COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
The Hon Mr Justice Simon
Strand, London, WC2A 2LL
| Attrill and others
|- and -
|(1) Dresdner Kleinwort Ltd
(2) Commerzbank AG
Jonathan Sumption QC and Martin Chamberlain (instructed by Linklaters LLP) for the Defendants
|Fahmi Anar & others||Claimants
|- and -
|(1) Dresdner Kleinwort Ltd
(2) Commerzbank AG
Jonathan Sumption QC and Martin Chamberlain (instructed by Linklaters LLP) for the Defendants
Hearing dates: 16th and 17th February 2011
Crown Copyright ©
The Chancellor :
"Dear [ ]
A discretionary bonus for 2008 under the arrangements given below has been provisionally awarded at
? [ ]
The provisional bonus award stated above is subject to review in the event that additional material deviations in Dresdner Kleinwort's revenue and earnings, as against the forecast for the months of November and December 2008, are identified during the preparation of the annual financial statements for 2008 i.e. that Dresdner Kleinwort's earnings position does not deteriorate materially in this period. This will be reviewed in January 2009 by Stefan Jentzsch. In the event that such additional material deviations are identified, the Company reserves the right to review the provisional award and, if necessary, to reduce the provisional award."
"bonus awards for all front and middle office employees who received a letter in December stating their provisional award, which was subject to Dresdner Kleinwort's financial performance targets, will be cut by 90% pro rata to the stated provisional amount."
In the event the guaranteed bonus pool 400m was applied in payment of 152.2m to those with guaranteed bonuses, 120.4m, approximately 25m, being 10% of the allocation made in December, to those eligible for discretionary bonuses and the balance of 222.8m was retained by DBAG.
"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."
Section 15.1 provides that in the absence of any specific provision to the contrary the notice period for any employee below the level of director is not less than one week's notice for each year of continuous service subject to a minimum of one calendar month and maximum of 12 weeks. Sections 21 to 38 give details of benefits or facilities provided by DKL for its employees.
"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.
33.3 Many factors influence the Company's decision to make a discretionary award and, if awarded, the amount paid to an individual employee. There is no formula for calculating the level of awards which may be paid in any given year. The Company makes awards to support its commercial objectives at the given time and is likely to take into account many different and competing factors. These are likely to include but are not limited to:
- the financial performance of the Company and its associated companies
- the aggregate sum made available for discretionary awards by management
- the need perceived by management to incentivise employees to achieve superior and preferably market-leading performance and to recognise such performance when it occurs
- the particular need to retain key individuals regardless of their relative achievements during a period.
- market trends and conditions
- the strategic needs and relative priorities of the business and its various constituent activities
Many of these criteria have elements of subjectivity within them. Achievement of a particular level of performance by itself does not entitle you to an award or a particular award.
33.4 Not all of these criteria may be applicable to the consideration of any or every employee's discretionary award and different criteria may be applied and/or emphasised for a specific individual depending on the particular circumstances. The criteria and reasons for making a discretionary award... may change from year to year.
33.5 if you are absent during a bonus year, for example, including but not limited to sickness absence ..., any discretionary award is likely to be pro-rated to reflect the period of your absence unless exceptional circumstances prevail. In any event, your overall contribution during the relevant year will be considered.
33.6 While the fact that you may have received a discretionary award in a previous year and its amount are factors which the Company may consider they are neither an indication nor a commitment that an award or a similar level of award will be made in any future year."
"Any press reports you may have read describing this as a sale of Dresdner Kleinwort are spurious and simply speculation."
Seemingly speculation continued because on 23rd May 2008 the Financial Services Authority wrote to Dr Jentzsch as the Chief Executive Officer referring to the proposed restructuring of DBAG and expressing the concern of the FSA that this left DBAG with 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 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."
A draft of the retention plan dated 10th July 2008 was produced and discussed within DBAG. The FSA asked for a copy of it on 23rd July 2008. A further proposal was formulated on 25th July 2008. The latter proposed that:
"for 2008 a de minimus [sic] pool of 400m (75% of 2007) be set aside for [DK]."
At a meeting with FSA on 5th August 2008 Dr Jentzsch indicated that he would shortly announce a minimum bonus pool for DK to be guaranteed by Allianz.
"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."
At the board meeting Dr Jentzsch explained the proposal in these terms:
"A minimum bonus pool, which should be announced in the coming week, is needed to ensure employee stability. All risk policies must be strictly observed in order to prevent the pool being 'generated' by taking excessive risks. The minimum bonus pool should be guaranteed and allocated on a discretionary basis. Revenues of 2,327.5 million formed the basis of the cash pool of 400 million, with corresponding increases. Independently of the minimum pool, but related to it at a content level, approximately 60 front office staff should receive individual bonus guarantees."
In fact, as the judge noted, individual bonus guarantees were allocated from the 400 million bonus pool. None of the Claimants was given an individual bonus guarantee.
" Dr Jentzsch announced the creation of the minimum bonus pool at a business update or Town Hall meeting, held at [DK]'s offices in London and simultaneously broadcast to its offices in Frankfurt, Moscow and New York. The announcement was also broadcast over [DK]'s intranet. As pleaded in the Attrill Particulars of Claim, Dr Jentzsch said:
(i) a guaranteed minimum bonus pool of 400m had been created for distribution to front and middle office staff of [DK] for the 2008 financial year;
(ii) There was potential for the size of that pool to be increased if revenue exceeded targets; and
(iii) Individual bonus allocations from the bonus pool would be made in the usual way and would be communicated to employees in December 2008."
As the judge added:
" the announcement of a bonus pool at such an early stage in the year was unprecedented. It is plain that it was made in August with the express purpose of encouraging employees to remain with [DK]. Although a hand-written note of what Dr Jentzsch said was taken and this referred to a promise that the bonus pool would remain, 'no matter what', it is right to note the Claimants' concern that there is now no available recording of the precise words used."
i) From 18th to 31st August 2008 the intranet of DBAG recorded without qualification that Allianz had agreed and supported DBAG's Management Board in setting a minimum bonus pool of 400m.
ii) On 12th September 2008 the answer to a 'frequently asked question', similarly recorded, was that the minimum bonus pool remained in place and would be awarded on a performance basis.
iii) The same message was conveyed by the same method on 2nd October 2008.
In the meantime, on 31st August 2008, the sale of DBAG by Allianz to Commerzbank AG was announced by Dr Jentzsch and, on 15th September 2008, the insolvency of Lehman Brothers was publicised.
"The communication date for bonus awards for both [DK] (Front Office employees) and Aligned Functions (support employees) will be Friday 19 December 2008.
The bonus pool for the Front Office has already been communicated by Stefan Jentzsch in his updates. The bonus pool for Functions will be comparable with last year's, adjusted for headcount movements. Individual bonus awards continue to be discretionary and determined by the relevant management. And last year's award should not be taken as any indication of the level of any bonus award for 2008.
Bonuses communicated on 19 December 2008 will be paid in full with January salaries through the January payroll. The 2008 bonus awards will be awarded in cash and subject to statutory deductions ..."
"... to leave the volume of the [DK] bonus pool resolved on August 12, 2008 unchanged at present. However, this resolution is subject to the proviso that a clause is included in the bonus letter stating that the bonus payment will be adjusted if material negative deviations in DKIB's revenue and earnings as against the existing forecast for the months of November and December 2008 are established during the preparation of the annual financial statements for 2008. The review of this issue will be conducted in January 2009 under the leadership of Stefan Jentzsch."
On 8th December 2008 Dr Jentzsch wrote to his fellow directors of DBAG concerning the discussions to reduce the bonus pool. He said:
"I expect and apprehend that a retraction of the commitments will destroy the trust of the employees in the executive management fundamentally, finally and irrevocably, with the risk of high operating instability and corresponding consequences for the income and capital of the bank."
"nevertheless I remain confident that in the end we will deliver on the overall bonus pool amount for [DK] and the individual promises made to each of you."
"After taking note of and discussing the figures, the participants in the meeting came to the conclusion that the Board after taking the business lines / units in line with page 6 of the document into account is able to make differentiated adjustments to the preliminary individual bonus figures communicated in the bonus letters."
The figures on page 6 of that document appear to record the actual and budget figures for 2008 and the variances. The full board of DBAG met later that day with Dr Jentzsch in attendance. They discussed three possible alternatives, namely payment according to the distribution mechanism as submitted, payment on the basis of a reduced bonus pool and payment on the basis of individually agreed legal obligations only.
"The Board resolves a differentiated reduction in the discretionary bonus volume of approximately 80% on the basis of scenario C; in the case of [DK] Front Office, the reduction of 90% of the initial discretionary volume of 250m results in a bonus volume of 25m, which is to be distributed without floors and with a pro rata cap."
This decision was communicated by Mr Reuther to the employees in DK in the terms I have already quoted in paragraph 4 above.
"a. The Court must consider whether the Claimants have a 'realistic' as opposed to a 'fanciful' prospect of success: Swain v Hillman  1 All ER 91.
b. A realistic claim is one that is more than merely arguable: ED&F Man Liquid Products v Patel  EWCA Civ 472 at .
c. In reaching its conclusion the court must not conduct a mini-trial: Swain v Hillman.
d. This does not mean that a court must take at face value everything that a claimant says in statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: ED&F Man Liquid Products v Patel  EWCA Civ 1550 at .
e. 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 the evidence that can reasonably be expected to be available at trial: Royal Brompton Hospital NHS Trust v Hammond (No 5)  EWCA Civ 550.
f. Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on a summary judgment hearing. Thus the court should hesitate about making a final decision without a trial, even when there is no obvious conflict of fact at the time of the application, 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: Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical 100 Ltd FSR 3 ."
"Conversely, I consider that if one part of the claim is to go to trial it would be unreasonable to divide the history up and strike out other parts of it. A great deal of time and money has now been expended in the examination of the preliminary issues, and I think that this exercise must now be brought to an end. I would reject the Bank's application for summary judgment."
i) there was a guaranteed minimum bonus pool of 400m,
ii) bonuses for 2008 would be paid from that pool to eligible employees, including the claimants, regardless of the performance of DK.
"..there is the relative informality of the way in which the announcement was made. It is no answer to say that it was not unusual, or even that it was usual, to communicate information to employees at a 'Town Hall' meeting. What is striking about making the announcement is that not all of those affected by it were present or were asked to be present. In addition, the relative informality in which people were informed of what was intended was reflected in the lack of any formal note of what was said or any formal communication to the employees. If this were intended to be an irrevocable and legally binding commitment it was, at the very least, an unconventional way to enter into such a commitment."
No doubt, by some standards, the announcement was made informally, but the judge did not appear to pay regard to the terms of section 1.4 of the Handbook which I have quoted in paragraph 7 above. That provision expressly recognises that changes to employees' contracts of employment may be notified on the company intranet. Nor did the judge note, in that context, that the method of communication by means of the Town Hall meeting had been specifically approved by the board of DBAG on 12th August 2008. The announcement was not informal in the sense of being casual.
"..the claim proceeds on the assumption that individual employees could enforce a promise to pay from the minimum bonus pool without any stipulation about how much any individual would receive, or the basis on which they were to receive it. Paragraph 33 of the Handbook indicated the type of factors which might apply to the size of an individual employee's bonus. Although 'the aggregate sum made available for discretionary awards by management' was one of the factors, there were others factors which might properly be taken into account, for example, the need to incentivise employees and to recognise market-leading performance. Any assessment of an individual's bonus would involve a highly subjective exercise of discretion involving judgements of the relative merits of a number of individuals. It is no answer to say that the Court has shown itself willing and able to assess damages for breach of a contractual term to award a bonus. The case which is relied on by the Claimants, Clark v. Nomura International Plc  IRLR 766, illustrates some of the difficulties that might arise in the present case. In the Clark case there was a single claimant, whose entitlement to damages for breach of the obligation could be calculated in the light of clear contractual criteria following the hearing of evidence. In the present case the award of damages would involve interdependent calculations of a large number of claims. Not only would the Court have to calculate damages on the basis of a wide commercial discretion, it would have to do so in relation to a number of criteria."
"..there is the uncertainty about who might qualify for a bonus. The hope was that the announcement would result in all the employees staying; but the legal effect of the announcement can properly be judged on the basis that the hope might have been disappointed. It is legitimate to ask what would have been the result if all but a handful (or even half the employees) had left? Would those who remained have been entitled to be paid consequentially larger amounts? Mr Sumption rightly described such a result as a commercial tontine. The Claimants' response appeared to be to accept the logical relevance of the question, but to evade the conclusion by pointing out that in practice the situation was unlikely to arise. A question might be posed as to the entitlement of those who joined after the announcement was made, and whether they were entitled to participate in the fund, so as to dilute the entitlement of others? There are no clear answers to such questions."
"there are difficulties in construing the announcement as being the establishment of a sum which would be unaffected by any other consideration set out in §33 of the Handbook: for example, market trends and the financial performance of the company."
The particular contract under consideration is that alleged to arise from the Town Hall meeting on 18th August. That was the establishment of a guaranteed minimum bonus pool. It is not clear that section 33 applies to that part of the bonus award process rather than the later stage of allocating the pool amongst eligible employees. But if it does section 33.4 expressly provides that not all the criteria will be considered in all cases. Accordingly, this alleged contract can be construed and applied consistently with section 33.
"The fundamental question is this: is the employee's conduct, by continuing to work, only referable to his having accepted the new terms imposed by the employer? That may sometimes be the case. For example, if an employer varies the contractual terms by, for example, changing the wage or perhaps altering job duties and the employees go along with that without protest, then in those circumstances it may be possible to infer that they have by their conduct after a period of time accepted the change in terms and conditions. If they reject the change they must either refuse to implement it or make it plain that by acceding to it, they are doing so without prejudice to their contractual rights. But sometimes the alleged variation does not require any response from the employee at all. In such a case if the employee does nothing, his conduct is entirely consistent with the original contract containing; it is not only referable to his having accepted the new terms. Accordingly, he cannot be taken to have accepted the variation by conduct."
This proposition was applied by the Court of Appeal in Khatri v Cooperatieve Centrale Raffeisen-Boerenleen Bank BA  EWCA Civ 397 paragraphs 50 and 51.
Lady Justice Smith
Lady Justice Black