Charles Anthony Joseph Steel v Spencer Road LLP (trading as The Omerta Group)
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Bacon |
| Judgment Date | 11 October 2023 |
| Neutral Citation | [2023] EWHC 2492 (Ch) |
| Court | Chancery Division |
| Docket Number | Appeal ref: CH-2023-000084 |
[2023] EWHC 2492 (Ch)
Mrs Justice Bacon
Appeal ref: CH-2023-000084
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
CHANCERY APPEALS (ChD)
ON APPEAL FROM ICC JUDGE MULLEN
Rolls Building
Fetter Lane
London, EC4A 1NL
Thomas Croxford KC and Oliver Hyams (instructed by Lewis Silkin LLP) for the Appellant
Andrew Shaw (instructed by Withers LLP) for the Respondent
Hearing date: 31 July 2023
Approved Judgment
This judgment was handed down remotely at 10 a.m. on 11 October 2023 by circulation to the parties or their representatives by email and by release to the National Archives.
Introduction
This is an appeal from the order of ICC Judge Mullen dated 30 March 2023 in which he dismissed Mr Steel's application to set aside a statutory demand served by the Respondent, which I will refer to as Omerta.
Mr Steel was employed by Omerta, a global executive search firm. Under the terms of his employment contract dated 13 July 2015, his remuneration was by way of a basic annual salary plus a discretionary bonus scheme. The bonus was conditional on Mr Steel remaining in the employment of Omerta for three months from the date of payment of any bonus, and not having given or been given notice to terminate his appointment during that period.
There was no guarantee that a bonus would be paid in any given year. Mr Steel did, however, receive substantial bonuses under the scheme in every year from 2016 to 2021. In January 2022 he was paid a bonus of £187,500, which was an amount considerably larger than his basic salary at the time of £65,000. Mr Steel then gave notice of termination of his employment in February 2022.
Omerta requested repayment of the bonus under the clawback provisions in the employment contract. When Mr Steel refused to do so, Omerta served a statutory demand for the full amount of the bonus, plus £12,623 in legal fees.
Mr Steel applied to set aside the statutory demand, contending that the bonus clawback provisions in the contract operated as an unreasonable restraint of trade or were penalty clauses and were therefore unenforceable. His application was dismissed by ICC Judge Mullen. Mr Steel then repaid the bonus to Omerta but brought this appeal. Permission to appeal was given by Trower J on 1 June 2023.
Factual background
Clause 2.1 of Mr Steel's employment contract provided:
“The Appointment shall commence on the commencement date and shall continue, subject to the remaining terms of this agreement, until terminated by either party giving the other not less than 12 weeks' prior notice in writing.”
Clause 7.4 referred to the discretionary bonus scheme, operated in accordance with Schedule 1 to the contract. Clause 7.5 then provided:
“Subject to the successful achievement of objectives created by the Board, the Company and yourself, you may qualify for a Discretionary Bonus. Whether each objective has been successfully completed, whether to pay Discretionary Bonuses and the amount of any such bonuses are matters within the sole discretion of the Board. The Discretionary Bonus Scheme may be varied from time to time at the discretion of the Company, and the objectives are likely to vary from year to year. The fact that a Discretionary Bonus is paid in one year is no guarantee that such bonuses will be paid in subsequent years. Discretionary Bonuses shall be paid less tax, national insurance contributions and other deductions required by law. A Discretionary Bonus payment shall not be treated as part of the basic salary for any purpose and shall not be pensionable.”
Clause 7.6 provided:
“As the Discretionary Bonus Scheme is intended to incentivise employees to remain in the employment of the Company, payment of any Discretionary Bonus is conditional on the Employee remaining in the employment of the Company for a period of three months from the date of payment of any given Discretionary Bonus (the ‘Payment Date’) and the Employee not having given or been given notice to terminate the Appointment at the Payment Date or during the three month period following the Payment Date.”
Clause 7.7 then provided:
“In the event that the Employee serves or receives notice of termination of his contract of employment, the Company shall be entitled to:
(a) Recover any Discretionary Bonus payments made to the Employee during the three month period preceding the deemed date of service of that notice.”
Clause 7.13 provided:
“All sums that the Company seeks to recover from the Employee shall be recoverable as a debt. In the event that the Company seeks to enforce payment of any of the sums repayable under this clause 7, or any outstanding sum, the Employee agrees to indemnify the Company against any costs, fees and charges it may incur in enforcing such a payment.”
Schedule 1 to the contract contained similar provisions. In particular, §§6–9 of Schedule 1 provided that:
6. Whether each objective has been successfully completed, whether to pay bonuses, and the amount of any bonuses, under the Discretionary Bonus Scheme are matters which are entirely at the discretion of the Company and its Directors. The Discretionary Bonus Scheme, including the basis for determining eligibility to be considered for a bonus, may be varied from time to time at the absolute discretion of the Company and are likely to be varied from year to year.
7. The fact that a bonus is paid in one year, or in consecutive years, is not guarantee that bonuses will be paid in subsequent years. Bonuses shall be paid less tax, national insurance contributions and other deductions required by law.
8. As the bonus is also intended to incentivise the Employee to remain in the employment of the Company, payment of any bonus is conditional on the Employee remaining in the employment of the Company for a period of three months from the date of payment of a discretionary bonus (the ‘Payment Date’) and the Employee not having given or been given notice to terminate the Appointment at the Payment Date.
9. The Discretionary Bonus Scheme confers no rights or entitlements on the Employee other than to be considered for a discretionary bonus upon achievement of the Target. If the Employee leaves the Company or gives or receives notice within three months of the Payment Date, the Employee shall repay the total amount of the Discretionary Bons received on the Payment Date … to the Company.”
I will refer to clauses 7.6 and 7.7 of the contract, and §§8–9 of Schedule 1, as the “bonus clawback provisions”.
Bonuses were paid in the January of each year, referable to the achievement of the relevant objectives during the previous year. The bonuses paid by Omerta to Mr Steel fluctuated during the course of his employment. The bonus paid in January 2022 was, however, considerably larger than the bonus paid in any previous year.
Mr Steel gave notice of his resignation from Omerta on 22 February 2022, and his last day of work was confirmed as being 17 May 2022. During that period, and thereafter, Omerta maintained that the bonus paid in January was repayable by Mr Steel under the bonus clawback provisions of the contract. Mr Steel disagreed and refused to repay the bonus. On 4 August 2022 Omerta issued the statutory demand that is the subject of this appeal.
The judgment of ICC Judge Mullen
Mr Steel contested the statutory demand on the basis that the bonus clawback provisions were unenforceable on the grounds that they were in restraint of trade and/or penalty clauses.
The judge found that the weight of the authority was that the bonus clawback provisions were not within the restraint of trade doctrine, since they did not restrict Mr Steel's ability to work elsewhere. He relied in particular, in that regard, on the judgment of Jack J in Tullett Prebon v BGC Brokers [2010] EWHC 484 (QB), and distinguished the later judgment of Mr David Donaldson QC, sitting as a deputy judge of the High Court, in 20:20 London v Riley [2012] EWHC 1912 (Ch). The judge commented that there might be circumstances where the severity of the consequences were clearly out of all proportion to the benefit received, but considered that this was not arguable in the present case, where the conditions attached to the bonus payments were in his view “very moderate”.
The judge also considered that the argument that the provisions operated as a penalty clause had no real prospect of success.
The appeal
Mr Steel appeals the judge's findings on the restraint of trade doctrine on four grounds: (i) that Tullett Prebon was wrongly decided, and the judge should instead have followed the approach in 20:20 London v Riley; (ii) that the judge was wrong to conclude that the restraint of trade doctrine might only be engaged by bonus clawback provisions that were out of all proportion to the benefit conferred; (iii) that the judge failed to consider other clauses in the contract which operated as a significant disincentive to resign; and (iv) that the judge should not have refused the application to set aside a statutory demand in what is said to be an emerging area of law.
There is no appeal against the judge's conclusion that the bonus clawback provisions were not in the nature of penalty clauses.
Relevant law
Setting aside a statutory demand
Under Rule 10.5(5)(b) of the Insolvency (England and Wales) Rules 2016, the court may grant an application to set aside a statutory demand if the debt is disputed “on grounds which appear to the court to be substantial”.
It is common ground that this test is essentially the same as for summary judgment under CPR Pt 24, and that the debtor must therefore show a real prospect of successfully resisting the creditor's claim. As the judge noted at §12 of...
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...per Bacon J, accepting the submission of Mr Croxford KC for the claimant in Steel v Spencer Road LLP (trading as The Omerta Group) [2024] ICR 137, at [35]. Similarly here, Mr Solomon argued, there is a “crippling financial penalty for the whole of the commissions which might be generated as......