Khatri v Co-Operative Centrale Raiffeisen-Boereateen Bank SA
| Jurisdiction | England & Wales |
| Judge | Lord Justice Rix,Lord Justice Longmore |
| Judgment Date | 23 April 2010 |
| Neutral Citation | [2010] EWCA Civ 397 |
| Docket Number | Case No: A2/2009/2379 |
| Court | Court of Appeal (Civil Division) |
| Date | 23 April 2010 |
[2010] EWCA Civ 397
The Hon Mr Justice Penry-Davey
Before: The Rt Hon Lord Justice Rix
The Rt Hon Lord Justice Longmore
and
The Rt Hon Lord Justice Jacob
Case No: A2/2009/2379
HQ09X02570
IN THE HIGH COURT OF JUSTICE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
James Goudie QC (instructed by Gannons) for the Claimant/Appellant David Craig (instructed by Allen & Overy) for the Defendant/Respondent Hearing date: 25 March 2010
Lord Justice Jacob (giving the first judgment at the invitation of Lord Justice Rix):
This appeal is from a judgment of Mr Justice Penry-Davey of 12 October 2009 [2009] EWHC 2606 (QB). He refused the claimant summary judgment in respect of his claim for a bonus which he says is due under his employment contract with the defendant bank.
The Judge gave two reasons for refusing summary judgment. Firstly, he held that there was “considerable force” in the bank's contention that the contract did not entitle the claimant to the claimed bonus and, secondly, even if that had been otherwise, there was an arguable, fact sensitive, defence. This was that the claimant had consented to a variation of his contract so as to displace the contractual term under which he made his claim.
Applicable principles for summary Judgment
There was no dispute as to the principles applicable to a claim for summary judgment. Counsel agreed the recent convenient summary by Lewison J in Nigeria v Santolina Investment [2007] EWHC 437 (Ch):
1. The court must consider whether the defendant has a “realistic” as opposed to a “fanciful” prospect of success.
A “realistic” defence is one that carries some degree of conviction. This means a defence that is more than merely arguable.
In reaching its conclusion the court must not conduct a “mini-trial”.
This does not mean that the court must take at face value and without analysis everything that a defendant says. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents.
However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial.
Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without a fuller investigation into the facts at trial than is possible or permissible on an application for summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case.
I would only add this – that one has to be careful not to take the last point too far when the case concerns construction of a written contract. The factual matrix is key to understanding what the parties must have intended by the words they used. But it far from follows that the need to know what that matrix was requires a full trial with discovery, evidence and cross-examination of witnesses. If there is no actual conflict of evidence on a relevant point of background matrix, it is only when there really are reasonable grounds for supposing that a fuller investigation of the facts as to the background might make a difference to construction that the court should decline to construe the contract on a summary judgment (including strike out) application.
The court should not be over-astute to decline to deal with the construction of a contract summarily merely on the basis that something relevant to the matrix might turn up if there were a full trial. Most disputes as to “pure” construction of a contract will be suitable for summary determination because the factual matrix necessary for its construction will itself be determinable on that application.
The Facts
The claimant was employed by the defendant bank as a derivatives trader from June 1998 until 13 January 2009. Until May 2008 his contract was governed by the terms of a letter of 20 May 1998. His basic salary in 1998 was £40,000 per annum plus “any future applicable bonuses made entirely at the discretion of the bank on the basis of your financial and managerial performance viewed across Rabobank International”. (Rabobank International is the trading name of the defendant). It was accepted that the basic salary had been increased over the years but not up to as much as £100,000.
The job the claimant actually did from about 2005 was to trade on behalf of the bank itself as opposed to trading for clients. This is called “proprietary trading.” It is common ground that the claimant was good at his job and regularly made money for the bank.
Until the contract in question the claimant's entitlement to a bonus was discretionary. Before I go further I should say a word about discretionary bonuses generally since their widespread existence forms part of the background matrix. The authorities establish that even where an employee's contract says that he is entitled to a bonus on a purely discretionary basis that does not mean the employer is entirely free to decide whether to pay a bonus or not. On the contrary, in making his decision whether to pay a bonus, and if so how much, the employer must act in a rational and fair manner. The test is essentially one of Wednesbury unreasonableness, see Horkulak v Cantor Fitzgerald [2005] ICR 402, [2004] EWCA Civ 1287 and Keen v Commerzbank [2007] ICR 623, [2006] EWCA Civ 1536.
So, contrary to Mr Goudie QC's written submissions on behalf of the claimant, an entitlement to a purely discretionary bonus is not of “minimal value”. Indeed in the past the claimant has received large sums by way of “discretionary” bonuses. For example in 2007 he received £150,000, a sum with which he was unhappy as being too low compared with some of his colleagues. To be fair Mr Goudie did not press the “minimal value” point in his oral argument.
In March 2008 the parties changed the employment contract. Part of the background to the change was that not only was the claimant unhappy with the previous year's bonus of £150,000 but colleagues of the claimant on the same desk had performance related bonuses and both the claimant and the bank considered he had “lost out” in 2007 compared with them.
The new contract was contained in a letter of 18 March 2008, a document signed by the claimant to signify his agreement on the 19 March. The claimant's basic salary was increased to £100,000 per annum with effect from 1 July 2008. There were two provisions as to bonus:
Guaranteed Bonus
Provided you have complied with the Conditions and subject to the conditions specified below, the following payment is also guaranteed:
A guaranteed bonus of £50,000 attributable to the 2008 calendar year. This award, less statutory deductions, will be paid no later than 31 March 2009.
The guaranteed bonus (the net amount paid to you) will be refundable to the Bank in the event of you voluntarily resigning from the Bank prior to having completed twelve months’ service from the initial payment date of the guaranteed bonus.
If your employment with the Bank is terminated, for reasons of gross misconduct, or you have given notice of your intention to resign, in circumstances other than those in which you are entitled to terminate it without notice by reason of the conduct of the Bank, on or before the bonus payment dates, then you will not be entitled to receive your guaranteed bonus including any deferred portion of guaranteed bonus.
Performance Related Bonus
You will also be eligible to receive a performance related bonus from the Bank, subject to your individual revenue generation. Any payment due will be made at the time the Bank makes its annual performance bonus payment but in any event no later than 31 March in the year following the performance year for which you are being awarded (i.e. 31 March 2009 in respect of 2008). The formula used to calculate the bonus due to you will be as follows and will be calculated for 2008:
12% will be linked to your individual performance providing the individual total revenue threshold of €550,000 has been reached.
The above table is applicable to your 2008 bonus. The Bank maintains the right to review or remove this formula linked bonus arrangement at any time.
| % | Threshold | Total Revenues (net of brokerage fees) |
| 0% | €550,000 | |
| 12% | €550,000 | €551,000 |
It is common ground that the Guaranteed Bonus of £50,000 was to “make up for” the “shortfall” in 2007. It was not given without any strings however, for it remained subject to the two conditions (no voluntary resignation or misconduct). The first of these is some evidence of a desire by the bank to retain the claimant's services.
In mid-July the claimant was told that he might be made redundant. At that time his “book” had suffered recent heavy losses, although not enough to wipe out all the profit he had made in the year 2008 up until that point.
Shortly thereafter, on 22 July the claimant received a letter about his possible redundancy. It said:
I write further to our recent conversations at which you were advised that your position was at risk of redundancy.
You are invited to a further meeting...
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