England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		12 November 2004

Mr. Justice Cooke :

The application

1. The Defendant Motability Finance Limited applies for an order that: -

"the court give summary judgment under CPR rule 24.2 against the Claimant on the following issues on which the Claimant has no real prospect of succeeding and there is no other compelling reason why they should be disposed of at trial:

1.1 the claim of bad faith pleaded in paragraph 48 of the Re-Amended Particulars of Claim;

1.2 the claim for a percentage of the RVI settlement pleaded in paragraph 49 of the Re-Amended Particulars of Claim;

1.3 the claim for a restitutionary remedy in respect of the RVI Project pleaded in paragraph 50 of the Re-Amended Particulars of Claim;

1.4 the averments in paragraph 2.3 and paragraph 35 of the Re-Amended Reply, and the 3^rd to 5^th sentences of paragraph 38 of the Re-Amended Reply.

In the alternative, that these parts of the Claimant's statements of case be struck out under CPR rule 3.4 as disclosing no reasonable grounds for bringing the claims;

……..

because:

(1) there is no adequate factual and/or legal basis for the claims which have no prospect of success; and

(2) if not disposed or summarily or struck-out, the claims will take up a disproportionate share of the court's resources and significantly increase the costs and length of the trial and will impair the prospects of any alternative resolution of the parties' dispute.

The Re-Amended Particulars of Claim

2. The Claimants plead: -

"48. The Defendant's decision to pay the Claimant only 50% by way of special bonus with respect to his role in the Residual Value Arbitration was irrational and/or in bad faith and the Defendant's decision was therefore a breach of the implied term of trust and confidence.

48.1 failing to communicate either immediately or within a reasonable time the decision of the Remuneration Committee to cap Special Bonuses when, as the Defendant well knew.

48.1.1 the Claimant was making wholly exceptional efforts to ensure that the Defendant's case was successful.

48.1.2 without prejudice to the generality of paragraph 48.1.1, the Defendant's chief executive Ed Lester had by the end of his meeting with the Claimant on 13^th February knowingly created an expectation on the part of the Claimant that the Claimant would receive a substantial bonus, consisting of at least 200% of his annual salary, such bonus being directly linked to the monetary recovery achieved in the RVI arbitration. The details of the Claimant's case on this point are as follows…

49 By reason of the Defendant's breach of contract, the Claimant has suffered loss and damage...

The Claimants will say that on this basis a reasonable employer would have paid 0.5% of RVI settlement - £375,000.

50 Alternatively, the Defendant's contract of employment having been terminated as a result of the Defendant's repudiatory breach of contract on 31.05.03 (as set out in paragraph 51), the Claimant is entitled to a restitutionary remedy in respect of his work under the RVI Project. The value of the benefit received at the Claimant's expense is the fees which would have been charged by a negotiation consultant:

0.5% RVI Settlement: £375,000."

The Re-Amended Reply

3. At paragraph 2.3, the Claimant pleaded that the new scheme was not introduced in good faith.
4. Admittedly in response to the Defendant's plea that it was under no obligation to communicate the decision of the Defendant's remuneration committee on 26^th February 2002 to increase the cap on the annual bonus from 30% to 50% and to provide for a special project bonus of up to 50% of basic salary (see paragraph 48.1 of the Re-Amended Particulars of Claim set out above), the Claimant averred that such communication was required by the implied obligation of trust and confidence as soon as the Remuneration Committee decided that bonuses for special projects were to be capped at 50% because at meetings in October 2002 and on 15^th January and 13^th February 2003 Mr. Lester, the CEO of the Defendants, induced in the Claimant an expectation that a bonus of 2.8 – 5.6 times his annual salary would be paid to him, proportionate to the benefit secured by the negotiations he was undertaking with RVI insurers in order to make a recovery for the Defendants.
5. At paragraph 35.8 of the reply, it is pleaded that, when on February 26^th 2003 the Remuneration Committee decided to cap bonuses at 50%, the Claimant and his team were working enormously hard to ensure that the RVI negotiations were successfully concluded. Consequently Mr. Lester knew or ought to have known that if (as subsequently happened) the limits upon bonuses were not disclosed until after the RVI negotiation was over, it would inevitably appear that the Remuneration Committee's decision had been kept secret in order to avoid damaging morale whilst the dispute was still pending.

The facts

6. The Claim in this action is for damages for wrongful dismissal in breach of the contract of employment concluded between the Claimant and the Defendant. The undeniable factual position is this: -

i) In the Position Description, which was the document used for recruiting purposes, the job title was that of "Finance Director" and amongst the responsibilities listed was "Insurance Risk Manager". Among the key tasks was "risk management, to ensure a systematic approach to the management of risk across the business and to monitor the process and cost of laying off that risk – particularly the Company's residual value risk".

ii) In the letter to the Defendant in which the job offer was made, the salary was specified with various allowances. A twelve month notice period was provided. The letter referred to salaries being reviewed annually and to an additional opportunity to earn a discretionary annual performance bonus based on the achievement of agreed objectives. The annual bonus opportunity was expressed to be 30% of salary but the Defendants were said to be currently considering the introduction of a long-term incentive process, details of which would be available later in the year. The bonus year ran from October to September.

iii) By a letter of 4^th May 2002 the Claimant accepted the offer detailed in the Defendant's letter.

iv) Pursuant to a question from the Claimant, who took up his position on 1^st July 2002, the Human Resources Department of the Defendants on 2^nd July 2002 confirmed that bonuses were not mentioned in the employment contract as they were discretionary and did not constitute a contractual right.

v) The contract of employment was signed by the Claimant on the 6^th August 2002 and made no mention of any bonus. The job title was given as "Finance Director" but under that heading the following appeared: -

"Your job title does not limit or define what you may be required to do. Because of the changing nature of the business, the company reserves the right at any time during your employment to require you to undertake any duties falling within your capabilities."

7. There is an issue between the parties as to whether or not, before he was employed, there was any discussion with the Claimant about the RVI claim which had been handled by the previous finance director who had since become a consultant. On the Claimant's own evidence however he took on the RVI dispute and directed the Defendants' efforts in arbitration and negotiation in order to bring about a highly successful settlement of the claim against insurers.
8. The Claimant maintains that at meetings in October 2002 and on 15^th January 2003 and 13^th February 2003, Mr. Lester the CEO discussed questions of bonus with him and led him to expect that he would receive a performance bonus "linked" to the outcome of the RVI claim. The Claimant maintains that this was understood to be a bonus proportionate to the amount recovered whilst the Defendants maintain that nothing of the kind was ever envisaged, discussed or even mentioned.
9. On the 28^th January 2003 the Defendant's Human Resources Director informed the Claimant of a Remuneration Committee meeting on 26^th February 2003 when the question of altering the bonus arrangements was to be discussed. On the 30^th January the Claimant sent a note to her with his suggestions for the remuneration review, suggesting that the Defendant should have flexibility to pay exceptional bonuses for outstanding performance, above and beyond the annual bonus. On the 26^th February 2003 the Committee met and agreed to increase the potential annual bonus benefit up to 50% of salary and to introduce an opportunity for directors to earn a Special Projects bonus amounting to a further 50% of salary. It also proposed the introduction of a Long Term Incentive Plan (LTIP) providing for the investment of part of the bonus awards. The Claimant was informed of this on 31^st March 2003 or 1^st April 2003. By this time the RVI claim had been settled for a figure of something in excess of £80 M due, as is recognised by the Defendants, in part or largely due to the substantial efforts made by the Claimant.
10. On 31^st March 2003, the Claimant wrote to Mr. Lester with his proposals for his own bonus suggesting that he should receive 0.5% to 1% of the insurance proceeds but on 30^th April 2003 the remuneration committee awarded him the maximum Special Project bonus amounting to 50% of salary, in the sum of £67,500. Before that bonus was paid on the 22^nd May 2003, the Claimant was told he was being dismissed with effect from 31^st May 2003 for his conduct in undermining the position of the CEO.

Governing principles

11. Where there are difficult areas of fact or law, a case is generally inappropriate for summary judgment or striking out. "A statement of case may not be suitable for striking out if it raises a serious live issue of fact which can only be determined by hearing oral evidence". "It is not appropriate to strike out a statement of case in an area of developing jurisprudence, since in such areas, decisions should be based on actual findings of fact". Similar quotations could be multiplied. Equally, the respondent to an application under CPR 24.2 does not have to show that his case will probably succeed at trial. He must show that he has a "real prospect" of success as opposed to a fanciful one. I bear in mind the appropriate test both for striking out and for summary judgment in accordance with the decided authorities, such as Swain v Hillman [2001] 1 AER 291 and those referred to at CPR 24.2.3, CPR 3.4.2, 3.4.3 and 3.4.4.

The challenged pleas

12. The Defendant challenges paragraph 48 of the Particulars of Claim which alleges a breach of the implied term of trust and confidence to be found in employment contracts. The breach alleged is the Defendant's decision on 30^th April to pay the Claimant only 50% by way of special bonus with respect to his role in the RVI arbitration. It is said that the decision was irrational and/or made in bad faith. No attempt is made to strike out the plea of irrationality as a whole although the Defendant professes not to understand it in respect of the Special Project Bonus as the Defendant was awarded the maximum sum for this new type of bonus which was only introduced on the 26^th February.
13. The primary attack is made on the plea of bad faith, the particulars of which set forth the failure to communicate within a reasonable time "the decision of the remuneration committee to cap special bonuses", when the Defendant was aware of the Claimant's efforts in resolving the RVI claim and of his expectation that he would receive a substantial bonus consisting of at least 200% of annual salary. Since the failure to communicate the decision of the remuneration committee to provide for special bonuses with a maximum of 50% relates to the period between 26^th February and 31^st March or 1^st April, it is impossible to see how this amounts to particulars of a bad faith decision made on 30^th April to award the Claimant that maximum figure of 50%. If the bonus schemes are discretionary but there are settled maxima, I cannot see how a decision to award the maximum is to be characterised as a bad faith decision on the grounds of failure to communicate the terms of the scheme, which by then were known to the Claimants, at an earlier date. In consequence I agree with the Defendant that there are no proper particulars given of the bad faith involved in the decision to pay the Claimant a special bonus of 50% of his salary. It is clear that if fraud or dishonesty is alleged, proper details must be given so that the Defendant knows the case it has to meet (see CPR 16 PD 8.2).
14. Mr. James Goudie QC made it plain that the Claimant was not alleging dishonesty against the Defendants in respect of this decision. In such circumstances I am unable to see what this plea of "bad faith" actually means. It adds nothing to the plea of a breach of the implied term of trust and confidence and the plea of alleged irrationality in the decision. As pleaded, the allegation of bad faith is unsupported by the particulars which are required in relation to such plea, has no prospects of succeeding and is, in its terms (to use the language of the old R.S.C) both vexatious and embarrassing. I have therefore no hesitation in striking it out as disclosing no reasonable ground for bringing the claim.
15. In paragraph 49, the Claimant sets out loss and damage and states that a reasonable employer would have paid 0.5% of the RVI settlement by way of special bonus. I was referred by both parties to the decision of the Court of Appeal in Horkulak v Cantor Fitzgerald [2004] EWCA Civ 1287. There the Court of Appeal decided that a decision in respect of a discretionary bonus was subject to an implied term as to its exercise and therefore to review by the Court. Such a decision had to be a "genuine and rational" decision, as opposed to an empty or irrational exercise of discretion. Elsewhere the Court refers to the decision as being one which must be rational and bona fide or as one to be made in good faith, as opposed to one which is irrational or arbitrary. A fair and rational assessment is required and if it is not made, the Court then must make its own assessment as to what decision would have been reached by the employer if it had acted appropriately. In so doing it must have regard to any contractual signposts and to bonus payments made to others of similar standing to the Claimant.
16. The Defendants are therefore right, as a matter of law in saying that the appropriate test is not "what a reasonable employer would have paid". The test, if the Claimant is right in his allegation that the decision made was irrational, is what the Defendant should have paid, by reference to the contractual signposts and the payment of bonus to others.
17. Given the allegation in paragraph 48 that the Defendant's decision to pay the Claimant only 50% by way of special bonus was irrational, and the need to have regard to the contractual signposts, it is impossible to see how the Claimant can succeed in saying that the decision not to award him more than the maximum sum allowable in respect of a special bonus is irrational. The contractual signposts and the amount paid to others both lead to the same conclusion and there is no suggestion on the evidence of any contrary indicia. A claim in excess of 50% of salary in respect of special bonus is simply unsustainable because the bonus scheme did not provide for any higher payment. With no attack on that scheme (which is not to be found in the Re-Amended Particulars of Claim), the decision cannot be irrational in itself. I therefore accept the Defendant's submission that a claim in respect of a Special Project Bonus exceeding 50% of salary has no prospect of success and grant summary judgment to the Defendant on that issue.
18. In paragraph 50 the Claimant seeks a restitutionary remedy amounting to 0.5% of the RVI settlement. In the prayer for relief this is still expressed as damages for breach of contract but I regard that matter as one which is capable of cure and therefore put that out of my mind. The essential question is whether or not a restitutionary claim can be maintained as a matter of law in the circumstances of this case, on the agreed or uncontrovertible facts or, where there is a real issue on the facts, the facts put forward by the Claimant.
19. The plea proceeds on the basis of the wrongful termination of the contract by the Defendant on 31^st May 2003 when the Claimant's dismissal became effective. In these circumstances the Claimant argued that a claim in restitution would lie outside the terms of the contract. In the Claimant's skeleton argument a large number of authorities were referred to and in oral argument reference was made to Lodder v Slowey [1904] AC 442, a decision of the Privy Council in relation to an appeal from New Zealand and the more recent decision of the Court of Appeal in New South Wales in Renard Constructions (ME) BTY Limited v Minister for Public works (1992) 26 NSWLR 34.
20. Mr. Goudie QC also sought to rely on textbook writers such as Professor Burrows at page 343 – 345 in the Law of Restitution but, as a matter of fundamental principle, in accordance with decisions of the House of Lords in this country, I can see no basis for any claim arising outside the terms of the contract on the facts which obtain here.
21. There is no plea in the Re-Amended Particulars of Claim to the effect that any work done by the Claimant fell outside the terms of his contractual duties. Although his statement seeks to suggest that the negotiation of the RVI claim fell outside his contractual duties and there is a proposed amendment to the Particulars of Claim to allege this, such an allegation has no realistic prospect of success. I have referred to the contractual documents which make such a plea untenable, before having any regard to the Defendant's evidence. The Claimant's evidence, such as it is on this point, does not support the argument that he would wish to make, with the result that the current debate must proceed on the basis that the Claimant did what he was required to do under his contract of employment.
22. The position then is that, on the Claimant's own case, he was wrongfully dismissed on 22^nd May 2003 with effect from 31^st May 2003. By this time he had not only fulfilled all his contractual duties with regard to the RVI claim, in respect of which he seeks a bonus payment, but had also been paid for those services in the shape of his salary. If there was a repudiatory breach of contract, then the contract was wrongly terminated as at 31^st May 2003 but all rights which had accrued to the Claimant by that point were vested in him. He had on his case fulfilled the terms of the contract and was therefore entitled to damages in respect of its breach, including damages for breach of the implied term of trust and confidence in failing to award him a bonus in line with his legitimate expectation.
23. The Claimant sough to argue that there was room for concurrent remedies in contract and restitution, relying on the decision of the House of Lords in Henderson v Merrett [1995] 2AC 145 at page 193 where Lord Goff said that there was nothing antithetical in principle to concurrent remedies in contract and tort. On this basis it was argued that the same position would obtain as between contract and restitution. Lord Goff went on however to say that there would not be room for concurrent liability in contract and tort where the tortious duty was so inconsistent with the applicable contract that such tortious liability had to be taken as excluded. In the context of contract and restitution, it is clear that the parties, in agreeing a contract, intend that to apply and there is therefore no room for restitution at all where there is full contractual performance by one party and, even on the Claimant's own case part performance by the other. Not only is it true to say that, historically, restitution has emerged as a remedy where there is no contract or no effective contract, but there is no room for a remedy outside the terms of the contract where what is done amounts to a breach of it where ordinary contractual remedies can apply and payment of damages is the secondary liability for which the contract provides.
24. The decisions of the House of Lords in Johnson v Agnew [1980] AC 3677, Photo Products v Securicor Transport [1980] AC 827 and Lep Air Services Limited v Rolloswin Investments Limited [1973] AC 331 establish the position where there is a repudiation of the contract which is accepted or which is effective to bring the contract to an end. In those circumstances the contract is not rescinded ab initio, but future obligations are discharged from the moment the contract comes to end. All accrued rights remain in being and, so far as executory elements are concerned, the primary obligation to perform is replaced by a secondary obligation to pay damages.
25. The position is wholly different from that where money is paid for a consideration which wholly fails. In such a case there is a total failure of consideration and the money is recoverable. Although this means that the payer may escape from the consequences of a bad bargain, there is no room for extending this to a situation where both parties have performed substantially and there is a full and adequate remedy for breach of contract which will compensate the Claimant for any loss suffered. The point is clearly set out in Goff & Jones – The Law of Restitution at paragraphs 20 – 007 and between paragraphs 20 – 019 and 20 – 023. The authors there say that there is no English authority to suggest that an innocent party, who has rendered services or supplied goods, may elect to sue in restitution if he has performed or substantially performed his part of the contract. If therefore he can claim under the contract whether in debt or in damages, that is the true measure of his entitlement, because it is that which he bargained for. If it were otherwise, not only would the Claimant be able to recover more than his contractual entitlement in respect of bonus, but he could also seek to establish that he was underpaid in terms of salary, despite his agreement thereto.
26. Moreover, notwithstanding the California case of Boomer v Muir 24 P. 2d 570 (1933) there can also be no justification, even if a restitutionary claim is available, for recovery in excess of the contract limit. Such recovery in itself would be unjust since it would put the innocent party in a better position than he would have been if the contract had been fulfilled. In deciding any quantum meruit regard must be had to the contract as a guide to the value put upon the services and also to ensure justice between the parties (compare the comments of Jacob J at paragraphs 76 – 79 in Vedatech Corporation v Crystal Decisions EWHC 818 (CH).
27. Notwithstanding therefore the multiplicity of authority to which the Claimant's skeleton made reference and the academic treatises in which the view is express that the law should move in a different direction, in my judgment the current state of the law is clear both as a matter of principle and by reference to the decisions of the House of Lords to which I have referred. Whilst restitution is undoubtedly a developing area of law and factual questions are important in the context of deciding such issues, here the essential facts which matter are clear and, on the Claimant's own case he is entitled to pursue a contractual claim in circumstances where he has fully performed and the Defendant has partly performed. I therefore accede to the Defendant's application for summary judgment in respect of the claim pleaded in paragraph 50 of the Particulars of Claim.
28. There remain the points raised in the Re-Amended reply. At paragraph 2.3 of the Re-Amended reply, it is alleged that the new scheme was not introduced in good faith. I have already referred to the absence of any challenge to the imposition of the new scheme in the Re-Amended Particulars of Claim but, here in the reply, the point is made for the first time with an allegation of "bad faith". Once again no grounds are given for this plea and in such circumstances the plea must be struck out for the same reasons as the plea of bad faith in the Re-Amended Particulars.
29. At paragraph 35 of the Re-Amended Reply it is alleged that the failure to communicate the decision of the Remuneration Committee of the 26^th February 2003 was a breach of the implied obligation of trust and confidence because of the expectation engendered in the Claimant by his conversations with Mr. Lester. This raises a different breach from that alleged in paragraph 48 of the Re-Amended Particulars which asserted the failure to communicate as particulars of bad faith in relation to the allegation of breach in making the later decision to pay the Claimant a special bonus of 50% of his salary. This new form of plea is one which should have been included in the Particulars of Claim if it was to appear anywhere, but if it was to be included in those particulars, there would be a need to plead causation of loss. No such plea is made in the Re-Amended Reply although paragraph 35.8 alleges that Mr. Lester knew or ought to have known that if the limits on bonuses were not disclosed until after the RVI negotiation was complete, it would appear that the decision had been concealed in order to avoid damaging morale. This plea of breach therefore goes nowhere in its current form and should therefore be struck out as disclosing no reasonable ground for bringing the claim.
30. Paragraph 38 of the Re-Amended reply, in the third, fourth and fifth sentences, the Claimant alleges that the Defendant was obliged, by virtue of the contract, to award bonuses outside the normal scheme in order to give proper recompense to the Claimant for his wholly exceptional success in negotiating the RVI claim. Given the scope of the contract into which the Claimant originally entered with a discretionary bonus based on performance with a maximum of 30%, the later establishment of an additional special project bonus with a cap of 50% and the increase of the ordinary bonus to 50%, it is impossible to see how it could be a breach of the implied term of trust and confidence to award a bonus to the Claimant above and beyond the terms of the schemes then current. Not only therefore should this plea, if it was to be advanced, appear in the Re-Amended Particulars of Claim, but it discloses no reasonable ground for bringing the claim and has no realistic prospects of success.
31. Insofar as the Claimant's Statements of Case are based upon breach of the implied term of trust and confidence in failing to award bonuses, the Claimant is limited to a claim which reflects his contract of employment and the bonus schemes in operation at the time he rendered services which are alleged to require reward by way of bonus. The decisions of the Court which deal with bonuses, such as Cantor v Fitzgerald do not enable the Court to disregard the contractual structure or the structure of bonuses but require the Court to have regard to both. Equally the decisions of the House of Lords to which I have already referred mean that there is no scope for going outside the contract in a case such as the present and founding a claim in restitution as an alternative, which would thereby bypass all the contractual provisions to which the Claimant had agreed.
32. In these circumstances the Defendant's applications succeed and I will listen to the parties as to the appropriate orders to be made.
33. I am aware that the Claimant has a proposed amendment to the Re-Amended Particulars of Claim and I make it clear that the decision that I have made relates only to the pleadings before me, although of course the principles of law set out are those which apply generally as well as to the specific facts which are accepted as common ground or, where controversial, are those put forward by the Claimant himself.
34. It appears to me that costs must necessarily follow the event but I will listen to submissions before making any order.