked with determining the dispute shall be impartial and independent.

However, the rules have its origins in administrative law. To what extent then, if at all, do they apply in the realm of private law, specifically, in a contractual context between an employer and employee? That was the issue that confronted the CA in Leiman, Ricardo v Noble Resources Ltd [2020] SGCA 52.

Mr Leiman was the Chief Executive Officer of the Noble Group (“Noble”). In that capacity, he was entitled to share options and shares of the company. 

In 2011, differences arose between Mr Leiman and Noble and they decided to part ways. To that end, Mr Leiman and Noble entered into a Settlement Agreement (“SA”) which, among others, governed the treatment of Mr Leiman’s entitlement to the share options and the shares. Specifically, Clauses 3 (c) and (d) (“the Clauses”) read: 

(c) [Mr Leiman] shall be entitled to exercise the outstanding 7,727,272 options he holds in the Noble Group Limited Share Option Schedule 2004 vesting on 2nd April 2012 as well as all options vested to date but unexercised, in each case provided he does so exercise on or prior to 2nd April 2013 and provided that prior to exercise he has not acted in any way to the detriment of Noble and the Remuneration & Options Committee (“the R & O Committee”) of Noble shall make a final determination in the event of any dispute.

(d) [Mr Leiman] holds 17,276,013 restricted shares of NobleGroup (the “Restricted Stock”). The Restricted Stock and allaccrued dividends shall vest and become free of transferrestrictions in accordance with its term of grant provided [Mr Leiman] does not act in any way to the detriment of Noble and the [R&O Committee] of Noble shall make a final determination in the event of any dispute.

As can be seen, the Clauses conferred on the R & O Committee the right to make the “final determination” on whether Mr Leiman had acted in any way to the detriment of Noble. If the R & O Committee determined that he had, then Mr Leiman would lose all his options and shares. 

After the SA was signed, the R & O Committee received certain information concerning Mr Leiman’s activities which led it to make the “final determination” that he had acted to the detriment of Noble. Notably, it made that determination without giving Mr Leiman notice of Noble’s case against him. Noble therefore exercised its rights under the Clauses to forfeit Mr Leiman’s rights to the options and shares.

Mr Leiman challenged the R & O Committee’s determination pursuant to the Clauses. Among other reasons, he contended that the R & O Committee had breached the rules of natural justice without affording him any hearing. The High Court dismissed his challenge. Mr Leiman appealed.

THE CA’S DECISION

Both sides accepted that the effect of the Clauses was to exclude the court from reviewing the substantive merits of the R&O Committee’s decisions unless it was shown that the R & O Committee’s decisions were made irrationally or in bad faith. The real controversy was whether the court could review the process by which the R & O Committee made its decisions. On this, the CA concluded on the basis of the terms of the SA that it may indeed review the R & O Committee’s decisions to ensure that they were made after applying a fair process. We now discuss the CA’s reasoning.

The CA began by nothing that the rules of natural justice are not confined to administrative law. However, it was quick to point out that “we do not consider that the rules of natural justice can arise as a matter of course outside the administrative law context and, more particularly, in the context of private contracts.” On this, the CA cited the example of claims by employees for wrongful dismissal observing that “it has not been the case that such claims can be mounted on the basis of the employee’s right to a fair hearing having been breached.” 

Drawing from various cases, the CA held that: 

“133 …….[t]here is no general requirement or expectation that a party purporting to exercise a particular contractual right, or to act in a particular way that might be prejudicial to the other party, has a general duty to act fairly, or a more specific duty to observe any particular requirements of natural justice. Contracting parties are generally entitled to act in their own interests. If, in doing so, it should turn out that a party has breached its contractual obligations, then it may be liable in damages.”

The general position could however be displaced:

“134 ……..by the terms that the parties have agreed on, whether expressly or impliedly. The court’s assessment of whether the exercise of a particular contractual right has been made subject to any duty of fairness or to the observance of any particular procedure will be a contextual one that duly considers the particular contractual right in question, the language of the provision setting out or conditioning the right, the consequences of any decision made under that provision and what, if anything, was contemplated by way of any procedural requirements. As a claim that any requirement of fairness has been breached is in actuality a claim in breach of contract, the first port of call must always be the terms of the contract.”

In short, the party who wishes to place reliance on the breach of the rules of natural justice must establish that the terms of the contract, either expressly or impliedly, subject the contracting parties to a duty of fairness or to the observance of any particular procedure. 

The CA thus went on to examine the Clauses. It noted the following points:

  • The R&O Committee’s jurisdiction would only be triggered if Mr Leiman had allegedly done something that amounted to acting “to the detriment of Noble”.   
  • The R&O Committee was specifically designated to make a final determination, in a very specific circumstance, on the issue of whether Mr Leiman had acted to the detriment of Noble. That circumstance was “in the event of any dispute”. This meant 2 things: 

(a) The requirement in cll 3(c) and 3(d) of the SA that the R&O Committee act “in the event of any dispute” depended on the existence of a contention that Mr Leiman had acted to the detriment of Noble, and self-evidently, only Noble could make such an allegation.

(b) Once Noble did make such an allegation, it would be necessary to determine whether there was a dispute between Noble and Mr Leiman as to the validity of the allegation. Hence, any such allegation had to be put to Mr Leiman, so that he could decide whether he was going to dispute it.

(c) In the event of a dispute, the R&O Committee’s determination as to whether Mr Leiman had acted “to the detriment of Noble” would be final. If the R&O Committee made a determination against Mr Leiman under cll 3(c) and 3(d), he would lose his financial rights in the Share Options and the Shares.

In the view of the CA: 

“140 ……it is implicit from the combination of these three points that Mr Leiman had to be given notice of Noble’s allegations that he had acted to its detriment, and if necessary, the basis for its allegations, before the R&O Committee was even activated to make its determination. This was to enable Mr Leiman to decide whether he wished to dispute the allegations. As noted above, it was only if the allegations were disputed that the R&O Committee would be activated to make a determination. Once the R&O Committee’s jurisdiction was thus engaged, and after it was apprised of Noble’s reasons for its allegations, it was inevitable that the Committee had to afford Mr Leiman an opportunity to put forward his reasons for disputing the allegations before it exercised its power to make a final determination as to whether Mr Leiman had acted “to the detriment of Noble”.”

Having settled the legal principles, the CA then examined the facts surrounding the R & O Committee’s determination that Mr Leiman had acted to the detriment of Noble. It found that: 

  • Mr Leiman was not made aware of the allegations against him and neither was he afforded the opportunity to decide whether he disputed them, and if so, to respond to them.
  • As no information was provided to Mr Leiman regarding the case against him, Mr Leiman was never in a position even to decide whether to dispute the allegations in the first place.   

In the circumstances, the CA concluded that there was therefore no valid “final” determination for the purposes of the Clauses and the R & O Committee’s decision was invalid. 

CONCLUDING REMARKS

This decision is welcome as it shines light on the circumstances under which the rules of natural justice are triggered in a private law context. 

To read the full judgment, click here.