Sunday, 20 March 2011

Attrill & ors v Dresdner Kleinwort Ltd & anor [2011] EWCA Civ 229: a wunch of bankers

Once upon a time, bonuses were for especial performance.  Indeed, in the real world, they are.  However when considering the banking world one is reminded of the words of the immortal Sir Humphrey Appleby.  “Do people still get the outstanding merit award?”  “Oh yes.  Everybody.”   

DK was a bank.  Note the “was”.  Its normal procedure for bonuses was to bung money into a pool in November, tell its employees what they’d get from it in December, and pay it out in January.  Problem came in 2008.  DK was losing money hand over fist.  €575m in the first quarter, even more in the second.  No money for bonuses?  That was it, thought the staff, we’re off.  Like rats leaving a sinking ship.

So in August 2008 DK held what it called a “town hall” meeting.  DK announced to employees that there would be a guaranteed bonus pool of €400m.  Where was this money coming from, given that DK was running out of it?  Aha, you may well ask.

The staff, encouraged by the size of the trough into which they could immerse their banking snouts, stopped leaving.  In December DK announced the bonuses payable to staff – yes, DK was paying bonuses, even though the bank’s performance might have suggested that any exceptional performance was non-existent.  The small print though was interesting.  “Subject to variation.”  The letter stated that it depended on whether DK’s earnings position deteriorated.

Evidently DK thought its earnings position HAD deteriorated, because when the bonuses came to be paid out in January the numbers were shrunken by 90%.  Common sense?  Not to the DK employees.  Not satisfied with their basic salary and bonuses amounting to up to €2m from a dying organization, a number brought proceedings against DK and its eventual purchaser Commerzbank.  The bonus was an entitlement, they said.  It had been promised to them, they had relied on the promises by not jumping ship.  The bonus could not be altered.

DK pointed to the wording in the letter, and to the contracts of employment; bonuses are discretionary.  And applied to strike out the claim as being hopeless in law.

First time around, DK won.  But on appeal the claim was re-instated.

This shows the importance of the summary judgment procedure.  It’s not something one can use when faced with a big dispute of fact; for that you need a trial.  If you’re going to try to strike a claim (or a defence) out, you’ve got to show it’s flawed legally.  Not factually.  The factual flaws will be purged via cross-examination.  Even if it’s obvious that a malicious claimant is telling lies, the court won’t kick him out before a pukka trial, with the appurtenances of swearing in, evidence rules, big coat of arms behind the judge and so on.  It will not have mini-trials.  Not least because that may result in the same people giving the same evidence loads of times.

So DK had to show that the bankers’ claim was flawed on a legal basis.  Which was very difficult.  As it turned out, too difficult.  What DK was saying is that the contracts showed the bonus was discretionary and the letters that went out in December 2008 showed the bonus was discretionary.  Therefore the employees had no expectation of receiving anything; the answer to “what bonus will you receive?” was not “£x”, but “I am told it will be £x, but that’s subject to various things.”  Without that number being definite, there’s no contractual  promise, no entitlement and no claim.

On the face of it, that’s fairly sound.  But bonuses have to be paid according to contracts – and that includes properly considering whether an employee is entitled to a bonus.  If you stick in the contract a possible bonus, you can’t just ignore it; you have to think about whether to pay one and, if so, how much.  And that means you have to consider it fairly; you can’t decide not to pay Mr X a bonus just because he’s a ginge.  That’s an improper consideration and you’re in breach if you take that into account.

And these considerations are often considerations of fact.  The sort of thing that has to be proved in the crucible of the witness box.

Which is what the Court of Appeal looked at.  Had DK promised, at the “town hall” meeting, to pay bonuses?  Dunno, you’ll need witness evidence for that.  Were the reductions applied to the “promised” bonuses bona fide deductions that could be made under contract?  Dunno, you’ll need witness evidence for that.  Does the announcement of a guaranteed minimum bonus pool mean it all has to be paid out to the members?  Dunno, you’ll need witness evidence for that.   Was there consideration given by the employees in staying on when led to believe they’d receive a bonus?  Dunno, you’ll need witness evidence for that.

Not surprising therefore that the Court of Appeal re-instated the claim.  Too much had to be said in the witness box.  The claim has lots of legal trickiness and factual exploration in it – it is not something that can be slung out early doors as being hopeless.  If anyone’s going to say it’s hopeless, that’s the job of the trial judge.

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