England and Wales High Court (Queen's Bench Division) Decisions

You are here: BAILII >> Databases >> England and Wales High Court (Queen's Bench Division) Decisions >> Kahn v Dunlop Haywards (DHL) Ltd [2007] EWHC 2659 (QB) (15 November 2007)
URL: http://www.bailii.org/ew/cases/EWHC/QB/2007/2659.html
Cite as: [2007] EWHC 2659 (QB)

[New search] [Printable RTF version] [Help]

		Neutral Citation Number: [2007] EWHC 2659 (QB)
		Case No: TLQ/07/0366

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

15 /11/2007

B e f o r e :

MR JUSTICE FOSKETT
____________________

Between:

	Mr David Kahn	Claimant
	- and -
	Dunlop Haywards (DHL) Ltd	Defendant

____________________

Mr Miles Croally (instructed by Dean & Dean Solicitors) for the Claimant
Miss Suzanne McKie (instructed by Berrymans Lace Mawer Solicitors) for the Defendant
Hearing dates: 9, 10, 11 & 12 October 2007
____________________

HTML VERSION OF HANDED DOWN JUDGMENT
____________________

Mr Justice Foskett :

Introduction

This case concerns bonuses to which the Claimant says he is entitled in relation to work carried out for the Defendant in the years 2004, 2005 and 2006. He seeks an account of all bonus payments due under two bonus schemes, (i) the Capital Company Bonus Scheme for the years 2004 and 2005 and (ii) what has been termed 'the Special Bonus Scheme' for the years 2005 and 2006.

The issue before me has centred exclusively on (ii). Although the Claimant merely seeks an account, it is plain from the way he puts his case that, if his interpretation of the effect of the Special Bonus Scheme is correct, he would be entitled to substantial sums from the Defendant. He seeks a little short of £500,000.

The Defendant's case is the Claimant's interpretation of the relevant agreement is erroneous and that, on its proper interpretation, the Claimant is entitled to little, if anything.

I understand that the Defendant suggested to Master Eyre that a split trial should take place in the sense that, if the Claimant's interpretation of the scheme was correct, the precise amount to be paid would be dealt with subsequently. Mr Croally tells me that Master Eyre rejected that suggestion and the matter, therefore, strictly speaking, comes before me on the quantum issue also. The Claimant had put forward evidence as to quantum in his witness statement of 12 September. Some features of the claim as advanced there (assuming, of course, that the Claimant's interpretation of the scheme is correct) are challenged in Mr Slater's witness statement dated 8 October and served the day before the trial commenced. The issue of the interpretation of the scheme is plainly the central issue and the trial has proceeded without specific reference to quantum. I indicated at the conclusion of the trial that I would consider how to deal with that issue if it arose in a way that reflected the spirit of Master Eyre's decision if I should accept the Claimant's case on the construction of the agreement. I will revert to that matter if the issue should arise.

The general background

The present incarnation of Dunlop Haywards (DHL) Ltd (hereafter referred to as 'DHL') reflects the product of a number of mergers and acquisitions over the years to which I will refer briefly below. The company engages in property consultancy activities through a number of offices throughout the United Kingdom. The current Finance Director of the company, Mr John Slater, described the range of services offered by the company as including valuations, business space lettings (agency), property investment sales/purchases, rating appeals, landlord and tenant matters, property management, town planning applications and building services.

Inevitably, with a range of activities such as those described, the work is divided between various departments. Equally inevitably, whilst all the departments contribute to the whole venture that is DHL, for internal accounting and management purposes each department has an autonomous quality. When, for example, management accounts are produced, they are structured to reflect the financial achievements or otherwise of a specific department. I will say more about the relevance of this in the context of this case shortly.

Prior to 2001 the Claimant, along with Mr Anthony Lorenz, Mr Lloyd Simon and one other, were equity partners in a property consultancy business known as Baker Lorenz engaging in agency and professional work from offices in Hanover Square, London. In 2001 the partnership was acquired by Hercules Property Services Plc ('Hercules') which was the parent company of Dunlop Heywood Co Ltd, a company also engaged in property services based in Manchester. A Mr Nigel Davis was Finance Director of Hercules at this time. As a result of that acquisition, Dunlop Heywood Lorenz was in due course formed. The Claimant and his fellow equity partners became directors of that company, the Claimant becoming Managing Director and Mr Simon becoming Head of Agency. Mr Slater had previously worked for Dunlop Heywood, but by the time of the acquisition he had become Group Accountant for Hercules.

The Claimant entered into a Service Agreement in relation to his new role on 6 April 2001 for a period of just over three years. The agreement contained restrictive covenants preventing him from competing with the business for a period of 12 months in the event of the termination of the contract. The agreement was made with Dunlop Heywood and Co Ltd which, as I have indicated, subsequently merged with Baker Lorenz to form Dunlop Heywood Lorenz. It is of relevance to note that this contract was varied in March 2004 to provide that the restrictive covenants were reduced to 3 months duration.

Prior to the acquisition of Baker Lorenz, Mr Robert Dyson had been Chief Executive of Dunlop Heywood, for which company he had worked for many years. After the merger, he became Executive Chairman of Dunlop Heywood Lorenz, Mr Lorenz becoming Executive Vice Chairman.

In November 2004 Hercules was acquired by Erinaceous Group Plc ('Erinaceous'). At that point Mr Slater became Finance Director of Dunlop Heywood Lorenz. In May 2005 Dunlop Heywood Lorenz changed its name to Dunlop Haywards (DHL) Ltd after its merger with ISG Occupancy and Haywood Property Services in March 2005.

A founder member of Erinaceous, Mr Danny Innes, became the main board member responsible for the Property Services Division of Erinaceous. Mr Nigel Davis, formerly of Hercules, at some stage became Finance Director of Erinaceous and, following the acquisition by Erinaceous during 2005 of Millar Kitching, a firm of chartered surveyors, Mr Simon Kitching became Property Services Managing Director of DHL.

It does not require much imagination to see that the overall commercial structure within which the Claimant (and indeed others) had operated prior to 2001 had changed very significantly by, say, 2005 and that new individuals had also emerged onto the scene.

It is clear that the Claimant was a popular and respected operator in the property world, most particularly, though not exclusively, on the London scene. This was not challenged on behalf of the Defendants and witnesses the Claimant called demonstrated it. Furthermore, for example, in a memorandum dated 19 November 2003, and reflecting on his performance as Managing Director of Dunlop Hayward Lorenz, the Group Managing Director of Hercules, Mr Robert Plumb, noted the Claimant's 'contacts and experience in the London market' and said that his 'contacts within the industry and ability to see fee-earning opportunities are, I am sure, something we can benefit from in the future.'

It is equally clear from the same memorandum (and indeed in another of June 2004) that the Claimant was less comfortable in a managerial role than a fee-earning role, something confirmed by his own desire to leave the post of Managing Director and return to his individual fee-earning work involving direct contact with his own clients. The opportunity to do this kind of work had been restricted, albeit not wholly extinguished, whilst he had been managing the merger of Dunlop Heywood and Baker Lorenz.

Although there are other features of the history that it will be necessary to note, it is broadly against the background of those events that the discussions that took place in early 2005, which have given rise to the present dispute, arose. Before turning to those discussions it will be necessary to explain something of the bonus and incentive scheme that operated within DHL prior to those discussions taking place.

However, before looking at the bonus scheme, there is another feature of the background that I should mention. It relates to the valuation work carried out by the Defendant. As will be apparent from the areas of work carried out (see paragraph 6 above), property valuation would have formed a significant part of the professional work carried out by the Defendant. These services were centred in what was known as the Bow Lane Office in the City of London. This office was referred to as 'City' in the internal management accounts. Until August 2004 the head of that office was the late Mr Jonathan Philips. After then it was Mr Ian McGarry. There is no dispute that, certainly when he was free to work in a fee-earning capacity, the Claimant was able to (and did) refer a considerable amount of valuation work to that department. Indeed the memorandum to which I referred in paragraph 13 is a reflection of his capacity to generate that kind of work for the company as indeed is the second paragraph of the letter from Mr Dyson to the Claimant quoted in paragraph 41 below. I will return to the significance of this shortly.

The DHL bonus scheme

In order to provide incentives to employees to maximise the profits of the company, a bonus or incentive scheme operated. The precise terms will have varied from year to year, but the general theme was consistent throughout. Broadly speaking two types of bonus were provided for: a departmental bonus and a company bonus. Each provides for a bonus calculated as a percentage of the amount by which profits exceeded a pre-set target. In the case of the departmental bonus, the profit target related to the profits of the relevant department and in the case of the company bonus it related to the profits of the company as a whole.

The scheme also had to make provision for cross-referrals of business between departments. Where department A introduced some business to department B it was necessary, of course, to make provision in any bonus scheme both for the department making the referral and for the department receiving the referral. Furthermore, once such a referral was made, but the client then continued to use department B for similar services, the question would arise as to the extent to which the person or department making the initial referral should share in any bonus generated by fees charged by the department carrying out the new work.

The scheme in operation at DHL was described accurately by Mr Dyson in one of his witness statements and I reproduce the relevant paragraphs as follows:

"DHL was a firm of consultant surveyors with five departments. Its revenues were dependant upon the amount of fee income it generated and in terms of fees, a number of clients were cross-referred between departments. An Incentive Scheme was in operation (and had been for some years) – the DHL Incentive Scheme ("DHLIS"). Under the DHLIS each department was set a threshold contribution for a twelve month period when an incentive bonus could be earned once the threshold was exceeded. There were specific provisions about percentage allocations above the threshold and when payments would be made.

The DHLIS had specific provisions in relation to referral fees. Referral fees were fees billed by a department that had received a referral and had undertaken the work ("receiving department"). The department that had referred the work to the receiving department is referred to as the "referring department". After completion of the work the receiving department would raise an invoice for its work to which the referring department would be entitled to a share of the fee for the referral. Generally 30% of any fee (net of any commission paid to any external party such as introducing agents and/or other professional organisations such as Building Surveyors) was paid to the referring department. This was the arrangement for invoices in excess of £3,000 (where an invoice was for less than £3,000, a percentage allocation was then agreed between the departments. In practice these were the smaller jobs and therefore, in the grand scheme of things, were not going to make that much difference either way).

In the event the referred client was happy with the work carried out by the receiving department, the client may well then instruct the receiving department again. If the receiving department was then instructed on other occasions thereafter by that particular client, the issue would arise as to what referral fee should be paid by the receiving department to the referring department. It was impossible to cater for all the possible different scenarios in the DHLIS and so a principle was accepted whereby the referring department would need to agree the referral fee with the receiving department. In practice, there would be a discussion between the individual in the referring department and the individual in the receiving department as to what sum would be paid by the receiving department to the referring department for the jobs accepted from that particular client. Clearly that discussion and any sum agreed depended on the number of instructions, the complexity of the job, the time taken to discharge it, the role played by the individual in the referring department, the relationship the individual in the referring department had with the client, the value of those instructions and whether the receiving department effectively considered whether the client was "their client", as well as the client of the referring department."

In essence, therefore, on an initial cross-referral the referring department would be allocated 30% of any fee over £3000 paid by the client to the receiving department net of any third-party commission. That allocation would be taken into account in determining the profit of the referring department. If the overall profit of the referring department (incorporating such an allocation) exceeded the threshold set for the year in question, then a bonus would be paid. Equally, the 70% retained by the receiving department would contribute towards its profit. The receiving department would, however, be responsible for the costs and overheads associated with providing the service it provided.

As will be apparent from Mr Dyson's evidence, the impact that repeat business given to the receiving department by the referred client would have on the bonuses payable by the two departments would be the subject of discussions between the two departments. As I understand it, if agreement could not be reached, the Managing Director or, as Mr Dyson put it, the "ultimate executive officer", would have to act effectively as sole arbitrator.

The essential issue

The essential issue in this case is whether, as the Claimant asserts, he negotiated and agreed a special arrangement which (a) in effect exempted him from the 70/30 split between him and the valuation department and (b) enabled him to continue receiving bonuses calculated by reference to that special agreement in relation to 'repeat business' carried out by the valuation department for clients he had originally introduced.

The Defendant acknowledges that there was a special agreement, but says that it did not confer either benefit upon him.

The background to the negotiations

I will consider first the background to the negotiations and, where appropriate, make findings about that background. It is possible that, as with the negotiations themselves, I may have to exclude some of that material from my consideration of the construction of the agreement (see paragraphs 57-61 below). However, should my view about what is or is not admissible in that regard be wrong, the findings will be available for consideration.

I have already referred to that which is common ground, namely, that the Claimant was a popular and respected operator in the property world. I was not, I think, told about his professional background or how he developed this reputation. It does not really matter for present purposes. It is clear that he had a substantial client base, doubtless largely derived from his time with Baker Lorenz. Along with his fellow partners he was paid a substantial sum for his share in that business and, initially at any rate, he was locked into a three year service agreement with Dunlop Heywood followed by a twelve month restrictive covenant. That suggests that his client base and his potential for increasing it was seen as a significant asset in the newly formed business in 2001. However, it is equally clear from the memorandum to which I referred in paragraph 13 above that his ability to see and create 'fee earning opportunities' was something also seen as a future benefit after he had fulfilled his responsibility of overseeing the merger of Dunlop Heywood and Baker Lorenz.

As indicated in paragraph 10, Erinaceous became the parent company of Dunlop Heywood Lorenz towards the end of 2004. By then, of course, the Claimant, Mr Lorenz and Mr Simon were free from their three year contracts demanded by Hercules and were thus less constrained about what they chose to do than they had been hitherto.

Soon after Erinaceous took over the group of which Hercules had been the parent company, Mr Lloyd Simon, a long term associate and colleague of the Claimant, decided to leave. Both he and the Claimant say that since they had each been so closely associated over the years, speculation would take place that the Claimant would also leave. The Claimant's view is that this is something that Erinaceous would have wished to prevent. The Claimant described his perspective of the situation in which he then found himself in the following terms in his first witness statement:

"I believe that this [speculation] prompted Erinaceous to take steps to secure my position with Dunlop Haywards. In this respect, my bargaining position was relatively strong and that of Dunlop Haywards/Erinaceous was relatively weak because, by virtue of the letter dated 22^nd March 2004, the term of the restrictive covenants in clause 18 of the Service Agreement had been reduced from 12 months to 3 months. So I could indeed have left at this point. My client following would have left with me and Dunlop Haywards/Erinaceous would only have had 3 months' protection from competition by me…. Around February 2005, after Lloyd had tendered his resignation, Nigel [Davis] invited me to attend a meeting with him and Danny [Innes] to discuss a special bonus scheme to cater for my particular situation. They said that they wanted to tailor a package to suit the way I operated (or words to that effect). What they were referring to in saying this was the referral business generated by me, including repeat business, and the fact that such business was not rewarded by the standard bonus entitlements. Obviously, the purpose of a special bonus scheme would be to reward me for the referrals and repeat business generated. The clear implication of what Nigel and Danny said at this meeting was that Dunlop Haywards wished to retain me because they wished to retain the referral business that I brought in and they recognized that in order to retain me I would have to be rewarded for this."

I have not had the benefit of any evidence from Mr Davis or Mr Innes and neither has provided a witness statement. I do not know, therefore, to what extent they accept the thrust of what the Claimant has said. Indeed from that point of view his evidence about the early stages of the negotiations is wholly unchallenged. Mr Dyson, who was the only witness put up by the Defendants to speak to the background to the negotiations, accepted that Erinaceous would not have wanted any negative publicity in the market place at that time. He referred to the Claimant's new role as 'business development director' and suggested that his job was to continue his fee earning investment work and at the same time to generate new business for other departments within DHL. The Claimant himself broadly accepted this description of his new role. However, Mr Dyson's account of the negotiations involving Mr Davis and Mr Innes, are set out in his final witness statement, was as follows:

"Both Nigel Davis and Danny Innes were party to the initial discussions and subsequent negotiations with [the Claimant] in connection with his … job description and proposed revised remuneration. Remuneration was an amalgam of base salary and a bonus. Whilst I was kept informed of these discussions and from time to time commented on them I was, as far as I can recall, present at only one or two of them. I believe [the Claimant] preferred to negotiate directly with Danny Innes and/or Nigel Davis rather than me, given he had held the position of Managing Director of DHL and had always previously agreed his remuneration package with the Chief Executive of HPS. That was fine by me. I did though hold interim discussions with [the Claimant] on an informal basis at which he would additionally (to Nigel Davis and Danny Innes) update me and I would comment on the ebb and flow of the negotiations. In essence you could describe my role at this stage as one of mediator in the emerging remuneration package negotiations, although I expected to be tasked with agreeing the final terms. It was against this background that [the Claimant's] bonus structure was negotiated. I would comment that the bonus negotiations were designed to incentivise him in his new job of business development. It should also be remembered that the bonus negotiations were in two parts. One in respect of [the Claimant's] investment work and the other in respect of his business development role. It was not to incentivise him to continue working for Dunlop Haywards."

Mr Dyson cannot, of course, speak directly for the motives of the representatives of Erinaceous in the discussions they had with the Claimant. However, he has acknowledged that Erinaceous would not have wanted the adverse publicity of the Claimant's departure, and, I am prepared to infer, they wanted to retain the clients he had already brought into the company and to tap into his acknowledged ability to generate new work for the company. Given that Erinaceous (through Mr Innes at least) would have to sanction any new arrangement as to bonuses and that, on whatever interpretation of the bonus scheme agreed, it was plainly an exception to the standard scheme, I do conclude that a motivating factor behind Erinaceous' negotiations with him was the desire to retain him as an employee and his client-base as an effective asset of the company. Although I am not sure that this motivating factor as such is something I am entitled to consider in construing the agreement reached, I am of the view that a significant feature of the factual matrix against the background to which that agreement has to be interpreted is the combined wish of both parties to provide the Claimant with a material improvement upon the standard DHL bonus scheme and one which recognised in a significant way his contribution to facilitating and maintaining 'repeat work' arising from his referrals to, in particular, the valuation department. That, I think, is an objective factor that can be deduced from the evidence and is available for consideration when trying to determine what was in due course agreed.

Whilst I recognise that what occurred after the agreement cannot be used as an aid to construction, I find support for this factual conclusion from the reaction of Mr McGarry in March 2006, who at the time was apparently unaware of the agreement reached the previous year, when in relation to three clients initially introduced by the Claimant who had been 'serviced by the City office for in excess of three years' he said that:

"I appreciate and acknowledge your contribution in the day-to-day maintenance and retention of these clients and we have a moral if not contractual obligation to reflect this."

It is, therefore, plain in my judgment, that the Claimant's contribution to the retention of referred clients was an acknowledged fact within DHL. That fact, and the need to reflect it in his bonus package in 2005, was part of the factual matrix against the background to which the agreement was reached.

The negotiations

I have referred to the fact, which is common ground, that the initial discussions and negotiations concerning the proposed revised bonus package were carried out, from the Defendant's side, by Mr Davis and Mr Innes. As I have observed, neither has given evidence. Mr Innes left Erinaceous during 2005, though it is clear that he was still in harness during the material period in March/April although, according to the Claimant, it was at about this time that he (Mr Innes) submitted his resignation from Erinaceous. I have been given no reason as to why he was unavailable to give evidence. The same applies to Mr Davis.

The Claimant says that at one meeting he was presented with two possible bonus options in writing which, after consideration, he rejected. I have no reason to doubt that this was so, but it is unfortunate that neither he nor, it seems, the Defendant retained copies. That having been said, I think it highly unlikely that they would have been admissible as an aid to determining the meaning of the material written communications to which I will refer in paragraphs 37 and 41 below.

It is certainly the case that whatever was discussed at this stage did not generate a final agreement, but it is not clear how far apart the two sides were. On 3 March 2005 the Claimant sent himself an e-mail setting out his thinking at the time. I will record its contents though again I am not persuaded that it is an admissible document on any matter of interpretation of the agreement, whatever other relevance it may have. It reads as follows:

"I was and am still very disappointed that there seems to be a reluctance to agree a fair package for me to move across from my existing MD's position to the business Development role. Since the start of the merger of DHL/ISG I and the majority of senior personnel on the first floor have felt very uncomfortable with the petty politics and the continuous undertones of trying to force out the old Baker Lorenz team … In my recent meetings with you and Danny you have stated that you both value my contribution and are keen to keep me. If this is really the case then my proposal would have been agreed without a second thought. The increase in my basic and request for share options is insignificant to the contribution I can make to this business. I regret proposing to reconsider my proposed package but did so as a sign of good faith to try and resolve this matter and move on.

I propose the following:

The Agreed £20,000 bonus for which I have been waiting for since November is paid immediately.

My Basic salary is increased to £200,000 pa.

After I earn by way of direct fees or split fees for cross sale/ introductions:

£350,000 to £550,000 50% goes to my bonus pool

£550,000 plus 75% goes to my bonus pool

Share options/LTIP. I see this as an important long term incentive and would be looking for a plan similar to that I had at Hercules.

Reporting:

I am happy to be accountable for the development of the Business Development role and will report to the National Executive Board which I will be sitting on.

I will require a remit that this role would encompass all areas of the business across all our service lines.

If we cannot agree terms then I will continue my contractual role as managing director of Dunlop Heywood Lorenz soon to be Dunlop Haywards.

I await to hear from you.

David Kahn."

This is a slightly unusual document. The circumstances in which it was created were not the subject of examination at the trial. The Claimant described it as a 'memo to myself'. It does read more like an e-mail intended for Mr Innes and Mr Davis which, in the event, the Claimant decided not to send. At all events, it reflects his perception of where things were at the time and some evidence of what he was about to put forward to them at the time. It confirms, if confirmation was needed, (a) that nothing had been agreed finally by then, but (b) he was looking for a special bonus package which took into account his contribution to "cross sale/introductions" (which plainly means referral work of the type referred to above). If, as I think, this was originally intended for the eyes of Mr Innes and Mr Davis, it also confirms that nothing would be agreed finally until they, or someone else on behalf of Erinaceous, agreed. The Claimant says that this particular package was put to Mr Dyson, but he rejected it. Mr Dyson simply said that he recalled various discussions without saying that he specifically recalled this one. To the extent that anything turns on it, I accept the Claimant's account about this.

Returning to the chronology of the negotiations, the Claimant says that he continued his discussions with Mr Dyson and that they had a few meetings when various options were considered. Mr Dyson's recollection is as recorded in the extract from his witness statement set out in paragraph 28 above. There is a difference of emphasis between them which I do not think it is necessary for me to resolve.

It is not in dispute that they did discuss the bonus package on 18 March 2005. (It appears from an e-mail exchange that they also had some discussions about it on 14 March.) What is in issue is the extent of the discussions on that day and certain precise matters. I will say something about the evidence given by each of them about what was said orally between them below, but it is plain beyond any doubt, in my judgment, that the best evidence of what was discussed is to be found in the Claimant's e-mail to Mr Dyson sent at 22.56 that evening. The meeting had been during the afternoon and it follows that the e-mail would have been drafted within only a few hours of the meeting. It reads as follows:

"Following our meeting this afternoon, for the sake of good order I confirm our agreement.

1. The Bonus period is from 1^st January to 31^st December.

2. For all direct billings in excess of £300,000 50:50 split dpk/dh

3. For Business generation/referrals the net fees to me over £150,000 50:50 dpk/dh.

Plus when I reach £150,000, automatic £25,000 Bonus payment.

4. My basic remains the same to be reviewed in the normal way at pay review.

5. The bonus becomes payable during the year when these thresholds are exceeded.

6. Both bonus thresholds work independently.

Therefore if my total billings are say £600,000 my bonus would equate as follows:

£400,000 direct billings = £50,000 bonus

£200,000 BG/referrals = £50,000 bonus

Total bonus £100,000

Please confirm your agreement so we can officially document and move."

I will refer to the meaning and interpretation of that e-mail shortly, but it does suggest that they did discuss the proposed bonus arrangements in some detail: it is difficult to see how the Claimant could have composed the e-mail (to the contents of which Mr Dyson never took any exception) if the conversation had not descended into some detail. In his witness statement Mr Dyson had said that there was 'not a lot of negotiation as to the general parameters of [the Claimant's] package which had been agreed with Danny Innes and my role was simply to agree final details and 'get comfortable' with the overall terms of the revised remuneration package, advise Danny Innes accordingly, seek his ratification and confirm acceptance to [the Claimant].' This is to some extent a reflection of what he had said in the extract from his witness statement quoted in paragraph 28 above. In his witness statement Mr Dyson appears to be trying to distance himself from the detail of the negotiations, on the one hand, but, as will appear, being quite adamant that certain matters that the Claimant says were discussed at the meeting were not discussed at all. He did accept in cross-examination that they must have discussed figures, but was unspecific as to what those figures were.

To the extent that it matters, I will endeavour to make findings about what was said at the meeting. However, whilst Mr Croally puts the Claimant's case as one based upon an oral agreement made between him and Mr Dyson on 18 March 'partly evidenced in' the e-mail and Mr Dyson's reply (see paragraph 41 below), I think the true analysis is slightly different. In my view, such discussion as there was between the Claimant and Mr Dyson could only be (as they both acknowledged) subject to final acceptance by someone on behalf of the Erinaceous Board. This means one of two things: either the e-mail reflected exactly (more or less word for word) what was discussed and the subsequent acceptance on behalf of Erinaceous simply confirmed the oral agreement as being in those terms and acceptable; or the e-mail represented a true written offer by the Claimant to Erinaceous which was in due course accepted in writing in Mr Dyson's subsequent letter. Indeed it is worth noting that the Claimant's e-mail contemplated some more formal documentation confirming the agreement, although it would seem that once Mr Dyson's letter in reply had been received this no longer appeared necessary.

However, whatever the true legal analysis of the position, it seems to me that what I must do is to construe the meaning of the e-mail (remembering that is merely an e-mail and not some carefully crafted written agreement drafted by lawyers) unless I should find that significant other matters were discussed at the meeting that were not reflected in the e-mail. Since it was plainly in the Claimant's interest to record as clearly as he could what he perceived to have been agreed only a few hours earlier, I cannot conceive that the e-mail did not reflect the totality of what was discussed, albeit in the abbreviated form that one would expect of such a communication. If, of course, the second of the two alternatives referred to in paragraph 39 above applied, the content of the discussion could not be used as an aid to the construction of the subsequent e-mail.

The Claimant was due to go on holiday shortly after his meeting with Mr Dyson and indeed this was one reason why he wanted matters agreed if at all possible. The formal reply to his e-mail came, as I have already indicated, in a letter from Mr Dyson to the Claimant dated 4 April which reads as follows:

"I am delighted to confirm that the basis of your overall remuneration package as set out in your e-mail to me of 18 March (22:56) has been accepted by Erinaceous.

I hope very much that this will harness your undoubted fee winning and earning skills and galvanise you into a fresh positive approach in the evolving world of "Dunlop Haywards".

As you know the new management structure which frees you up from the day to day management issues that have hitherto taken your time, creates a new Business Development Unit that will be the engine room of the company's expansion. This is a role you have sought and I am confident it will provide the appropriate platform for you, together with Neil and Tony, to help take the business ever forward.

We have always enjoyed a good relationship and I look forward to that continuing and flourishing so that we – and others – can reap the rewards that run with success."

I have not seen any substantive internal communications between Mr Dyson and Mr Innes (or anyone else from Erinaceous) between the sending of the Claimant's e-mail and Mr Dyson's response. There was a somewhat unusual e-mail communication between Mr Dyson and a Mr Richard Wilson (who, I was told, took over as Managing Director of DHL from the Claimant in March 2005) in which on 22 March (a few days after the Claimant's e-mail to Mr Dyson) Mr Dyson said to Mr Wilson that he had 'just about finalised [the agreement with the Claimant but that he was] waiting for a confirmatory note from him.' The significance of that communication was not explained to me, but I have received no evidence to suggest that the Claimant had to do anything more from his point of view to advance the discussions about his package than he had done by the time he sent his e-mail on 18 March.

The Claimant was back from holiday by 5 April and he mentioned in an e-mail to Mr Innes that he had had no response to his e-mail 'on [his] package'. Mr Innes' reply was that Mr Dyson had spoken to him about it 'and there is no problem'. The confirmatory letter (see paragraph 41 above) appears to have been written the day before this e-mail exchange.

I have taken the chronology forward to 4/5 April because, on any view, the negotiations about the Claimant's bonus package had been concluded by then and, objectively speaking at any rate, an agreement had been reached in the sense that the terms of the e-mail of 18 March had been accepted. I need, however, to return shortly to the meeting of 18 March. The Claimant's version of that meeting is that all the relevant details were discussed including the way in which the bonus for business generation/referrals would be calculated and, specifically, that repeat business generated by clients initially referred by the Claimant to the valuation department would be included in the scheme. Mr Dyson would not accept that either issue was discussed.

The disputed parts of the meeting of 18 March 2005

As I have already indicated in paragraph 37, the best evidence of what was actually discussed at the meeting is the Claimant's e-mail. It is plain, therefore, and I find, that the Claimant and Mr Dyson discussed the bonus period, the details of how the bonus for direct billings would be calculated (including its threshold), how the bonus for business generation and referrals would be calculated (including the threshold and the activation of the £25,000 bonus payable once it was reached), when the bonus became payable and that each bonus threshold operated independently.

Did they discuss specifically the exemption from the Special Bonus scheme of the 70/30 split and the inclusion of repeat work? Neither is referred to explicitly in the Claimant's e-mail but, for reasons I will give shortly, I have no doubt that the Claimant himself thought that this had been the effect of what was discussed. What he believed was agreed is, of course, not necessarily what, objectively speaking, was agreed, just as what Mr Dyson believed was agreed was itself not necessarily, objectively speaking, what was agreed.

The reason I say that the Claimant plainly believed that these two matters had been discussed and reflected in what was agreed is that when he raised the issue with Mr Kitching almost exactly a year later in March 2006 he made his understanding of what was agreed absolutely clear. In an e-mail to Mr Kitching on 3 March 2006, amongst other things, he said this:

"Are you aware of the bonus package that I agreed last year? My deal on business generation/referral is designed to reward me on not just new business but also maintaining existing relationships."

In a further e-mail to him some ten days later, when he set out his calculations of his entitlement (having received information from Mr McGarry concerning referral fees from 'clients originally (my emphasis) introduced' by him) these calculations were clearly based on an approach that did not involve a 70/30 split before his own bonus entitlement was calculated. In other words he was putting forward then an entitlement based upon the version of the agreement that is put forward in this claim.

Miss McKie, doubtless acting on specific instructions from her clients, has accused the Claimant of putting forward at that time, and since, an interpretation of the agreement he reached which he knew and knows to be wholly unfounded. The accusation was, therefore, one of deliberate dishonesty. The makings of this allegation first appeared about five months after some e-mail exchanges in March 2006 of which the extracts referred to in paragraph 47 formed a part. The allegation first surfaced in a letter dated 10 August 2006 sent to solicitors the Claimant had instructed from Juliet Bellis & Co. (I was told, incidentally, that Juliet Bellis was the wife of the Chief Executive of Erinaceous and I have noted from the correspondence bundle that she was also the Company Secretary of Erinaceous.) The letter was in the following terms:

"Your client has been suspended subsequent to our client's serious concerns that he is deliberately attempting to claim a bonus payment to which he knows he is not entitled. Our client has ordered an immediate and thorough investigation into whether or not its concerns are well founded.

Bearing in mind the above, your client has been suspended on full pay pending the outcome of the formal investigation. This is not a disciplinary action or an implication of guilt, it is merely a holding action while we await the outcome of the formal investigation.

To preserve the independence and impartiality of the formal investigation, your client should not make contact with any employees of our client whist on suspension other than to speak with Simon Kitching about non-bonus related matters.

Our client feels very strongly about the fact that your client instructed you to threaten our client with legal proceedings without any warning and whilst the parties were in the middle of informal discussions.

Our client is both surprised and puzzled by this move. It considers your involvement wholly disproportionate, hostile, unnecessarily racks up costs and does nothing to assist an amicable resolution to this matter.

Both you and your client will be contacted when the outcome of the formal investigation is known but until then, as our client's employee, your client should remain contactable and available during working hours."

This letter was written, as appears, a few days after the Claimant had been suspended and at the conclusion of a period of approximately five months when he had been putting forward his claim for a bonus on the basis of the way he now puts it forward in this claim. He had twice during that period sent his e-mail of 18 March 2005 and Mr Dyson's reply, together with other supporting material, to Mr Kitching. There had been no hint of what was to come until his suspension and the letter to which I have referred.

The allegation of deliberate dishonesty was not quite made in that letter, 'serious concerns' about it being expressed. However, the approach foreshadowed in that letter has now crystallized as the approach adopted by the Defendant. Allegations of that kind are likely to misfire unless they can be substantiated with convincing evidence. If one leaves aside for this purpose the e-mail of 18 March and Mr Dyson's reply, there are three people who could say categorically and convincingly that the Claimant was putting forward something he knew was quite beyond anything discussed;

i) Mr Dyson

Mr Dyson was still working for DHL through this period and indeed did not depart until February 2007. However, he told me that he had not been asked about the situation concerning his discussions with the Claimant in March 2005 in the period before that letter was sent despite the fact, as I have indicated, that the Claimant had twice sent to Mr Kitching his e-mail and Mr Dyson's response. There is no evidence in the e-mails and documentation disclosed that Mr Dyson was indeed asked about what had been discussed. It is, to my mind, extraordinary that even a tentative allegation of dishonesty could have been made at the time of that initial letter if Mr Dyson's recollections of what had been discussed had not then been obtained. The letter indicated that 'an immediate and thorough investigation into whether [our clients] concerns are well founded' would be launched, but it is plain from another letter from Juliet Bellis & Co dated 15 September (some two months later) that their client was 'awaiting to hear from Mr Dyson'.

I have, of course, heard from Mr Dyson and will indicate my view of his evidence below.

ii) Mr Innes

He was involved from an early stage in the discussions with the Claimant and indicated there was 'no problem' with what the Claimant had suggested (see paragraph 43 above). However, I have seen nothing in the correspondence (nor, of course, heard anything from the witness box) to suggest that his view had been canvassed before the letter had been sent.

iii) Mr Davis

The evidence indicates that he was involved in the negotiations with the Claimant in the early stages and, if Mr Innes was involved in March/April 2005, it would be surprising if Mr Davis was not also broadly aware of what was being discussed, particularly if Mr Innes had just submitted his resignation from Erinaceous. There is evidence that he did become involved in March 2006 when the Claimant was raising his concerns, but no clear indication that he was asked, or ventured a view, on the way that the Claimant was putting forward his claim for a bonus. (There was an unfortunate e-mail exchange in March/April 2006 when he, Mr Davis, accused the Claimant of lying to him about an unrelated matter.) However, there is nothing I have seen that shows that Mr Davis had said unequivocally that the Claimant's approach was entirely unfounded. As I have observed previously, I have not heard from Mr Davis. This is, perhaps, all the more surprising given that one explanation put forward by Mr Dyson for why he had not been contacted about the issue earlier was that Mr Davis would have been in full possession of all the relevant facts.

As I have said, a serious allegation of dishonesty was foreshadowed in the letter from Juliet Bellis & Co on 10 August 2006 and it has been maintained in stronger terms at the trial. The first time that the interpretation of the agreement that is now contended for by the Defendant was advanced was in a letter from Juliet Bellis & Co dated 25 September 2006, an interpretation repeated in the Defence served on 13 December 2006. Mr Dyson was consulted before the letter of 25 September was drafted and indeed he signed the Statement of Truth in relation to the Defence. It follows from this that it took about 6 months from the time the Claimant first raised the issue for this interpretation of the agreement to be advanced substantively other than by a half-suggestion of dishonesty.

This is hardly satisfactory. I have been told that in March 2006, and probably only a matter of a week or so after the Claimant's e-mails to Mr Kitching about his bonus entitlement, Mr McGarry was arrested on suspicion of fraud. I am told that this matter has not yet been resolved and, of course, I say nothing more about it save to observe that it must have had repercussions throughout DHL and was doubtless a considerable distraction for everyone. It may well have had a significant impact on the financial position of the City office as well. However, for the Claimant to be accused of deliberate dishonesty in this way was, putting it mildly, surprising given that two senior personnel who could have given evidence that supported such a suggestion have not been called to give evidence and that someone who might also have been able to support such a suggestion at the time of the letter from Juliet Bellis & Co on 10 August 2006 had not even been spoken to at the time. The way in which this matter has been advanced has caused me difficulty in evaluating the evidence in the case. There has been no suggestion that the Claimant was mistaken in his interpretation of what was agreed: the case is that he knew what he agreed at the time (which was consistent only with the Defendant's case) and yet he has, despite this, maintained a completely untenable claim. It has come to the position where the Defendants are effectively asking me to conclude that the Claimant is lying about the meeting with Mr Dyson. This has the unfortunate corollary, given Mr Dyson's evidence, that I have to consider also whether Mr Dyson is lying about it.

I do not find this a palatable choice. As I have said, I do not think that the Claimant is being dishonest in his interpretation of the agreement. He could, of course, be mistaken and that is something that I will need to consider. But I think that the charge of deliberate dishonesty wholly fails and, as I have said, I reject it entirely. I do not attach any significance to the fact that in early March 2006 in one e-mail he did not appear to be asserting his rights under the agreement and was discussing with Mr McGarry the latter's "view as to [his] entitlement to the Bow Lane bonus pool." He said in evidence that, whilst he did not recall precisely why he used the expression "bonus pool", he had been told by Mr Kitching that no provision for his bonus had been made in the accounts. To that extent it was appropriate for him to see if he could agree something with Mr McGarry. However, this, it seems to me, does not really affect the issue: if one looks at the totality of the e-mail communications at this time and gives it a fair reading, it is quite clear that the Claimant was asserting his entitlement (when he came to assert it) in precisely the terms he has been asserting in these proceedings.

It does follow from that rejection of the charge of dishonesty that his recollection of the meeting (upon which he places some significance) must also be genuine in the sense that he believes that the disputed matters were discussed and resolved in his favour. So is Mr Dyson lying when he says that this was not so? He gave me no reason to think he was dishonest witness and indeed I thought he gave his evidence in a straight-forward manner. He was still part of DHL in the autumn of 2006 when he must have been consulted about his views on the meeting, but he is now no longer part of DHL and has no particular need, so far as I know, simply to trot out "the party line" so far as the agreement was concerned. However, in putting together his thoughts and recollections about the material events he suffered the significant disadvantage (which was not his fault) of not being consulted until at least eighteen months after the disputed conversation. He was doubtless an extremely busy man and had no notes of his own to consult when asked about it. Given the actual consequences of the agreement as the Claimant says it was, I can well understand that Mr Dyson would have said to himself 'I am sure I would never had agreed to that' when he was first asked about it again. That can so easily translate itself, as I believe it has, into 'I never agreed that at all.'

As, perhaps, will be apparent, resolving the disputed issue of fact about what was or was not said at the meeting on 18 March has not been easy. In the events which happened, the Claimant himself did not have to cast his mind back to the meeting of 18 March 2005 until almost exactly a year later. However, overall I prefer his recollection. That preference is, though, subject to this reservation: I do not think that either the 70/30 split or the repeat business issue were the subject of any lengthy discussion if indeed they were touched upon at all. The reason I conclude this is that, in my view, it had already been recognised before the meeting (see paragraph 29 above) that whatever scheme was agreed, it would have to be a significant advance on the DHL bonus and incentive scheme and would have to deal with the repeat business that arose from the Claimant's ability to generate new business and retain that business because of his personal association with the company. In the situation that the Claimant, on the one hand, and DHL (in reality, Erinaceous), on the other, were in at that time, I think it was the Claimant who could pull the shots in the negotiations and I believe this came to be recognised, albeit reluctantly on the Erinaceous side. What may not have been recognised at the time were the implications in financial terms of the agreement. When those implications became known in March/April 2006, particularly against the background of the unfolding events in the valuation department (see paragraph 52 above), a way had to be found of delaying in the first instance, and then of denying, the Claimant the large bonus to which, on his version of the agreement, he was entitled. Since provision had not been made in the accounts for such a bonus, one can understand why the Defendants found the position a difficult one. But that, it seems to me, is the likely explanation for what occurred. I believe that is what lay behind the way in which the matter was handled in the period of several months after March/April 2006. I do not think that Mr Dyson was involved in the decisions being made at that time.

Despite these findings, which are substantially supportive of the Claimant's case based upon the oral discussions, I am not persuaded that this necessarily sees him home on his claim. As I have already said, the meeting on 18 March was subject to final agreement from Erinaceous and if his e-mail setting out what had been agreed was inaccurate, but accepted in due course by Erinaceous, he would have been bound by the objective interpretation of what the e-mail meant. That is why I remain of the view that I need to address that interpretation in the light of such material as is admissible. Since that is my view I think I should at this stage set out briefly the legal parameters that apply to that task.

The law

(i) construction

It as accepted that the approach to the construction of the agreement is as set out by Lord Hoffmann in Investors Compensation Scheme v. West Bromwich Building Society [1998] 1 WLR 896, 912-3. I will not extend this judgment by repetition of those well-known principles. As Arden LJ said in Khan v Khan [2007] EWCA Civ 399, "there can be no difference in principle between the rules which apply to the interpretation of contractual documents and those which apply to oral contracts." To the extent, therefore, that I should find myself construing the effect of an oral agreement made on 18 March, I should apply the same principles.

Miss McKie has helpfully reminded me of what Lord Bingham said in BCCI v. Ali [2001] 1 AC 251, 739, when summarising the nature of the approach to the construction of an agreement. It is as follows:

"To ascertain the intention of the parties the court reads the terms of the contract as a whole, giving the words used their natural and ordinary meaning in the context of the agreement, the parties' relationship and all the relevant facts surrounding the transaction so far as known to the parties. To ascertain the parties' intentions the court does not of course inquire into the parties' subjective states of mind but makes an objective judgment based on the materials already identified."

One thing is quite plain: excluded from "the admissible background [are] the previous negotiations of the parties and their declarations of subjective intent" (per Lord Hoffmann in Investors Compensation Scheme). However, as Arden LJ observed in Khan v Khan, "the boundaries of what constitutes pre-contractual negotiations for this purpose are not always clear." She referred to The Square Mile Partnership v Fitzmaurice McCall Ltd [2006] EWCA Civ 1690, where she had said that:

"Lord Hoffmann recognises that the boundaries of this exception of pre-contractual negotiations from the factual matrix are not clear. It may be very difficult to distinguish whether something that was stated in the course of pre-contractual negotiations is or is not admissible. For instance it may be evidence of the fact which forms part of the matrix which is admissible on interpretation, or alternatively it may amount to an agreement as to the way a provision under the agreement is to be interpreted."

One of Lord Hoffmann's propositions upon which reliance has effectively been placed by the Defendant in this case is his fifth proposition. It was stated as follows:

"The "rule" that words should be given their "natural and ordinary meaning" reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera S.A. v. Salen Rederierna A.B. [1985] A.C. 191, 201:

"if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense."

Mr Croally has reminded me of what was said by the Court of Appeal in MSC Mediterranean Shipping Company SA v The Owners of the Ship "Tychy" [2001] EWCA Civ 1198 about the role of extrinsic evidence in relation to the question of deciding between conflicting accounts as to what was agreed where no "formal contract" is drawn up between the parties:

"Before taking extrinsic evidence into account, it is important to consider precisely why it is said to assist in deciding the meaning of what was subsequently agreed and to consider whether its relevance is sufficiently cogent to the determination of the joint intention of the parties to have regard to it. It is also important, though not always easy, to identify what is extrinsic to the agreement and what forms an intrinsic part of it. When a formal contract is drawn up and signed, care must be taken to distinguish between admissible background evidence relating to the nature and object of the contractual venture and inadmissible evidence of the terms for which each party was contending in the course of negotiations. Where, as in the present case, an agreement is alleged to have been reached in the course of dealings which do not culminate in the drawing up of a formal contract, the task is to identify whether, and if so which, terms proposed in the course of negotiations have become the subject of a joint agreement."