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

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		22 June 2012

Sir Raymond Jack :

1. Following the trial of this action I handed down my judgment on the majority of the issues on 19 April 2012: [2012] EWHC 1013 (QB). I reserved for further argument the question of Mr Hartley's right to bonus between 10 November 2009 and 3 October 2010. 10 November 2009 was the date of an important meeting to consider Mr Hartley's future with Gutermann and 3 October 2010 was the date of Mr Hartley's resignation. The background to the action is set out in my earlier judgment and I will repeat no more than is necessary.
2. The question of Mr Hartley's entitlement to bonus during his employment by Gutermann was raised by him in his counterclaim. His case was that following conversations in February and March 2003 he was entitled to a commission or bonus calculated as 30% of the group profits and that this right was only terminated by his resignation. The claimants' case as set out in the reply and defence to counterclaim was that from the start of his employment until 10 November 2009 his entitlement was to be determined by the written agreement of November 2000 as modified to take account of the fact that the intended new company, GI, had never been incorporated. Under that agreement he was entitled to bonus calculated as 30% of the profit of the new company trading in 14 named countries where Mr Hartley had said he had good contacts and where GM was not then trading, or not trading in any volume. So the difference was between bonus based on group profits and bonus based on the 14 countries. Mr Hartley had not made an alternative claim based on the 2000 Agreement, but I held that the defence to his counterclaim left that open: it was, as I put it, a case of a party saying "I do not owe £100 but only £10", and the other party being entitled to the £10 if its claim for £100 failed. In fact there was only one reference in the documents to the 2000 Agreement after 2003 – a passing reference in Mr Gutermann's email of 29 July 2004. What happened was that Mr Hartley was paid lump sum bonuses of £10,000 in 2006 and of £50,000 in 2007. As I said in paragraph 43 of my April judgment, an argument might have been run that the 2000 Agreement had been abandoned and replaced by the granting of discretionary bonuses where appropriate, but it was not run. I expressed no opinion, and do not now express any opinion, as to whether such an argument would have succeeded. I found that there was no agreement between Mr Gutermann and Mr Hartley that he should be paid a bonus based on the profits of the whole Gutermann group (as opposed to the 14 countries), and that Mr Hartley had advanced that case dishonestly in an attempt to justify his misappropriation of monies.
3. The claimants' case as to the period after 10 November 2009 was set out in paragraphs 29 to 36 of the reply and defence to counterclaim. It was to the effect that at the meeting on that date a new contract was agreed; that it was provided that as part of it a term as to bonus should be agreed; that it was later agreed that this should be dependent on agreement as to the sums misappropriated by Mr Hartley; that no agreement as to the sums misappropriated or as to bonus was reached; that Mr Hartley had no right to bonus after 10 November 2009.
4. As I have said, Mr Hartley's primary case was that the agreement as to 30% of group profits continued. The issue whether there was an agreement entitling him to bonus on that basis took up more time at the trial than any other. I held that there was no such agreement. The case advanced in the light of that finding as to the period after 10 November 2009 was that, in the absence of the agreement of new provisions as to bonus, the bonus provisions of the 2000 Agreement continued. As Mr Hartley did not expressly advance an alternative case to his case for 30% of the group profits, this claim was not pleaded. It does not arise on the claimants' pleading in the same way as the claim for the earlier period where a right to bonus was admitted rather than denied. But Mr Hartley is entitled to join issue on the reply, and I do not consider that he should be shut out from advancing this case.
5. An alternative case was advanced that it was agreed on 10 November 2009 that Mr Hartley should be remunerated in part by bonus, the terms as to bonus to be agreed subsequently, and so in the absence of agreement he was entitled to bonus on a quantum meruit basis. The only reference to a quantum meruit claim prior to my April judgment had been in paragraph 67 of the defendants' written opening submissions. It was there suggested that the court might find Mr Hartley had provided some services in respect of which no agreement for payment was reached. This was not referred to in the opening oral submissions or in the closing submissions. I referred to it in paragraph 43 of the April judgment as a possible outcome. It was submitted for the claimants that Mr Hartley should not be permitted to advance a claim in respect of the period after 10 November 2009 on this basis. I will return to that submission.
6. The resolution of the contractual position between GM and Mr Hartley following the meeting on 10 November 2009 requires looking in some detail into what occurred. There will inevitably be some overlap here with my earlier judgment.
7. In October 2009 two things were happening. GM was negotiating to supply a substantial leak detection system in Abu Dhabi for a large sum of money. Mr Hartley was involved in the negotiation. Second, GL had run out of money, in part at least because of Mr Hartley's misappropriations. On 15 October Mr Hartley asked Mr Gutermann for a transfer of funds. On 22 October he said GL might be unable to pay salaries the following week. On 27 October Mr Hartley sent Mr Gutermann information concerning payments. On October 29 Mr Gutermann sent an email to Mr Hartley saying that Mr Hartley had been misspending company monies including £14,000 taken without authority as bonus. On 31 October at 8.28 Mr Hartley emailed Mr Gutermann that if he continued to work for Gutermann it must be on a different basis closer to a consultancy. Later that day between 16.49 and 16.51 he sent emails to a large number of people including those involved in the Abu Dhabi negotiations saying that he had decided to part company with Gutermann. He copied them to Mr Gutermann. On 1 November Mr Gutermann emailed Mr Hartley that he was following a path of self destruction. He said that "for a person who has embezzled company money, you are on a dangerous path". He urged Mr Hartley to come to Zurich to find a solution. He also requested that Mr Hartley refrain from any communication regarding the Abu Dhabi negotiations. On that day Mr Hartley instructed Amanda Sharpe, the office manager of GL, only to communicate with himself and Mrs Hartley. This resulted in the visit by Mr Grolimund and Mr Uri Gutermann to GL on 2 November referred to in paragraph 31 of my April judgment. On 3 November Mr Hartley emailed Mr Gutermann that they were moving towards an amicable separation. From further emails on that day it appears that a meeting was proposed in Zurich.
8. The meeting took place on 10 November 2009. Mr Gutermann made a manuscript note summarising the main points. It is not, of course, a complete note of the meeting. It is only two pages. But I accept it as accurate in what it records. The note is divided into two parts, A and B. A deals with the terms on which it was agreed that Mr Hartley should continue with GL. It reads so far as is material:

"Dale to start a new role in G

'Marketing and business development'

Position for the G group.

Co[mpany] still to be defined

No longer responsible for the sales force

….

Function+ Target: Develop opportunities and relationships the big unmanned monitoring projects: e.g. ……

Working place UK office

Salary: Dale suggests [£]80K, to be discussed and agreed by 11 November, starting as of April 2010? Until then existing salary

+ Bonus well defined re: type of business and %age.

Final decision on 11 November

…..

Information: to internal/external to be done by Claude, prepared by Dale [this referred to informing others as to Mr Hartley's role]

Start 23 November 09

Salary as of 16

………. ."

9. Part B was headed "Settling the past". It provided that on 11 November Mr Hartley should transfer his shares in GL, and resign as a director, that there should be no release for responsibilities of the past, that all accounts and company liabilities should be checked and settled when clarified.
10. Following the meeting Mr and Mrs Hartley returned to England. The following day, 11 November, Mr Gutermann telephoned Mr Hartley and agreed the salary of £80,000 as from April 2010. I find that he asked Mr Hartley to give him more time in respect of the bonus, and Mr Hartley agreed. Mr Hartley's agreement went no further than that. The agreement of the basis on which Mr Hartley should be entitled to bonus was unlikely to be easy. It is surprising that Mr Gutermann agreed at the meeting to decide it over the telephone the next day. He said that he realised over night that he could not agree a new bonus structure until he understood the full extent of Mr Hartley's misappropriations. He said Mr Hartley agreed to that. I think that the probability is that Mr Gutermann did not intend to agree terms as to bonus the following day, 11 November, but intended to leave the matter in the air. I find that he did not tell Mr Hartley that it must first be established what Mr Hartley had taken before terms as to bonus could be discussed.
11. At the time of the meeting on 10 November Mr Gutermann knew that Mr Hartley had embezzled money – Mr Gutermann's own word. He did not know that the sums involved were as much as they were. It might have been expected that when Mr Hartley stated on 31 October that he was leaving Gutermann, Mr Gutermann would have responded with "good riddance". But instead he went to some lengths to secure an accommodation with Mr Hartley. I considered the possible reasons for this in paragraph 32 of my April judgment, and referred to the need to keep Mr Hartley on side until the Abu Dhabi negotiations were concluded, and to the need for Mr Hartley's help with some legal proceedings.
12. On 11 November 2009 Mr Gutermann sent an email to all Gutermann staff saying that Mr Hartley was staying with Gutermann with a new role and giving up the post of sales director. Mr Hartley wrote in his diary "salary commences" for 16 November, and "return start date, new role" for 23 November. This is as recorded in Mr Gutermann's note of the meeting.
13. On 23 November Mr Hartley sent an email about a number of matters arising from the meeting on 10 November. This included that there was much to finalise about his new role, including "remuneration and bonus structure". On 14 December he sent a further email about his new role saying he very much looked forward to receiving written confirmation of "my new role, responsibilities and of course remuneration and bonus structure". Mr Gutermann did not respond in writing but it appears from an email from Mr Hartley on 4 January 2010 that a meeting was proposed. That meeting took place in Zurich on 21 January. In an email of 8 January Mr Hartley attached a discussion document for his new role, which is missing. He also said "Contractually, we also need to establish a clear and calculable bonus structure based on clearly defined budgets and targets …".
14. As appears from my April judgment the meeting on 21 January was largely concerned with Mr Hartley's misappropriations. There was no discussion of terms as to bonus. But Mr Grolimund accepted that Mr Hartley had raised the issue of his bonus: Day 3, page 31. In his evidence at Day 4 pages 157 and 158 Mr Hartley said that Mr Gutermann seemed to be saying that the level of misspending must be identified first before the level of bonus could be agreed, which, Mr Hartley said, was contrary to what had been agreed on 10 November. I conclude that this must have become clear to Mr Hartley during the meeting. The manuscript minute made by Mr Gutermann states in paragraph 6:

"DH and CG will agree on a schedule of repayment (bonuses, commissions)."

This appears to refer the setting off of one against the other. But that exercise would not prevent the agreement of the terms as to bonus in the meanwhile.

15. On 29 January Mr Hartley emailed Mr Grolimund about his new role and salary. He did not refer to bonus. He said the clarification of his contractual position was becoming long overdue. Mr Grolimund replied on 5 February suggesting that they might "do the contract/salary structure when we are closer to April". Mr Hartley answered "perhaps the main outstanding issue (from my side) is outlining a bonus and/or commission structure". On 11 February Mr Hartley sent Mr Grolimund and Mr Gutermann suggestions for a commission structure. Mr Grolimund responded that detailed discussion was needed. In exchanges with Mr Grolimund by email on 17 March about bonus arrangements for two other employees Mr Gutermann stated "With regard to Dale, we can quietly bide our time until Abu Dhabi is on track – and then we shall have to think about it again. I hope I know a great deal more from Julie by then!!". Julie was the accountant investigating Mr Hartley's misappropriations.
16. On 9 April 2010 Mr Martinson provided an analysis of GL spending. On 27 April Mr Hartley emailed Mr Grolimund "In anticipation of soon establishing a clear picture (or at least agree upon figures), going forward would it now be a good idea to start to formulate a contract which reflects what we previously agreed in Zurich?" Mr Grolimund answered that Mr. Gutermann should advise on how to proceed. Mr Hartley again raised the issue of a contract in his email to Mr Gutermann on 24 July.
17. So from November 2009 to July 2010 Mr Hartley raised the question of the terms as to bonus on a number of occasions, and was in effect fobbed off. When April came he did not get the salary increase but was told that it would be held against his misappropriations.
18. However by June 2010 Mr Hartley was looking for employment elsewhere. On 24 September he signed a contract of employment with SebaKMT. On 30 September the Abu Dhabi contract was signed. On 3 October Mr Hartley resigned.
19. The first issue between the parties is whether a new contract of employment between GL and Mr Hartley came into being on 10 November 2009. I am satisfied that it did. Mr Gutermann and Mr Hartley proceeded on the basis that Mr Hartley had resigned on 31 October 2009. He was to start in his new position on 23 November but would be paid from 16 November. So he got a week's paid holiday. He was unemployed, "off the books" as it were, between 31 October and 16 November. He had been sales director. He was no longer to have responsibility for the sales force. This was a change that was important to Mr Hartley: see his witness statement of 17 February 2012, paragraphs 247 and 248. There was an element of window dressing in what other people were told – I refer to paragraph 37 of Mr Gutermann's affidavit of 16 December 2010, in that Mr Hartley was already involved in big unmanned monitoring projects. But there was a real change in his responsibilities. His salary was to be substantially increased from 1 April 2010. He was to have an entitlement to bonus on defined types of business on a percentage basis. Mr Hartley anticipated that a new contract would be drawn up setting out his responsibilities and the financial terms. It was not submitted that it was necessary for that to occur for any new contract to come into existence. As, in particular, Mr Hartley worked for GM between November 2009 and October 2010 on the basis of what was agreed on 10 November, I do not think that such an argument would have succeeded.
20. Mr Newman submitted for Mr Hartley that the intention of the parties had to be objectively considered. I agree. He submitted the issue was whether a new contract was to be implied. I consider that at the 10 November meeting there was an express agreement on a new contract. He submitted citing Dinkha Latchin v General Mediterranean Holdings SA, Court of Appeal, 16 December 2003, that a contract will only be implied where it is necessary to do so. But here there is a very different situation to that in the Dinkha case, and the matter was dealt with in express terms. Mr Newman also relied on a passage in Mr Gutermann's cross-examination at Day 3, pages 89 to 91. There Mr Gutermann initially said that it was his case that the 2000 Agreement applied after November 2009. After an intervention by his counsel, he amended his position, though not in very clear terms. That, of course, was a subjective view of what had happened. But be that as it may, if the contemporaneous evidence points clearly in another direction, I should follow that.
21. Lastly, whatever the position as to the 2000 Agreement immediately prior to the November meeting – I refer to paragraph 2 above, I am satisfied that it would have come as a substantial surprise to the parties if they had been reminded of it and it had been suggested that the bonus provisions of that agreement would continue to apply. I think that it was very far from their minds. It had become something buried in the past. Further, its provisions as to bonus on sales in the 14 countries would have been inappropriate as Mr Hartley had given up a general responsibility for the sales force, whether in the 14 countries or world wide.
22. I conclude, therefore, that from 19 November 2009 Mr Hartley was employed under a new contract with a different role and as from April 2010 with a raised salary. He was also to be remunerated by a bonus on types of business to be defined and at a percentage to be defined. Until 3 October 2010 he was employed under those terms. I do not think that Mr Hartley ever accepted that the agreement of the terms of his bonus provision should be deferred until it had been ascertained what he had misappropriated. He did accept at the meeting on 21 January 2010 that bonus should be set off against his misappropriations.
23. Miss Powell submitted for the claimants that Mr Hartley took the risk that if no agreement was reached to as to bonus, he got no bonus. As agreement was dependent on Mr Gutermann, that would put him in Mr Gutermann's power. Contrary to what he had agreed at the November meeting, Mr Gutermann had no intention of agreeing any provision as to bonus until it suited him to do so.
24. In my judgment the position is really no different to that which would arise if Mr Hartley had agreed to work for GM for a salary to be agreed, and had done so until his resignation without an agreement as to salary having been reached. That would not mean he was entitled to no salary. In circumstances where it is envisaged that services or goods will be provided on the basis that they will be paid for but without agreement as to the amount or the provision of a means of fixing the amount, a reasonable price must be paid. In an employment situation that is a salary appropriate to the employment. It is sometimes called a quantum meruit. It may be questioned though, whether that is appropriate as the claim arises in contract rather than in quasi-contract or unjust enrichment. I do not think that there is any doubt as to the principle. It receives statutory recognition in respect of the sale of goods and the provision of services in section 8(2) of the Sale of Goods Act 1979 and section 15(1) of the Supply of Goods and Services Act 1982. The Dinkha Latchin case is an example of a case where the issue was whether there was an understanding that payment would be made. Here that is not in issue. For it was agreed that Mr Hartley should have a bonus provision.
25. Miss Powell submitted that in November 2009 Mr Gutermann did not appreciate how much Mr Hartley had taken. I accept that. He did know that Mr Hartley had been embezzling substantial sums. He chose for his own reasons not to dismiss Mr Hartley, but to employ him under a new contract. Even when he must have had a much clearer idea of the sums involved he did not dismiss him. So the contract continued, and Mr Hartley is entitled to enforce his rights under it however unmeritorious his conduct may have been or continued to be.
26. I conclude therefore that Mr Hartley has a right to bonus or commission, the terms of which will have to be determined by the court. It seems to me at present that broadly that can be expressed as whatever is most reasonable in all the circumstances: but I heard no argument as to that. It may well be that the court's task will not be easy. But if the law has set it a difficult task, so be it.
27. I return to the question which I raised earlier as to whether Mr Hartley is not able to put his case in this way because a claim for a reasonable commission, a commission on a quantum meruit basis, was not raised in his pleading. He drafted his own pleadings, but he was represented by counsel at trial. I approach the question with the over-riding objective stated in CPR 1.1 in mind, namely to deal with cases justly. I was not referred to any authorities as to how I should approach the question, and I do not complain about that. I have however considered the Court of Appeal's guidance as to the principles on which the court will exercise its discretion to give permission to amend in Swain-Mason v Mills & Reeve [2011] EWCA Civ 14, [2011] 1WLR 2735.
28. Unlike the situation in the majority of cases relating to amendment of pleadings and in Swain-Mason, here there are no new facts being raised, there is no question of an adjournment, there is no question of costs of substance arising by reason of the submission not having been raised earlier. The question is one as to the correct legal outcome following findings of fact on matters that were fully investigated at the trial. Contrary to Miss Powell's submission I do not think that cross-examination would have been materially different if Mr Newman's opening oral submissions had considered the possibility of a quantum meruit. In addition to a claim for bonus in the period in question not having been pleaded earlier, it is still not pleaded and no application to amend was made. However, given that the matter was fully raised in Mr Newman's written submissions for the further argument, an amendment would have achieved nothing save additional costs. So, in the unusual situation which has developed, I have concluded that Mr Hartley should be permitted to put his case in this way rather than being deprived of the claim. I consider that there is no unfairness to the claimants of any real substance in his being allowed to do so.
29. The assessment of what money Mr Hartley is entitled to in respect of this period will form part of Phase 2, as would always have been the case. Further directions will be required, which I hope can be agreed between counsel.