John Eric Daniels v Lloyds Bank Plc

JurisdictionEngland & Wales
JudgeMrs Justice Cockerill
Judgment Date27 March 2018
Neutral Citation[2018] EWHC 660 (Comm)
CourtQueen's Bench Division (Commercial Court)
Docket NumberCase No: CL-2017-000491 & CL-2017-000493
Date27 March 2018

[2018] EWHC 660 (Comm)





Royal Courts of Justice

Strand, London, WC2A 2LL


Mrs Justice Cockerill

Case No: CL-2017-000491 & CL-2017-000493

(1) John Eric Daniels
(2) George Truett Tate
(1) Lloyds Bank Plc
(2) Lloyds Banking Group Plc

Paul Lowenstein QC and Alistair Wooder (instructed by Fox Williams LLP) for the First Claimant

David Craig QC and Iain Quirk (instructed by Mishcon de Reya LLP) for the Second Claimant

Andrew Hochhauser QC and Jane Russell (instructed by Allen & Overy LLP) for the Defendants

Hearing dates: 26, 27 February 2018

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.

Mrs Justice Cockerill

Introduction and Route Map


In this application two former executive directors and employees of the Defendants, Mr Daniels and Mr Tate, seek summary judgment on their claims against the Defendants in relation to Integration Awards under the Bank's Long-Term Incentive Plan (the “ LTIP”). They say that they met the targets specified in the awards made to them, that shares therefore vested in early 2012 but that the Defendants did not (as they should have done) transfer the shares to them.


The Defendants have pleaded defences that they were permitted to withhold the shares because of a discretionary rule in the rules of the LTIP and that either they exercised the power under this rule validly or that, if they did not, an exclusion clause in the rules means that the Claimants cannot claim for any loss.


I will consider the issues under the following headings:

i) Factual Background: Paragraphs 4–46

ii) The Issues: Paragraph 47

iii) Legal Tests for Summary Judgment: Paragraphs 48–49

iv) Issue 1 – Was the addition of Rule 6.4 to the LTIP Rules pursuant to Rule 17 valid?: Paragraphs 50–117

v) Issue 2 – Did the Integration Awards vest?: Paragraphs 118–154

vi) Issue 3 – Was the discretion under Rule 6.4 unlawfully exercised?: Paragraphs 155–171

vii) Issue 4: Does Rule 15.7 prevent the Claimants seeking relief?: Paragraphs 172–184

viii) Issue 5: The Claimants' Agreements: Paragraphs 186–207

ix) Conclusion: Paragraph 208.

Factual Background

The Parties and their roles


The First Claimant (Mr Daniels) was employed as Chief Executive Officer of the Second Defendant (then known as Lloyds TSB Group Plc) in October 2001. On 20 September 2010, the First Claimant and the Second Defendant entered into Heads of Terms relating to the retirement and cessation of his employment (“Heads of Terms”). He retired as Chief Executive Officer in March 2011.


The Second Claimant (Mr Tate) was originally employed by the First Defendant in August 2003 as Managing Director, Corporate Banking. He later became Acting Group Director, Wholesale & International Banking, in April 2004, and was appointed Group Executive Director, Wholesale & International Banking, on 1 August 2004. On 2 February 2012 he and the First Defendant entered into a Compromise Agreement in relation to his employment. Pursuant to the terms of that agreement, he retired from his position on 31 January 2013.


In 2006, the Second Defendant introduced a new long-term incentive plan (the “2006 LTIP”). The purpose of the 2006 LTIP was to deliver shareholder value through linking the receipt of shares to an improvement in the performance of the Second Defendant over a three-year period. The 2006 LTIP was amended on several occasions following its introduction; inter alia to implement regulatory changes. Only one of those amendments is relevant here. The 2006 LTIP was amended on 22 February 2012 (the “2012 Amendment”). A rule introduced by this amendment “ Rule 6.4” is at the heart of the dispute before me.


The Defendants say that this amendment was to reflect the changing regulatory landscape within the financial services industry, following the financial crisis of 2008. The Financial Services Authority (now the Financial Conduct Authority) introduced a remuneration code (the “Remuneration Code”) which sought to reform the approach of financial institutions to risk and performance. The Remuneration Code was updated on 1 January 2011 to reflect the Capital Requirements Directive III (2006/48/EC and 2006/49/EC) which imposed obligations preventing the rewarding of excessive risk-taking by introducing concepts of performance adjustment and malus. By the 2012 Amendment provisions were included to allow for forfeiture of Awards and under Rule 6.4 “Other Adjustments”.

The relevant rules


The rules of the LTIP (the “ LTIP Rules”) provided for the grant of “Conditional Awards” of shares (a conditional right to acquire shares granted under the Plan), which would vest in the employee participant if specified “ Performance Conditions” were satisfied. In particular:

“Rule 1.4:

Performance Conditions

When granting an Award, the Company may make its Vesting conditional on the satisfaction of one or more conditions recommended by the Committee linked to the performance of the Company. A Performance Condition must be objective and specified at the Award Date and may provide that an Award will lapse if a Performance Condition is not satisfied.

Rule 1.5:

Other conditions

The Company may impose other conditions when granting an Award. Any such condition must be objective, specified at the Award Date and may provide that an Award will lapse if it is not satisfied.”

The “Award Date” is defined as the date which “the Committee” sets for the grant of an Award. “Committee” is defined as “a duly authorised committee of the board of directors of the Company”.


Where an Award was subject to a Performance Condition, the Committee would determine whether that Performance Condition had been satisfied as soon as reasonably practicable after the end of the Performance Period. Rule 6.1 (as amended in 2012 – amendments in underline) provided:

“Where an Award is subject to a Performance Condition, as soon as reasonably practicable after the end of the Performance Period, the Committee will determine whether and to what extent any Performance Condition or any other condition under rule 1.5 (Other conditions) has been satisfied and if any adjustment is to be made under rule 6.4.”


If the Committee determined that the Performance Condition was satisfied, the Conditional Award vested in the employee participant (Rule 6.2).

“Where an Award is subject to a Performance Condition, [omitted], an Award Vests, to the extent determined under rule 6.1 above, on the date on which the Committee makes its determination under rule 6.1 or, if on that date a Dealing Restriction applies, the first day following the date on which the Dealing Restriction ceases to apply”.

“Vesting” is defined as “a Participant becoming entitled to have the Shares transferred to him subject to these rules.”


The consequence of this provision was that (at least prior to 2012) the employee participants' entitlement to the Conditional Award depended solely on the satisfaction of the Performance Conditions: neither the Remuneration Committee, nor any other body at the Bank, had the discretion to refuse to honour a Conditional Award if the Performance Condition had been satisfied.


However, in February 2012 the new Rule 6.4 was adopted which provided:

“The Committee may adjust downwards (including to nil) the number of Shares in respect of which an Award Vests if in their discretion they determine that the performance of the Company, any Member of the Group, any business area or team and the conduct, capability or performance of the Participant justifies an adjustment.”


Once an Award had vested, the LTIP Rules provided at Rule 7.1 that:

“the Company will arrange … for the transfer … or issue to or to the order of the Participant of the number of Shares in respect of which the Award has Vested”.


Thus prior to 2012 there was no discretion in the Board, the Remuneration Committee or anyone else to decide that shares should not be transferred or issued to the employee participant once the Award had vested. It was ultimately common ground that nothing changed in this respect by virtue of the 2012 Amendment.


The LTIP Rules also contained an exclusion at Rule 15.7 in the following terms:

“15.7 No Employee has any right to compensation for any loss in relation to the Plan, including any loss in relation to:

15.7.1 any loss or reduction of rights or expectations under the Plan in any circumstances…

15.7.2 any exercise of a discretion or a decision taken in relation to an Award or to the Plan, or any failure to exercise a discretion or take a decision.”


Finally — and very importantly for the argument which has been deployed before me — Rule 17.1 provided:

17 Changing the Plan and termination

17.1 Committee's powers

Except as described in the rest of this rule 17, the Committee may at any time change the Plan in any way.”

The rule then goes on to provide in Rules 17.2 and 17.3 that changes to the advantage of participants must be approved by the Company in general meeting, that “minor changes” to benefit the administration of the Plan to comply with or take account of any proposed or existing or changed legislation or for tax purposes need not be approved by the Company in general meeting and that “the Committee may give written notice of any changes made to any Participant affected.”

The factual backdrop


In or about January 2009, the Bank acquired HBOS plc (“ HBOS”). As can be readily imagined, integration of HBOS into the Defendant was a major undertaking, requiring extensive strategic planning and managed execution. In April and May 2009, the Second Defendant made conditional awards of shares under the 2006...

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