The case went to trial in March 2020 in the Queen’s Bench Division before Freedman J, with judgment handed down on 11 September 2020.Dr Comberg succeeded in his claims for:
- deferred remuneration owed to him under an oral agreement entered into with VivoPower prior to its formation, and prior to the execution of his service agreement in August 2016
- unpaid salary and other payments that had accrued prior to his acceptance of VivoPower’s repudiatory breach of the service agreement in November 2017
- wrongful dismissal damages.
The defence to Dr Comberg’s claim was founded on misconceived allegations of misconduct against Dr Comberg which were dismissed in their entirety in a judgment that is critical of the “wide-ranging”, “diffuse” and “tactical” nature of those allegations. The identical allegations were originally pursued as a Counterclaim valued at approximately US$27 million in respect of which VivoPower’s Directors & Officers insurance policy provided cover to Dr Comberg. The insurer settled the Counterclaim for a nominal sum (£100,000) which Freedman J took into account in his judgment, noting that if VivoPower “had any conviction in these allegations […] it is noteworthy that it was prepared to abandon the counterclaim so relatively cheaply”.
In his judgment, Freedman J also criticises VivoPower’s witnesses, noting that they “had difficulty speaking to their evidence in that it appears to have been prepared for them and has not been their own words”. .
In late 2015, Dr Comberg was introduced to Mr Kevin Chin, the founder of Arowana International Inc. (Arowana). In discussions with Dr Comberg, Mr Chin explained that he intended to establish a new solar power company and that he wanted Dr Comberg to serve as its CEO. This venture was subsequently incorporated as VivoPower.
Prior to the formation of the venture, in late 2015, Mr Chin orally agreed (on behalf of the unincorporated entity) to pay Dr Comberg a monthly salary until such time as a formal service agreement was entered into (the Deferred Remuneration Agreement). Dr Comberg commenced work for the new venture in January 2016 under the terms of the Deferred Remuneration Agreement, which remained in operation until a formal service agreement was entered into in August 2016.
After the service agreement had become effective in September 2016, Dr Comberg sought payment of his remuneration under the Deferred Remuneration Agreement. Payment was not forthcoming. This led to a breakdown in the relationship between Dr Comberg and Mr Chin which culminated in negotiations regarding Dr Comberg’s departure from his role as CEO in September 2017. The negotiations initially appeared likely to resolve the matter but unfortunately did not result in a resolution.
Dr Comberg therefore resigned on 12 months’ notice in October 2017. At the end of October 2017, however, VivoPower failed to pay Dr Comberg his salary and other monthly payments. Dr Comberg notified VivoPower that he had not been paid but VivoPower did not respond. Accordingly, on 3 November 2017, Dr Comberg accepted VivoPower’s repudiatory breach of his service agreement.
In response, after initially stating that Dr Comberg’s October 2017 salary and other monthly payments would be paid “imminently”, VivoPower raised after the event allegations of misconduct against Dr Comberg. The allegations served as VivoPower’s defence to Dr Comberg’s claim that it had committed a repudiatory breach of contract. After a period of pre-action engagement in which VivoPower failed to withdraw the allegations – despite evidence being provided to VivoPower that the allegations were baseless – Dr Comberg commenced proceedings in March 2018.
Deferred Remuneration Agreement
VivoPower denied that a binding contract was entered into with Dr Comberg in relation to his remuneration in the period before the commencement of his service agreement. VivoPower admitted in its Defence that it was agreed “in principle” that Dr Comberg would receive a monthly fee for his work for VivoPower. In advance of trial, however, VivoPower asserted that the agreement was in fact entered into with a third party. Freedman J dismissed this late assertion, relying on the contemporaneous evidence before the Court, and on the admission in VivoPower’s Defence.
Freedman J also rejected VivoPower’s argument that it was not liable for the deferred remuneration because the agreement was entered into prior to its incorporation on 1 February 2016. This was on the basis that VivoPower had admitted in its Defence that it had agreed a retrospective increase in Dr Comberg’s monthly fee following its incorporation. Freedman J held that this amounted to evidence that VivoPower entered into a new agreement through its post-incorporation conduct.
Non-payment of salary
Freedman J held that the non-payment of Dr Comberg’s October 2017 salary and other monthly payments was “a deliberate decision without cause” constituting a repudiatory breach of the service agreement. This was on the basis that, amongst other things, VivoPower had instructed its payroll provider to withhold the payment “because the parties were in [settlement] negotiations”. The express terms of the settlement negotiations were, however, that Dr Comberg would continue to be paid until such time as a settlement agreement was executed.
Freedman J held that the failure to make payment bore "the hallmarks of an employer who was seeking to impose pressure on an employee to accept a termination on its terms”. Dr Comberg was accordingly entitled to accept VivoPower’s repudiatory breach of the service agreement on 3 November 2017.
VivoPower raised the misconduct allegations as a defence to the claim that it had committed a repudiatory breach of the service agreement. In doing so, it sought to rely on the principle in Boston Deep Sea Fishing v Ansell (1888) 39 Ch D 339 that grounds for summary dismissal discovered after termination of a contract can be relied upon to defeat a claim for wrongful dismissal.
Freedman J dismissed the misconduct allegations in their entirety. In doing so, he:
- was highly critical of the fact that VivoPower only identified what it viewed as the most significant of its “diffuse” allegations part-way through trial (following a request from the Judge). Freedman J remarked that “there were so many allegations that not all of them were put, albeit that it is inevitable what the answers would have been had they been put since the case was dealt with so fully by Dr Comberg in his evidence”
- highlighted the inherent tension in allegations that Dr Comberg failed to oversee VivoPower’s budget or to properly present financial information to investors or the Board. The fact that Dr Comberg’s replacement as CEO was Mr Carl Weatherley-White, who was CFO during Dr Comberg’s tenure as CEO, could be seen as “an indicator that the allegations were not as real or as serious as is now claimed” since “[Mr Weatherley-White] would be expected to bear primary responsibility or at least as much responsibility as Dr Comberg. Instead, he went on to succeed Dr Comberg as CEO and gave evidence against him. This goes further than show unequal treatment: it undermines the allegation against Dr Comberg”
- held that VivoPower had no “reasonable belief” in the allegations. Its Board had a “determination to remove [Dr Comberg], led by Mr Chin”
- was extremely critical of VivoPower’s witness evidence which he described as “extreme, partisan and imprecise”, affected by “loyalty to Mr Chin”, “prepared to somebody else’s agenda”, “vague”, “unimpressive”, “unsatisfactory” and “evasive”. VivoPower’s witnesses were also described as being “unable to justify the force of their feeling against Dr Comberg”.
Freedman J concluded that VivoPower had “failed to prove the breaches of contract or any of [the allegations], let alone that breaches entitled it summarily to terminate the Service Agreement”.
The judgment demonstrates that, whilst oral agreements are more difficult to establish than written contracts, they are capable of being substantiated where supported by contemporaneous documentation. In addition, the judgment provides an example of a pre-incorporation agreement binding a company in circumstances where the contractual burden was taken on by the company following its incorporation. This is particularly important in relation to start-up companies (such as in this case), where contracts are often entered into informally during the early stages of the development of the company.
The judgment is also highly critical of the misconduct allegations. Defendants should take heed that unsubstantiated ‘mudslinging’ is likely to be seen for what it is at trial. Further, serious allegations that impugn an individual’s professional reputation should only be raised where there is a proper basis on which to do so.
Finally, the judgment serves as a clear warning to practitioners, who should take care to ensure that witnesses are not told what to say and that their evidence is presented in their own words, failing which it may fall down at trial.
John McElroy acted for Dr Comberg together with Duran Ross, Ellen Gracey and supported by James Hilton. Hausfeld instructed Edward Brown of Essex Court Chambers.