Deutsche analyst slugs out million-dollar public battle

Equities analyst Philip Pepe was armed with legal advice when he met Australian Unity senior executive David Bryant on a Saturday morning in March 2006 to discuss his employment contract.

Pepe, a skilled and ambitious financial analyst then employed at Jardine Fleming Capital Partners in Melbourne, was ready for a new role with the tiny funds management firm Platypus Asset Management.

Pepe wanted to clarify the terms of his future employment, some certainty about the $250,000 pay package, his possible bonuses and equity in the firm. He wanted to lock in growth and ensure he had a piece of the pie if PAM's business grew and eventually turned profitable.

PAM had just struck a joint venture deal to manage Australian Unity's funds, and Bryant, Australian Unity's chief investment officer, was ready to hire to "fill the gaps" in PAM's skills base.

The pair talked for more than 1? hours, but what was said or implied, agreed or not, is in hot dispute. As the Victorian Supreme Court has heard this week, the two can't even agree on the configuration of chairs in the room that morning, the shape of the table or where they sat.

For Pepe, this is a million-dollar issue as he sues to enforce the terms of his employment contract and retrieve the equivalent of 5 per cent of the equity in PAM.

PAM dismissed Pepe on October 31, 2007. He took a pay cut when he joined Macquarie Bank three months later and in November 2008 was made redundant. He is now at Deutsche Bank on a salary of $650,000 - more than 2? times what he earned four years ago.

For Bryant and his colleagues atPAM and Australian Unity, the dispute raises unwelcome reputational concerns about credibility and good faith negotiations.

It is an unhappy courtroomstoush that has generated nasty barbs aboutwho said what.

And despite Justice Peter Almonds request for the parties to settle, they are slugging it out in public.

Pepes counsel, JustinBourke, argues that the termsof Pepes employment contract indicate clearly that Pepe was entitled to 5 per cent of shares in the company after the first year.

Counsel for PAM, PeterCollinson, SC, has accused Pepe of lying in court, giving false evidence and exaggeration.

Through it, Pepe stuck resolutely to his story that Bryant in 2006 told him he would be given 5 per cent equity. Pepe thought that meant he would get free shares, and he was far frompleased when, in mid-2007, he learnt he would have to pay for them.

PAMs plan was for staff to buy shares at 20 per cent more than the shares underlying value, and Pepe raised his concerns with senior executives.

Bryant told the court he and Pepe had a discussion in July 2007 while on the balcony of PAMs Sydney offices.

Phil expressed tomethe view that the value being applied was too high,Bryant said.

He then expressed the view to me that Platypus was worthless as a business before he arrived and would be worthless without him, and he resented what he saw as a suggestion that he pay for the value that he had brought, which he thought was a substantial part of the valuation [of the firm] that he had heard about.

I told Phil that I was terribly offended, particularly for DonWilliams [PAMs founder and top funds manager]. For a business with the investment track record of Platypus, I thought it was an extraordinary comment to make. Bryant said he told Pepe that in his view Pepe had done some good work but that he considered his comments offensive also to his colleagues. Phil toldmethat he thought his colleague Simon Bonouvrie [PAM s top portfolio manager] was useless and that but for DonWilliams he [Pepe] was a substantial part of the company. The court has heard that about the same time,Williams and PAMdirectorNickWright had looked at the termsof Pepes employment contract and in one emailWilliams asked Wright howPAMcould possibly deliver the full economic benefit of options that had not been issued andwere under escrow.

Dont knowwhat the f---wewere thinking about with this provision, they wrote in an email of July 25, 2007.

Bryant then told the court about a conversation with Pepe over lunch atMachiavelli in Sydney on September 9, 2007.

I was becoming very concerned about Phils relationship with his colleagues, his attitude at work, and on a number of occasions DonWilliams had passed on his concerns about Phils lack of engagement, lack of interest, Bryant said. It was clear he was not happy and I wanted to get to the bottom of the issue with Phil, about what was causing that attitude and that response. Bryant said that atMachiavelli Pepe again raised the suggestion that he had made Platypus and it had no value without him.

He felt he had contributed significantly to the business and did not want to be asked to pay for that by virtue of the [employee scheme]. Bryant said he told Pepe that I thought his view of himself was inflated and that he was being very unfair toWilliams and his PAM colleagues.

Pepe again raised concerns about the share scheme and howhe believed it conflicted with his employment termsand,Bryant said, Pepe then raised concerns that he had presented himself as greedy.

The case continues today and next week.