ON APPEAL FROM THE HIGH COURT
MR JUSTICE SIMON
HC 09 C 03008
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE AIKENS
LADY JUSTICE BLACK
| RICHARD HOWARD HOPKIN
|- and -
|FINANCIAL SECURITY ASSURANCE (UK) LIMITED
WordWave International Limited
A Merrill Communications Company
190 Fleet Street, London EC4A 2AG
Tel No: 020 7404 1400, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mr Adam Solomon (instructed by Speechly Bircham LLP) for the Respondent/Defendant
Hearing date : 2nd March 2011
Crown Copyright ©
Lord Justice Aikens :
"(1) So far as the FSA performance share award was concerned the award was stated to be a grant of performance shares in the Equity Participation Plan ("EPP").
(2) The preamble referred to performance shares being paid out in two three-year performance cycles, with one third of the shares being allocated to the first circle and the balance of two thirds being allocated to the second circle.
(3) The preamble also referred to payments for the performance shares being made "in cash and/or shares or common stock".
(4) The stated purpose of the award, according to clause 1, was to enable the company to obtain and attract employees who would contribute to the long-term growth of the company.
(5) The scheme provided that on the date of the award the employee was [not] vested in any of the former performance shares which became vested on completion of the performance cycle.
Clause 5 continued:
"The Plan provides for vesting of all your Performance Shares upon termination of employment upon your death or Disability. The Plan provides a partial vesting of your Performance Shares upon termination of employment with the Company without Cause."
(6) Clause 6 provides that subject to a provision for an election to receive FSA stock, which is described in clause 7, payments would be made against the share allocations within 120 days of completion of the cycle provided the employee was employed at the conclusion of the cycle.
(7) Clause 7 provided that so far as the Performance Shares were concerned the payment would be in cash or shares, although at the time of this particular draft award, it would be likely to be cash.
There were similar conditions in the draft award relating to the Dexia restricted stock, although in the case of Dexia stock it was more likely that the employee would hold the stock, at least if he continued to be employed. In the case of each draft award it was stated to be the subject of the terms of the EPP."
"The unconditional vesting of 3,000 Performance Shares awarded to him in February 2008 and 2,000 Performance Shares due to him in January 2009."
The terms of the Engagement Letter of 26 September 2007
" The terms of our offer are set out in this letter and the attached "Terms and Conditions of Employment", (the Terms and Conditions") which together will apply to your employment. Where the terms of this letter and the Terms and Conditions conflict, the terms of this letter will prevail.
 Your base salary will be at the rate of £150,000 per annum, payable monthly, in arrears. In January 2008, a guaranteed bonus of £300,000 will be payable. Your first salary review will be in January 2009 and at that time, a minimum guaranteed bonus of £300,000 will also be payable.
 You will also be eligible to participate in FSA's Equity Participation Plan, the performance share unit aware will be comprised of 90% FSA performance shares and 10% Dexia restricted shares. Performance Shares are awarded on a discretionary basis and are valued upon the increase in adjusted book value and the book value of the company over given periods and vest over two sequential three-year performance cycles. You will be awarded 3000 Performance Shares in January 2008 and a minimum of 2000 Performance Shares in January 2009.
 The cash bonuses and awards of Performance Shares referred to above will be paid to you subject only to the following conditions: firstly, that you have not been dismissed for gross misconduct; secondly, that you have not given notice voluntarily to terminate your employment with FSA in each case by the payment and award dates in question.
January 2009 Cash Bonus and Performance Share awards
It is acknowledged that these are indeed minimum amounts and may (in the discretion of FSA) be exceeded…"
The rival arguments on the construction of the contract terms
Principles of Construction
8. First the court's task is to ascertain the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation they were in at the time of entering into the contract.
9. Second, this is not simply a matter of determining the dictionary meaning of specific words, not least because the words chosen by the parties may not be appropriate.
10. Third, in interpreting the document the court may take account of the factual background, that is to say anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
11. Fourth, however, the court may not take into account the previous negotiations of the parties or evidence of subjective intent.."
Construction of the Engagement Letter, particularly para 5.
Lady Justice Black:
Lord Justice Thorpe: