James Keen v Commerzbank AG
| Jurisdiction | England & Wales |
| Judge | THE HON MR JUSTICE MORISON,The Hon. Mr Justice Morison |
| Judgment Date | 07 April 2006 |
| Neutral Citation | [2006] EWHC 785 (Comm) |
| Docket Number | Case No: 2005/1013 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 07 April 2006 |
[2006] EWHC 785 (Comm)
IN THE HIGH COURT OF JUSTICE
COMMERCIAL COURT
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Hon Mr Justice Morison
Case No: 2005/1013
Mr Robin Knowles QC and Mr Richard Leiper (instructed by Ferguson) for the Claimant
Mr Andrew Hochhauser QC and Mr David Craig (instructed by Linklaters) for the Defendant
Hearing dates: 23 March 2006
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.
Background
This is an application by the defendants for summary judgment, under Part 24 of the CPR. As such, it is not an occasion for a mini-trial. The question at issue is whether I am persuaded that the claimant's claim has no real prospect of success and that there is no other compelling reason why the case should be disposed of at a trial.
The claim arises out of the claimant's employment by the defendant bank [the Bank] between 4 November 2002 and 10 June 2005. The terms of his contract of employment are contained in a letter of appointment dated 27 September 2002, and accepted by the Claimant by signature dated 1 October 2002, and an Employee Handbook. If there is any conflict between the two contractual documents the terms of the letter prevail.
The Claimant was employed as the manager of a proprietary trading desk [the Desk] known as special situations 2 ['SSII'] in the Bank's Investment Banking Division. His annual salary was £120,000, but, as is common in the City with trading desks of all types, the major portion of his remuneration was in the form of an annual bonus. He reported to the London Head of Brokerage who was a Mr McCreadie. There is no suggestion in this case that the claimant was other than extremely successful at his job, and he and his small team earned substantial profits for the Bank.
The pleaded claim
The bonus provisions are set out in the letter.
"You are eligible to participate in the Bank's discretionary bonus scheme. The decision as to whether or not to award a bonus, the amount of any award and the timing and form of the award are at the discretion of the Bank. Factors which may be taken into account by the Bank in deciding whether or not to award a bonus and the amount of any bonus include:-
• The performance of the Bank
• The performance of your business area
• Your individual performance and your contribution to the Bank's performance and the performance of your business area
• The strategic objectives of the Bank
• Whether you will be remaining in the employment of the Bank.
No bonus will be paid to you if on the date of payment of the bonus you are not employed by the Bank or if you are under notice to leave the Bank's employment whether such notice was given or received by you.
Bonus may be reduced for any period of absence in excess of one month whether through illness, maternity leave or any other reason other than absence on holiday."
In the Handbook, an employee may be sent on 'gardening leave' and during that period "You shall continue to receive your full pay and benefits during any such period."
In determining the amount of bonus, the Bank were required to exercise a discretion and in so doing would take into account the Claimant's performance.
"Further it was an implied term of the Claimant's employment contract that it would not exercise any discretion it had in relation to the Claimant's bonus award irrationally or perversely."
There are three heads of claim: each relates to a different year. The first claim is in respect of the calendar year 2003. The Desk accrued a profit of approximately €40 millions. Mr McCreadie recommended to Mr Rock, the Managing Director of the Investment Bank, a bonus pool for the Desk of between 15% and 18% of that figure. Effectively, the Bank decided on a pool of around 10%. The claimant alleges that the Bank's exercise of their discretion was in breach of contract and unlawful because:
"(a) That exercise was irrational and/or perverse: no rational bank in the City faced with the performance of SSII (and thereby the Claimant) and the recommendation of Mr McCreadie would reduce the bonus pool in this way
(b) The Defendant failed to take any or adequate account of the performance of SSII (and thereby the Claimant) and of Mr McCreadie's said recommendation.
The second claim is in respect of the bonus for the calendar year 2004. The profit made by the Desk for that year was €57.5 millions; Mr McCreadie's recommendation was a pool amounting to 17.5% of the profit and the Bank decided on a pool of slightly less than 10%. The same matters are pleaded as showing that this decision was perverse and unreasonable.
The third claim relates to the bonus which the claimant earned between January 1 2005 and the effective date of termination of his employment. He says that between 1 January 2005 and 12 May 2005, when he left the bank's premises at their insistence, never to return, the Desk's profit was €46.5 millions yet the Bank has decided to give him nothing for that period. The Claimant alleges that that decision was obviously irrational and perverse; a [or perhaps the pleader means 'every'] rational employer would have decided on a bonus pool of 17.5% of €46.5 millions, namely €8,137,500.
In their Defence, the Bank asserted that they were under no obligation to pay any bonus at all and that it was entitled but not obliged to take into account the Claimant's individual performance. The implied term was admitted. They alleged that the claims in relation to the bonus for each of the three years "stand no reasonable prospect of success". In relation to the 2003 year, they say that the true figure for the Desk's 'profit' is €36,458,904 [rather than €40 millions] and the net profit figure was €31,600,000. They say that the bonus pool for the Desk was not determined as a percentage of the Desk's net profit, but that if it were, the pool for the four employees working on that Desk was 12.66% of net profit. For that year, the claimant received €2,238,670 and shares from the pool amounting to a total overall bonus award of €2,800,000 for that year. This bonus, together with his salary meant that the claimant was one of the Bank's highest paid employees. There was no obligation on the Bank to accept the recommendation of Mr McCreadie.
"The Defendant took into account in determining the size of the bonus pool the fact that, for the 2003 year, the [Bank] made a loss of €2.32 billion and its Investment Banking Division made a loss of €32 million (on a net profit basis)."
Later, it is pleaded that
"The [Bank] took account of the performance of SSII and the Claimant. Mr McCreadie's recommendation as to the bonus pool was considered, but rejected, which was neither perverse nor irrational."
In relation to the 2004 year, the Bank contends that the net profit was approximately €35,150,000 and that the distribution by way of bonus was 15.22% of net profit. They say that the Claimant received an overall bonus, including shares in the pool, of some €2,950,000 making him one of the highest paid employees at the bank for that year. The say that they were not obliged to follow Mr McCreadie's recommendation for that year but that they took into account
"..the fact that, for the 2004 year, the [Bank] made a profit of €393 million and its Investment Banking Division made a loss of €279 million (on a net profit basis)."
They make the same plea for this year as they did in relation to the previous year namely that
"The [Bank] took account of the performance of SSII. Mr McCreadie'srecommendation as to the bonus pool was considered, but rejected, which was neither perverse nor irrational."
As to the 2005 year of account, the Bank rely upon what they say is an express term of the contract that no bonus would be paid to the Claimant if he was not employed by the [Bank] on the payment date of any bonus award and that the payment date for paying bonus for 2005 was March 2006 and he is not, therefore, entitled to any bonus.
In their Reply, the Claimant challenges the Bank's interpretation of the contract for the 2005 year and asserts that
"On the true construction of the Claimant's employment contract, and in the events that happened, the termination carried out by the [Bank] of the Claimant's employment did not entitle the [Bank] to avoid paying a bonus in respect of the performance the [Bank] had received from the Claimant in 2005."
In any event, the Claimant contends that the Unfair Contract Terms Act 1977 applied, as the Claimant contracted with the Bank as a 'consumer' within the meaning of sections 3 and 12 of the Act, alternatively "on the [Bank's] written standard terms of business". It is the Claimant's pleaded case that the words of the letter relied on by the Bank rendered a contractual performance substantially different from that which was reasonably expected of it or to render no performance at all of its obligation to allow the Claimant to participate in its discretionary bonus scheme and do not satisfy the requirement of reasonableness in sections 3(2) and 11(1) of the Act, and the Bank cannot rely on them.
The evidence
The main points of significance in the evidence filed on this application are these:
(1) The Claimant relies upon a number of remarks made and indications which he says were given to him as to how the bonus would be calculated, and it was not so calculated. These are not remarks which are said to amount to formal representations, but they are relied upon as supporting material in the claim that the discretion was exercised perversely in each of the two years of account in issue.
(2) The Bank...
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Keen v Commerzbank AG
...respect of each of the three years for damages for breach of the discretionary bonus provisions in his contract of employment: see [2006] EWHC 785 (Comm). He gave directions for trial, including a provision for expert evidence on compensation. 2 Unless this appeal succeeds the trial of the......