ON APPEAL FROM HIGH COURT OF JUSTICE
Mr George Leggatt QC (sitting as a Deputy High Court Judge)
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE RIMER
LORD JUSTICE PITCHFORD
| SOCIETE GENERALE, LONDON BRANCH
|- and -
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Mr David Cavender QC (instructed by Fox Williams LLP) for the Respondent
Hearing date: 29 November 2010
Crown Copyright ©
Lord Justice Rimer :
'Your employment can be terminated on the expiry of 3 months' written notice of termination given by you to [the Bank] or by [the Bank] to you.'
Clause 17, headed 'General Information', provided that:
'This contract is in conjunction with the offer letter, [the Handbook] (as amended from time to time) and the SGUK Compliance Manual which, together with this letter [meaning the contract], form the written particulars of employment as required by law. However, in the event of any conflict of any terms set out in this Contract and those contained in the Handbook the terms of this contract shall prevail.'
'[The Bank] reserves the right to terminate your employment at any time with immediate effect by making a payment to you in lieu of notice (or, if notice has already been given, the balance of your notice period) based upon the value of your:
Basic annual salary; and
Flexible benefits allowance;
for your notice period (or, if notice has already been given, the balance of your notice period).'
'You have received your normal salary and benefits up to the Termination Date, together with any accrued but untaken holiday pay, subject of course, to normal deductions in respect of income tax and national insurance contributions. You will be informed separately of the salary and the deductions which have been made.'
Paragraph 2 listed various payments that the Bank proposed to pay Mr Geys as his entitlement under his contract. The letter then set out the Bank's proposed contractual terms for a clean break. Mr Geys was invited to agree to the terms by returning a signed copy but he declined to do so.
'1. Notice Entitlement
Under your terms and conditions of employment, you are entitled to 3 months' notice of termination of your employment. [The Bank] gave you notice to terminate your employment with immediate effect on 29 November 2007 (your Termination Date) and will pay you in lieu of your notice period. This payment will be calculated in accordance with Section 1/8.3 of [the Handbook].
2. Final Salary Payment
Your notice payment was credited to your bank account on 18 December and your final salary slip and P45 was sent to your home address. This amount was paid to you with deduction of income tax or employee NICs.'
Those paragraphs were worded infelicitously, but despite the apparent futurity of the payment promise in paragraph 1 their overall sense was that the promised payment was satisfied by that of 18 December 2007, which was pay in lieu of notice ('PILON') for the purposes of paragraph 8.3 of the Handbook.
Ground 1: was Mr Geys dismissed on 29 November 2007?
Ground 2: payment in lieu of notice (PILON)
'It is a commonplace of documentary construction that an apparently wide and absolute provision is subject to limitation, modification or qualification by other provisions. It does not make the later provisions inconsistent or repugnant.
It is not enough if one term qualifies or modifies the effect of another; to be inconsistent a term must contradict another term or be in conflict with it, such that effect cannot fairly be given to both clauses.'
The judge said that Pagnan illustrated that that approach applies equally in a case in which one provision is in the special conditions and the other in the printed clauses of the contract, with the contract including an 'inconsistency clause' providing that the special conditions 'shall prevail in so far as they may be inconsistent with the printed clauses.'
'35. In order for a payment to amount to a payment "in lieu of notice" within the meaning of the clause, I would hold that it is necessary for the Bank not only to make a payment to [Mr Geys] of a sum calculated in accordance with the clause, but also to give notice to [him] that it is exercising its right to terminate [his] employment by making the payment. On general principle, such a notice must be sufficiently clear and unambiguous in order to be effective.
36. In the present case it was not until the Bank belatedly sent its "standard Human Resources letter" to [Mr Geys] on 4 January 2008 that it clearly conveyed that it had decided to exercise its right to terminate [his] employment by making a payment to him in lieu of notice and that the sum credited to his bank account on 18 December 2007 was intended to include such a payment. The fact that [Mr Geys] could have, and probably had, guessed that this was the most likely explanation for the credit was not in my view sufficient to alter his legal rights before the position was made clear.'
' gave [Mr Geys] notice by implication that his contract was to be terminated at the earliest possible date on which such notice would be effective which under the terms of the contract was in three months time. It follows that, unless the effect of subsequent events was to terminate the contract sooner, the contract came to an end on 29 February 2008.'
'The Bank reserves the right to terminate your employment as follows. The Bank may make a payment to you in lieu of notice. If it does so, then upon the Bank giving notice to you that it has exercised its right under this paragraph, your employment shall thereupon terminate with immediate effect.'
Ground 3: construction of the tax efficiency obligation
'[The Bank] will use all reasonable endeavours to ensure that any award made to you under the FISS is made in as tax efficient a manner as possible to take advantage of your Non-UK domiciled status and to keep you informed about the endeavours that [the Bank] is using. However, any award made under the FISS will be subject to such Income Tax and National Insurance Contributions (or other similar deductions) as [the Bank] may be required to deduct and [the Bank] will not be required to gross-up any award to take account of any Income Tax or National Insurance Contributions (or other similar deductions) in any circumstances, including if making an award in a tax efficient manner is not feasible or if the manner in which any award is made is less tax efficient than anticipated. When the FISS terminates, [the Bank] will consider whether or not to apply any tax efficient schemes to the incentive arrangements (if any) in which you may be eligible to participate after that date.' (Emphases supplied, these sentences being relevant to the argument).
'Any award paid or made under the [performance based bonus] Scheme and/or under FISS will be subject to a deferral (the "Deferral") in that 25% of any award in excess of Euros 250,000 will be retained by [the Bank] and in respect of any award that may become payable under paragraph 5.3 will be released in three instalments on the Relevant Date of the first, second and third years following the year in which the original award was paid or made, and in respect of any award that may become payable under paragraph 5.4, will be released in three instalments on the Relevant Date of the first, second and third years following the year in which the original award was paid or made. Alternatively, any awards that may become payable in respect of paragraph 5.3 or 5.4 may be subject to a deferral of 25% of the amount so payable in accordance with any other terms agreed in advance between you and [the Bank]. In respect of any other awards becoming payable under the Scheme, 25% of any award in excess of Euros 250,000 will be retained by [the Bank] and released in three instalments on the Relevant Date of the first, second and third years following the year in which the original award was paid or made. [The Bank] may in its absolute discretion amend the rules of the Deferral from time to time. Any such award paid or made under the Scheme and/or the FISS will be paid to you in Euros.'
'the value (calculated, as at the date of the termination of your employment, in accordance with the rules of the Deferral) of the proportion of any award or awards that has or have been made to you but retained by [the Bank] under paragraph 5.7 and not yet released .'
The second item, described as 'the Compensation Payment', was explained in clause 5.15(b). Its amount depended upon when the employment contract was terminated. There is no need to say more than that, if it terminated before 1 January 2008, the Compensation Payment would be a proportion of the average of the FISS awards for 2005 and 2006; and if on or after that date, a proportion of the average of the FISS awards for 2006 and 2007. It is this provision that provoked the issues under Grounds 1 and 2: a 2007 termination would exclude the latter averaging exercise and confine Mr Geys to the former.
'If your employment terminates in the circumstances contained in paragraph 5.14 your eligibility to participate in the Scheme and/or the FISS and/or any scheme that replaces the FISS in respect of the year ending 31 December in which such termination of employment occurs will be replaced by the arrangements set out in paragraph 5.24 which will not be subject to the Deferral under paragraph 5.7.'
Clause 5.24(a) set out the replacement bonus arrangement in relation to the FISS, to be calculated by reference to the Gross Revenue and Net Revenue Forecasts of the Division for the relevant year ('the replacement bonus').
'77. It seems to me that there are differences between the two kinds of payment in dispute such that they fall on opposite sides of the line. Taking first the payment provided for in clause 5.15(a) which is the first part of the Termination Payment, this relates to sums which already constitute awards that have been made to [Mr Geys] under the FISS, albeit that under the arrangements governing deferral the money has been retained by the Bank and not yet released. The effect of the provisions applicable on termination is to accelerate the release of the money. I can see no logical reason why the tax efficiency obligation should not apply to such an accelerated payment. It seems to me to be an unduly technical argument to say that because the payment specified in clause 5.15(a) is expressed to be not the retained proportion of the any award but the value of that proportion calculated at the date of termination, it is not of an "award under the FISS". The purpose of the language used in clause 5.15(a), as it seems to me, is merely to provide for the sum payable to be reduced to reflect its early receipt. The purpose of the forfeiture provision in the FISS rules, and also of clause 5.17 of the Contract, is simply to ensure that [Mr Geys] will have no claim to receive any further payment following the termination of his employment. I do not consider that these provisions are intended to displace the fact that the payment specified in clause 5.15(a) is of an award that has been made to [Mr Geys] under the FISS.
78. On the other hand the amount payable under clause 5.24(a) is not in my view, either as a matter of language or in substance, an "award made to you under the FISS". Clause 5.18 makes it clear that [Mr Geys] is only entitled to an award under the FISS in respect of any year if he is employed by the Bank at the end of the year in question. The "replacement bonus arrangement" applies to the year (up to the date of termination) in which [Mr Geys's] employment is terminated and therefore to a period in respect of which there has not only been no award made to [him] under the FISS but he is not entitled, and will never become entitled, to such an award. Moreover, the language of the Contract expressly distinguishes between the FISS and a replacement arrangement. For example, clause 5.26 states:
"The calculation of any bonus payments and/or awards (including, without limitation, under the Scheme, the FISS and any successor to the FISS and any replacement arrangements shall be subject to pro-rata deductions in accordance with the provisions of paragraph 5.27 and 14(b)." (The judge's emphasis)
In these circumstances and where, in contrast, clause 5.5 refers only to awards under the FISS and not to payments under "any replacement arrangements", I do not think that clause 5.5 can properly be construed as covering such payments.
79. I conclude that the tax efficiency obligation in clause 5.5 applies to the sum specified in clause 5.15(a) but not to any payment made under the replacement arrangement in relation to the FISS set out in clause 5.24(a).'
Ground 4: full and final settlement? Ground 5: condition precedent?
'5.16 In consideration for [the Bank] making the Termination Payments (which will be made subject to such Income Tax and National Insurance Contributions (or other similar deductions) as [the Bank] may be required to deduct) you will enter into a termination agreement with the Bank (in the form of the draft termination agreement in Schedule 1 of this letter [meaning the contract] but amended to take account of any payments due to you under this letter and to take account of relevant legislative developments) under which you will waive all contractual and statutory claims against [the Bank] and any Group Company (save for any pension rights accrued to the date of determination of your employment, any personal injury claims that you have may against [the Bank] or any Group Company and save for any accrued rights you may have under the Deferral scheme and any share incentive scheme which will be dealt with subject to and in accordance with the rules of any such scheme) arising out of your employment with [the Bank] and its termination and under which you will agree to comply with the post-termination restriction in paragraph 14(a)(iii) and the confidentiality provisions in [the Handbook]. If [the Bank] and you wish to amend the form of draft termination agreement further than as set out above, such amendments must be agreed within 28 days after the date on which your employment terminates (or such longer period as you and [the Bank] agree), failing which you and [the Bank] will enter into the termination agreement in the form of the draft termination agreement in Schedule 1 of this letter only amended to take account of any payments due to you under this agreement and to take account of relevant legislative developments).' (My emphases, the emphasised words being central to the arguments)
'pay you an amount of £ (less such deductions as [the Bank] is required by law to make) [as compensation for the termination of your employment REWORD AS APPROPRIATE TO INCLUDE SUCH OF THE PAYMENTS REFERRED TO IN SCHEDULE 2 OF THE LETTER AGREEMENT BETWEEN YOU AND THE COMPANY DATED [INSERT DATE] JANUARY 2005 TO WHICH YOU ARE ENTITLED IN ACCORDANCE WITH THE TERMS OF YOUR EMPLOYMENT DEPENDING ON THE CIRCUMSTANCES IN WHICH YOUR EMPLOYMENT TERMINATES] (this includes any entitlement you may have to a statutory redundancy payment);'
The 'letter agreement' refers to what I have been calling the contract; and 'the Company' is a reference to the Bank.
'7. (a) You represent and warrant that:-
(i) you have instructed the Adviser who is referred to at the end of this letter [meaning the termination agreement] to advise you whether you have or may have any Statutory Claims (as defined in paragraph 7(d) below) [these list the statutory claims that might be available under various pieces of employment legislation] against [the Bank] or any Group Company arising out of or in connection with your employment and its termination; and
(ii) you have provided the Adviser with whatever information is in your possession to enable the Adviser to advise whether you have or may have any such Statutory Claims; and
(iii) having had legal advice from the Adviser, you may have Statutory Claims for unfair dismissal [and a redundancy payment ADDITIONAL CLAIMS AS APPROPRIATE] the ("Alleged Claims"); and
(iv) having had legal advice from the Adviser, you have no Statutory Claims other than those referred to in this paragraph 7(a) against [the Bank] and/or any Group Company, arising out of or in connection with your employment with [the Bank] and/or any Group Company or its termination.
(b) You hereby unconditionally and irrevocably waive the Alleged Claims, and neither you nor anyone else on your behalf will repeat, refer to or pursue the Alleged Claims.
(c) You accept the payment to be given to you pursuant to this letter in full and final settlement of:-
(i) the Alleged Claims [a range of statutory claims not material for present purposes]; and
(ii) all other claims and rights of action howsoever arising, which you (or anyone on your behalf) have or may have against [the Bank], and/or any Group Company arising from or connected with your employment by [the Bank] and/or any Group Company or its termination,
with the exception that this paragraph 7(c) will not apply to any pension rights or pension benefits which have accrued to you up to the Termination Date or to any personal injury claims you may have. You represent and warrant that you are not aware of any personal injury claims subsisting at the date of this letter not [sic: should be "nor"] aware of any basis on which you could bring any personal injury claims.
(e) It is a fundamental term of this letter that:-
(i) the payments to be given to you under paragraph 2 will at all times be conditional on you refraining from issuing or pursuing any type of employment related proceedings in respect of the Alleged Claims, any other Statutory Claim or any contractual or common law claim (howsoever arising), (with the exception of any claim for accrued pension rights, pension benefits or personal injury, as in paragraph 7(c)), against [the Bank] or any Group Company, (whether in an Employment Tribunal, the High Court, a County Court or otherwise); and
(ii) if you subsequently issue or pursue such employment related proceedings in breach of this letter then the payments paid to you under this letter (other than any statutory redundancy payment paid) will be repayable to [the Bank] forthwith on demand; and
(iii) the total sum will be recoverable as a debt, together with all costs (including legal costs) reasonably incurred by [the Bank] in recovering the sum and/or in relation to any proceedings brought by you.
The repayment provisions of this paragraph 7(e) will be without prejudice to [the Bank's] right to seek further damages from you in respect of the breach referred to in this paragraph and any other breach of this letter.
(f) You acknowledge that [the Bank] has relied on this paragraph 7 in deciding to offer you the terms set out in this letter.'
9. This letter represents the entire agreement between us relating to the termination of your employment.' (Emphases supplied, these provisions being of particular relevance)
'98. I see nothing self-evidently logical about an arrangement of such a kind. Suppose, for example, that the Bank was in breach of the tax efficiency obligation during the period of the contract with the result that [Mr Geys] has suffered loss and has a good claim for damages. It is not obvious why [he] should be required to abandon this claim in order to be entitled to a Termination Payment which he would equally have been entitled to receive if the Bank had performed its contractual obligation. On the contrary, to require [Mr Geys] to give up the claim seems to me to produce a windfall for the Bank. The implications of the Bank's argument are even more unmeritorious in relation to a claim for damages for wrongful dismissal. The consequence of the Bank's argument is that, if it wrongfully repudiates the contract and [Mr Geys] accepts the repudiation as bringing the contract to an end, [he] cannot pursue a claim for damages for the losses which he has suffered without losing his right to the Termination Payment to which he would equally have been entitled if the contract had been terminated lawfully. This allows the Bank potentially to profit from its own wrong. Far from being a matter of "logic and common sense", the result seems to me wholly unreasonable.
99. The purpose of the provisions, as I interpret them, is to achieve finality once any dispute about the sums payable to [Mr Geys] under the contract has been resolved. The object is not to prevent [him] from bringing proceedings to claim sums which he contends are due to him under the agreement (either as a debt or damages) or to penalise him if he does so. What the Bank is reasonably concerned to protect itself against is a situation in which, having agreed to make payments to [Mr Geys] which are intended to settle all his claims arising out of his employment, [he] is later able to bring proceedings asserting further claims against the Bank which were not raised before the termination agreement was concluded.
100. In my view the contractual provision which determines what claims [Mr Geys] may pursue before a termination agreement has been entered into is not paragraph 7(e)(i) of Schedule 1, which applies only to claims pursued after a termination agreement has been concluded, but clause 5.16 of the Contract in so far as it obliges [Mr Geys] to enter into:
"a termination agreement with [the Bank] in the form of the draft termination agreement in Schedule 1 of this letter but amended to take account of any payments due to you under this letter" (the judge's emphasis)
Reading "this letter", as I have pointed out that it must be read, as meaning "this Contract", this expressly envisages that [Mr Geys] is entitled to claim and receive any payments due to him under his contract of employment. Such payments must in my view include not only any agreed sum which is outstanding but also any damages which are payable as a result of any breach of contract by the Bank. The expression "under" the contract is capable as a matter of language of including a liability to pay damages as well as a debt, and if a payment of damages were not included it would the unreasonable consequences that I have referred to above.'
'Schedule 2 of this letter sets out the payments which you (or your estate as appropriate) will be entitled to receive in the specified circumstances.' (My emphasis)
Mr Gatt said that nothing in Schedule 1, paragraph 2(ii), or in Schedule 2, provided for the termination agreement to include an entitlement for Mr Geys to pursue claims for damages. All that it entitled him to were the payments listed in the Schedule 2 checklist. Those were the 'payments' referred to in the words from clause 5.16 that the judge quoted and 'payments' in that context cannot be interpreted as meaning 'claims in respect of any damages claims you may have'. The phrase is the language of debt.
'89. I would agree that the correct analysis of clause 5.16 is that the Bank's obligation to make the Termination Payment and [Mr Geys's] obligation to enter into a termination agreement are concurrent conditions. [Mr Geys's] obligation is thus conditional upon the Bank making, or being ready and willing to make, the Termination Payment specified in clause 5.15 of the Contract. Once, however, the correct amount of the Termination Payment has been established in these proceedings and the Bank pays or offers to pay this amount, [Mr Geys] will be obliged as a condition of receiving the payment to perform his concurrent obligation to enter into a termination agreement in the required form.
90. It is at the second stage that the Bank's argument in my view goes wrong. According to the Bank, the effect of paragraph 7(e)(i) of Schedule 1 is to make [Mr Geys's] entitlement to the payments to be given to him under the termination agreement conditional on his having refrained from issuing or pursuing proceedings against the Bank since the Termination Date [the judge's emphasis]. However, this is not what paragraph 7(e)(i) says. I am unable to construe that provision as looking backwards in this way and applying to proceedings which have already been issued or pursued before the termination agreement is executed and the condition in paragraph 7(e)(i) takes effect. In my view the wording of paragraph 7(e)(i) is plainly prospective and refers only to any proceedings which may be issued or pursued at any time in the future.
91. The fact that it is inconsistent in this way with the plain wording of the contract would be sufficient reason in itself to reject the Bank's argument, but there are a number of further objections which I also regard as fatal to it.
92. First, if the intention had been to make [Mr Geys's] right to receive payments on termination conditional on his having refrained after the Termination Date from making Non-Conforming Claims against the Bank, then one would expect the body of the contract to contain a clause which expressly states this and, given the draconian consequences of non-compliance with the condition, which states it clearly. It is an opaque and roundabout way of depriving [Mr Geys] of the right to receive termination payments where he has made Non-Conforming Claims to require him to enter into an agreement under which the Bank undertakes to make such payments (and which it must be ready and willing to make) but which [Mr Geys] is then disqualified from receiving as soon as he signs the agreement by reason of doing so. More than this, on the Bank's construction, [Mr Geys] is even required (as the final words of paragraph 7(e) indicate) by signing the agreement to assume a liability in damages for any loss caused to the Bank by his prior actions. I regard an interpretation which has this result as one which could not reasonably have been intended.
93. Second, if the Bank were right that paragraph 7(e)(i) looks backwards to proceedings which have previously been issued or pursued, then there is nothing in the wording to prevent it from applying to any such proceedings which have been brought at any time in the past. No doubt recognising the unreasonableness of this consequence, Mr Gatt QC submitted that the provision applies only to proceedings issue or pursued after the Termination Date. However, I can see nothing which justifies this limitation.
94. Third, the logical consequence of the Bank's interpretation of paragraph 7(e)(i) is also that, if there is a dispute about the amount owing to [Mr Geys] on termination of his employment, as has occurred in this case, [he] cannot bring proceedings to resolve the dispute and recover the amount to which he claims to be entitled without forfeiting his entitlement to recover that amount (or any amount). This is because the scope of paragraph 7(e)(i) is as wide as could be and includes "any contractual or common law claim (howsoever arising), with the exception of any claim for accrued pension rights, pension benefits or personal injury )" against the Bank. The fact that the Bank's interpretation leads to such a wholly unreasonable result where [Mr Geys] cannot enforce his contractual rights without losing them is a further compelling reason to reject it.'
Discussion and conclusion on Grounds 4 and 5
Lord Justice Pitchford :
Lady Justice Arden :