Dresdner Kleinwort Ltd and Another v Richard Attrill and Others (First Respondent) Fahmi Anar and Others (Second Respondent)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Elias,Lord Justice Beatson,Lord Justice Maurice Kay |
| Judgment Date | 26 April 2013 |
| Neutral Citation | [2013] EWCA Civ 394 |
| Docket Number | Case No: A2/2012/1511/QBENF |
| Court | Court of Appeal (Civil Division) |
| Date | 26 April 2013 |
and
[2013] EWCA Civ 394
Lord Justice Maurice Kay, Vice President of the Court of Appeal
Lord Justice Elias
Lord Justice Beatson
Case No: A2/2012/1511/QBENF
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
THE HONOURABLE MR JUSTICE OWEN
HQ09X04007 and HQ09X05230
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Thomas Linden QC, Mr Martin Chamberlain and Mr Oliver Jones (instructed by Linklaters LLP) for the Appellants
Mr Nigel Tozzi QC and Ms Kate Livesey (instructed by Stewarts Law LLP) for the First Respondent
Mr Andrew Hochhauser QC and Mr David Craig (instructed by Mishcon De Reya) for the Second Respondent
Hearing dates: 5,6 and 7 March 2013
Approved Judgment
This appeal arises from two sets of claims by 104 employees ("the claimants") who worked for Dresdner Kleinwort Investment Bank ("DKIB"). They successfully contended before Owen J, following a sixteen day trial, that they had been wrongfully denied their contractual entitlement to certain discretionary bonuses for the calendar year 2008 promised by their employers. At stake are sums totalling more than €50 million.
The parties.
Dresdner Bank AG ("DBAG") was, until May 2009, an international bank incorporated in Germany comprising retail, corporate, private client and investment banking businesses. It was wholly owned by Allianz SE ("Allianz"), a German insurance company.
On 31 August 2008, it was announced that Allianz had agreed to sell DBAG to Commerzbank AG ("Commerzbank"). The sale was originally intended to take place in two stages: the first was to be in January 2009 and was to involve the transfer of 60% of the shares in DBAG to Commerzbank; the second was to take place towards the end of 2009 and was to involve the transfer of the remaining shares. However, in November 2008, an accelerated timetable was agreed under which Commerzbank would acquire all the shares in one tranche in January 2009. The sale was completed on 12 January 2009. From that date, Commerzbank was the sole owner of DBAG. Commerzbank and DBAG formally merged under German law in May 2009, whereupon DBAG ceased to exist as a separate legal entity.
DBAG's investment banking business, which was not a separate legal entity and did not directly employ any staff, had originally been known as Dresdner Kleinwort Wasserstein and, subsequently, DKIB. Dr Jentzsch was its Chief Executive. He was also a director of DBAG.
DKIB, the investment banking arm, was broken down into a Front, Middle and Back Office. The Front and Middle Offices were directly concerned in the business of DKIB. The Back Office comprised the Back Office "support functions", such as IT, Legal, HR, Payroll, and Security, all of which supported DKIB's business operations.
Dr Jentzsch was responsible for the Front and Middle Offices of DKIB. These comprised some 3,000 employees worldwide, with approximately 1,300 of these in London. There was a slightly larger number of staff worldwide employed to perform the support functions and they reported not to Dr Jentzsch, but to another DBAG board member.
All DKIB Front and Middle Office staff (including all the claimants), and all Back Office staff who worked for DKIB in the support functions had employment contracts with, or were seconded to, DKL. This was a service company wholly owned by DBAG. The HR function was responsible for employee relations and terms and conditions. The global head of HR for DKIB, who was responsible for HR issues for the Front and Middle Offices and for the support functions, was Mr Mark Hindle.
The contracts of staff.
The contracts of employment between DKL and each of the claimants stated (in terms varying from employee to employee) that the employee would be eligible for consideration by the employer for such discretionary awards as in the employer's absolute discretion it saw fit to award.
Sections 1 to 20 of the Employee Handbook were incorporated in the contracts of employment. Section 1.4 conferred upon the employer the power unilaterally to vary the contract in the following terms:
"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 Resource 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."
The proper construction of this clause is one of the issues in this case.
Section 33 deals with "Discretionary Bonus Awards". So far as relevant it provides:
"33.1 You may be eligible to be considered for the payment of an annual discretionary award if, but only if, on the day bonus awards are actually paid (which is usually in the first quarter of the calendar year), you are both employed by the Company and not within a period of notice of termination of your employment.
33.2 Whether an award is made and the amount of such award, if any, is at the absolute discretion of the Company."
The clause goes on to identify a series of factors which would influence the way in which the discretion to make the award would be exercised. It states that awards are made to support the Bank's commercial objectives at the given time and are likely to reflect many different and competing factors. These include the financial performance of the Company, the need to incentivise employees, the strategic needs and priorities of the business, and the need to retain employees.
Similarly there is no dispute that the established procedure, followed in many previous years, was to allocate a bonus pool, award individual bonuses in November, communicate the allocation and award in December and pay the cash element in January, provided that the employee was still employed at that time and not under notice. There was no prescribed size of bonus pool.
The facts.
On 17 March 2008 Mr Diekmann, Chairman of the DBAG supervisory board and CEO of Allianz, announced the intention to separate DBAG's commercial banking division from its investment banking division. This was a prelude to DBAG leaving investment banking, either by selling DKIB, drastically cutting back its operations, or winding it down.
Notwithstanding that announcement, staff were told that the possibility of a sale was mere speculation; there was, nonetheless, a general belief that this might occur and it led to widespread uncertainty about the future of staff. As Dr Jentzsch said in his evidence at trial, there was a serious risk of a mass exodus of staff. The Head of "Fixed Income, Currency and Commodities ("FICC")" within DKIB confirmed in early May that key individuals were leaving and he expressed the view that unless active steps were taken to retain staff, the business could collapse in just a few weeks.
On 23 May 2008 the Financial Services Authority (the "FSA") wrote to Dr Jentzsch as the Chief Executive Officer of DKIB notifying him that the Bank's UK regulated entities had been placed on the FSA's "Firm Watch List" because of the risks posed by the proposed restructuring. The FSA expressed the concern that there was no comprehensive strategy for the future in place and that DBAG faced an uncertain future. The FSA referred in particular to:
"…the continuing uncertainty among management and staff [which] could lead to a significant number of key individuals leaving or becoming disaffected…"
The FSA said that the Bank would not be taken off the Firm Watch List until there had been an assessment of the key risks and mitigation plans had been put in place.
At a meeting of the Management Operating Committee of DBAG on 11 June 2008, this concern was addressed. It was mooted that there should be "some kind of staff retention scheme" to prevent the damaging departure of disaffected staff. In his reply to the FSA dated 30 June 2008, Dr Jentzsch acknowledged that one of the key risks of the DBAG restructuring scheme was loss of staff. After setting out certain statistics he accepted that:
"the risk of defections has risen considerably. A retention programme is therefore being discussed internally as well as with Allianz and we expect its terms to be finalised shortly."
Dr Jentzsch also sent a paper to the DBAG Board in which he noted that any prospective purchaser would run the risk that the investment banking division would be a withering asset.
A number of possible retention programmes were considered and a proposal was formulated on 25 July 2008 which was in essence the scheme later adopted. It proposed:
"for 2008 a de minimus [sic] pool of €400m (75% of 2007) to be set aside for DKIB."
At a meeting with the FSA on 5 August 2008 Dr Jentzsch indicated that he would shortly announce a minimum bonus pool for DKIB with funding to be guaranteed by Allianz. A further version of the bonus pool scheme dated 12 August 2008 was discussed at a meeting of the board of directors of DBAG on the same day. The relevant paper noted that:
"In order to stabilise the DK business it is essential and necessary to formally communicate the pool that has been secured for the staff base.
If agreed it would be our intention to formally communicate to the entire staff base of [DK] via a business update that Allianz have recognised the uncertainty and impact the strategic discussions are having on the staff base and have agreed to set aside a de minimus [sic] overall [DK] bonus pool for 2008 at €400m."
The retention pool was formally approved at the board meeting. The minute recording it is in the following terms:
"A minimum bonus pool, which should be announced...
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