Attrill & Others Anar & Others v (1) Dresdner Kleinwort Ltd (2) Commerzbank Ag

Hearing dates: 25, 26, 27, 30 and 31 January, 1, 2, 3, 6, 7, 8, 9, 10, 13, 20 and 21 February

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Introduction

In 2008 Dresdner Bank AG (DBAG) was a wholly owned subsidiary of Allianz SE (Allianz) until its sale to the second defendant, Commerzbank AG (Commerzbank) announced on 31 August 2008 and completed on 12 January 2009. A division of DBAG, Dresdner Kleinwort Investment Banking (DKIB) carried on business as a global investment bank. Those who worked in DKIB were employed by or seconded to Dresdner Kleinwort Ltd (DKL), a service company wholly owned by DBAG.

Each of the claimants is or was employed by DKL and worked in London in the 'front' and 'middle' office of DKIB.

The claimants, 104 in number, form two groups. Those bringing claim No. HQ09X04007, 83 in number, will be referred to as the Attrill claimants. Those bringing claim No. HQ09X05230, 21 in number, will be referred to as the Anar claimants.

It was the established practice of DKIB to allocate a bonus pool and individual bonuses in November each year, to communicate the allocation to those employed to work within DKIB, and to pay the cash element of any such bonus in January of the following year provided that the employee was still then employed by DKL and not under notice to leave.

At a Board meeting of DBAG held on 12 August 2008 the chief executive officer (CEO) of DKIB, Dr Jentzsch, explained the need to define a minimum bonus pool for 2008 for DKIB so as to ensure employee stability. The Board approved the creation and communication of a bonus pool of EUR 400 million as presented by Dr Jentzsch.

On 18 August Dr Jentzsch made an announcement at what was known in DKIB as a 'Town Hall' meeting, a meeting at which business updates were given, and which were open to all DKIB staff wherever employed, either by attendance in person or by watching a live video link on screens on trading floors or on personal computers. The precise terms of the announcement are in issue; but it is common ground that he announced a guaranteed minimum bonus pool of EUR 400m for 2008 to be allocated to individuals on a discretionary basis according to individual performance.

The decision to create a guaranteed minimum bonus pool of EUR 400m for those employed in DKIB was subsequently confirmed on a number of occasions.

On 19 December 2008 a 'bonus letter' was sent to each of those employed in DKIB by DKL stating that a discretionary bonus for 2008 had been provisionally awarded at a specified sum, but subject to a material adverse change clause (MAC clause).

On the same day there was a Town Hall meeting at which Dr Jentzsch reassured those employed in DKIB that it was very unlikely that DBAG would seek to rely on the MAC clause.

On 12 January 2009, on completion of the sale of DBAG by Allianz to Commerzbank, Dr Jentzsch was replaced as Chief Executive of DKIB by Michael Reuther. The MAC clause was invoked, and on 18 February 2009 Mr Reuther sent an e-mail to all employees in DKIB informing them that:

"Bonus awards for all front and middle office employees who received a letter in December stating their provisional award, which was subject to Dresdner Kleinwort's financial performance targets, will be cut by 90% pro rata to the stated provisional amount."

In the event the guaranteed minimum bonus pool of EUR 400m was applied in payment of EUR 152.2m to those to whom individual bonus guarantees had been made. Approximately 10% of the remaining EUR 247.8m was distributed as bonus payments.

Each of the claimants claims against DKL the unpaid balance of the sum stated in their bonus letter of 19 December 2008, in the aggregate a sum of EUR 51,855,474; and from Commerzbank the like sum as damages for inducing breaches of contract.

The principal issues are whether the announcement of 18 August, and/or any subsequent statements made on behalf of DKL, gave rise to a binding contractual obligation, and secondly whether the MAC clause was introduced in breach of contract, and if not, whether DKL was entitled to rely upon it.

The Procedural History

On 28 January 2010 DKL and Commerzbank issued applications under CPR rule 24.2 seeking summary dismissal of the actions. The applications were heard by Simon J on 4 and 5 May 2010. By a judgment given on 28 May 2010 he summarily dismissed any part of the claims that relied upon the announcement made on 18 August 2008 on the ground that it did not create any enforceable contractual rights on which the claimants could rely, but held that the claims based on the bonus letters raised issues of fact which should go to trial.

Both claimants and defendants appealed. By a judgment handed down on 8 March 2011 the Court of Appeal allowed the claimants' and dismissed the defendants' appeal, with the consequence that the judgment of Simon J was set aside, and the defendants' applications for summary judgment were dismissed.

On 25 June 2011 Master Eyre directed that the claims of the Attrill and Anar claimants be heard together, that the issues to which the claims gave rise should be split and determined in two trials, and identified the issues to be determined in trials 1 and 2. He further directed the parties to attempt to define and narrow the issues; and in response the parties agreed a list of issues to be determined at trial 1 (see Appendix 1).

In further directions made by consent on 2 December 2011, Master Eyre directed the parties to agree a representative sample of claimants to give oral evidence and to be cross-examined, made provision for the selection of such claimants in the absence of agreement, ordered that the written evidence of claimants not selected as sample claimants would stand as their evidence in chief at trial 1 notwithstanding that they were not required to attend trial to be cross-examined, and ordered that the claims of all of the Anar and Attrill claimants were to be determined at trial 1 on the basis of (i) the oral evidence of the sample claimants and (ii) the written evidence of all claimants.

In accordance with the directions of Master Eyre, I heard evidence from a representative sample of claimants agreed between the parties.

The Factual Background

In 2008 DKIB, the Global Investment Banking division of DBAG, comprised approximately 3,100 front and middle office staff globally, working in a number of locations including London, Frankfurt, New York, Singapore and Tokyo. Approximately 1,300 were employed at its London headquarters, 30 Gresham Street.

DKIB's activities were divided into Global Banking, which focused on debt, capital raising, mergers, acquisitions, disposals and corporate broking for a wide range of corporate clients, and secondly Capital Markets which offered research services, and sales and trading of secondary equity and debt securities for a wide range of institutional clients, and which also performed proprietary trading (i.e. trading utilising the bank's funds rather than client funds).

Investment banks commonly have a tri-partite structure; the front office consisting of 'client-facing' bankers involved in revenue generating activities, middle office providing support functions primarily for the benefit of the front office, including risk, compliance, legal and IT functions, and back office. DKIB consisted of those discharging front and middle office functions, who ultimately reported to its CEO, Dr Jentzsch, but not of those discharging back office functions who ultimately reported to the board of DBAG.

The Contracts of Employment

Each of the claimants had an employment agreement with DKL which incorporated the DKL Employment Handbook. The employment agreements differed in immaterial respects.

The Employment Handbook, which was available to employees of DKL on the company intranet and was updated from time to time, was in two parts. Sections 1–20 were expressly incorporated into the claimants' contracts of employment; but Sections 21–44 were expressly stated not to be contractual terms.

Section 1.4 provided that:

"The Company reserves the right to vary the terms and conditions described in this handbook and the terms and conditions of your employment generally. Such changes can only be made by a member of the Human Resources Department and must be communicated to you in writing. When the change affects a group of employees, notification may be by display on notice boards or Company Intranet."

Most of the employment agreements also contained an entire agreement clause in the following (or substantially similar) terms:

"Entire Agreement

The terms of this Agreement and Sections 1 to 20 of the Company's Employment Handbook supersede all previous conditions, understandings, commitments, agreements or representation (other than fraudulent misrepresentations) whatsoever, whether oral or written, relating to the subject matter hereof and constitute the entire agreement between the parties. No waiver or modification of this agreement shall be valid unless in writing, signed by the...