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
		24th September 2018

His Honour Judge Nicholas Cooke QC

A. INTRODUCTION
1. This is an application for summary judgment by HSBC Private Bank Limited ("the Defendant Bank") against Rajesh Parmar ("the Claimant Employee") with respect to both a claim and a counterclaim.
2. The background facts may be shortly stated. Until 2012 the Claimant Employee was the head of the Defendant Bank's Global South Asian Diaspora Department ("GSAD"). GSAD's activities during the period when the Claimant Employee was its global head are the subject of ongoing criminal and regulatory investigations, concerned, amongst other matters, with the provision of assistance to clients to evade U.S. tax. Significantly, in 2013 when a former client of GSAD pleaded guilty in the U.S. to a criminal conspiracy to defraud the U.S. Inland Revenue Service, the Claimant Employee, identified as "U.K. Banker A", was referred to as an "unindicted co-conspirator".
3. The Defendant Bank terminated the Claimant Employee's employment in March 2012. At that time the Claimant Employee was potentially entitled to additional remuneration, in the form of the vesting of unvested stock and deferred cash awards.
4. In 2016 the Defendant Bank's Group Remuneration Committee ("the Remuneration Committee") refused the Claimant Employee a deferred cash award and declined to vest the unvested stock. Both potential benefits were clearly expressed to be discretionary. It is with a view to recovering the same that the Claimant Employee brings this action. The Defendant Bank asserts that in so doing the Claimant Employee recognisably has no realistic prospects of success and further that before one gets to a consideration of the merits, the Claimant Employee faces an insuperable bar in the form of exclusion clauses embodied in the HSBC Share Plan and a settlement agreement agreed (after the Claimant Employee received independent advice from Mishcon de Reya) in 2012.
5. The Defendant Bank further seeks judgment on its counterclaim, for an inquiry as to damages, alleging that the Claimant Employee has breached its contract with the Defendant Bank by bringing this claim.
6. As I indicated at the hearing, I will deal in this judgement with both the exclusion clauses and merits arguments with respect to the claim, in that order and with the counterclaim.
B. THE PRINCIPLES APPLICABLE TO SUMMARY JUDGMENT
7. I detect no dispute between the parties as to the principles applicable to applications for summary judgment, which are common to applications in relation to claims and counterclaims. The well-known principles were helpfully summarised in paragraphs 21 to 23 of the Defendant Bank's skeleton argument. For present purposes it suffices for me to stress that I have well in mind the need to identify a realistic as opposed to a fanciful or merely arguable prospect of success; that an application for summary judgment must not amount to a mini trial (but the utility of the summary judgment procedure should not be destroyed by a refusal to resolve easily resolvable disputes); that short points of construction and/or law may be fairly and properly resolved by way of summary judgment and that regard should be had to both available and reasonably anticipatable evidence.
8. I also bear in mind that the summary disposal of potentially costly and time-consuming litigation by way of summary judgment, if it can be done without injustice, is wholly consistent with the overriding objective.
C. THE EXCLUSION CLAUSES
9. With respect to the exclusion clause argument, I consider that the key clauses are 2.2. of the Claimant Employee's contract of employment:

". . . you will be eligible for a fully discretionary performance-related bonus . . . Eligibility for and the amount of bonus payment (if any) will be at the absolute discretion of the Board of the Company . . . Eligibility to participate in any such bonus scheme does not confer any right to receive a bonus payment, and will instead depend on a number of factors including but not limited to the performance and profitability of the Company, your business area and your own performance from time to time . . . In view of the discretionary nature of such bonus scheme, reference to it is contained in this clause for information purposes only and does not confer any contractual rights on you . . ."

2.8.1, 2.8.2, 15.6.2 and 15.6.5 of the Plan Rules:

"The Committee may at any time at its sole discretion determine, before an Award has vested to: (a) reduce the number of Shares comprised in the Award; and/or . . . (e) cancel the Award.

The circumstances in which the Committee may make this determination include, but without any limitations whatsoever: (a) the conduct of the Participant or the team in which he has worked, or the business unit of which he is a part, is considered detrimental or brings the business into disrepute; or … (d) evidence arises that the Participant or the Participant's business unit or division have engaged in improper or inadequate risk analysis or have failed to raise concerns in relation to improper or inadequate risk analysis.

An Eligible Employee or Participant shall not be entitled, and by accepting an Award he shall be deemed to have waived any possible entitlement, to any compensation for any loss he may suffer as a result of the exercise by the Committee of, or its failure to exercise, any of the discretions given to it by the Plan, even if such exercise (or failure to exercise) constitutes a breach of contract by the Company or any other such Group Company … or gives rise to any other claim whatsoever.

The (Claimant Employee) will have no claim or right of action in respect of such decision, omission or discretion even if it is . . . irrational."

7.3 and 8.1 of the Settlement Agreement:

"You (the Claimant Employee) acknowledge and agree that under the HSBC Share Plan the Company may at any time in its absolute discretion (and with the approval of the HSBC Group Remuneration Committee), amend, reduce or cancel the award of any shares and deferred cash referred to in clause 7.1 and you hereby agree that you shall have no claim against the Company, HSBC Private Bank S.A. or the Group arising out of any such amendment, reduction or cancellation.

Until such time as the Company, in its absolute discretion, (and with the approval of the HSBC Group Remuneration Committee), is satisfied that there is no evidence arising out of the Investigation of any act or omission by you that would, in the opinion of the Company, have constituted a breach of any material terms (express or implied) of your contract of employment or the Secondment, the Company, (with the approval of the HSBC Group Remuneration Committee), in its sole and absolute discretion, has decided to defer the question as to whether or not to award you any discretionary bonus for the performance year 2011 (Discretionary Bonus), in accordance with clause 6.2 of the Employee Handbook and as set out in the Company's letter to you dated 10 February 2012."

Clause 8.2 of the Settlement Agreement added that if the Defendant Bank was unable

to make a final determination by 30 April 2015, (later extended to 30 April 2016) no

Discretionary Bonus would fall to be paid and the Claimant Employee would have no

claim.

10. In the event, the Defendant Bank did not rely upon an alleged inability to make a determination but purported to consider the Claimant Employee's entitlements upon their merits.
11. I consider that the relevant law in this context is adequately summarised in Chitty at paragraphs 15-008, as quoted in the Defendant Bank's skeleton argument:

"If the clause is expressed clearly and unambiguously, there is no justification for placing upon the language of the clause a strained and artificial meaning so as to avoid the exclusion or restriction of liability contained in it."

12. I have considered the arguments advanced on behalf of the Claimant Employee based upon Mallone v. BPB Industries Ltd. [2002] ICR 1045, AstraZeneca UK Ltd. v. Albemarle International Corp. and Anor. [2011] 2 CLC 252 and Tor Line A/B v. Alltrans Group of Canada Ltd. [1984] 1 WLR 48. I reject those arguments.
13. The various clauses are wide enough to cover the claims advanced in unambiguous terms, in isolation and combination. They would not, however, be sufficient to exclude liability on the part of the bank in the event of bad faith or something akin to it, such as discrimination or perversity. I do not consider that even an express reference to "irrationality" would be insufficiently precise to exclude liability for such "sins".
14. In the context of a summary judgment application I would not resolve this matter against the Claimant Employee upon the basis of the operation of the exclusion clauses if I could detect a realistic prospect of success with the Claimant Employee arguing bad faith, or something akin to it, such as discrimination or perversity. To that extent, dealing with this matter without conducting a mini trial, I err on the side of caution in favour of the Claimant Employee, bearing in mind the difficulty of proving bad faith and distinguishing it from something akin to it, such as discrimination or perversity.
15. I do not consider that there was any want of prominence for these exclusion clauses, given the nature of the parties, the regulatory and reputational context, of which the Claimant Employee would have been aware and, with respect to the Settlement Agreement, the fact that Claimant Employee entered into that agreement – the terms of which alone would in my judgement be fatal to his claims herein, (absent bad faith etc.) - with the benefit of independent advice from Mishcon de Reya. I have applied in my mind a slightly widened definition of bad faith conscious as I am of the fact that there may be, on occasions, only a dim perception of the borderline between perversity and malice (as noted by Patrick Devlin – in a very different context – in "Easing the Passing"). By so doing I believe I have eliminated any risk of unfairness to the Claimant Employee consequent upon my resolving the exclusion claims aspect of this case upon a summary basis.
16. For the reasons given already, and because of my conclusions with respect to the merits outlined later in this judgment, I consider that the exclusion clauses are effective to dictate that the Claimant Employee has no realistic prospect of succeeding with his claims.
D. THE MERITS
17. I now proceed to consider the Claimant Employee's case upon its merits.
18. The Defendant Bank is correct to stress the breadth of its discretion with respect to the benefits in dispute, the specific terms of clauses 2.8.1. and 2.8.2. of the Plan Rules, with a focus on team and business unit responsibility and the risk of reputational damage and the importance of risk assessment.
19. The Defendant Bank is also correct to stress the regulatory context in which the discretionary decision had to be taken, best illustrated by reference to the FSA Remuneration Code (effective from 1 January 2010) and Directive 2010/76/EU, (incorporated in that code with effect from 1 January 2011). By virtue thereof the Defendant Bank was required to ensure that remuneration policies promoted sound and effective risk management and that variable remuneration, such as that with which I am concerned here, was paid or vested only where justified on the basis of the performance of the firm, business unit and individual concerned, and that unvested awards should be reduced, as a minimum, in cases where there was reasonable evidence of employee misbehaviour, where the firm or business unit suffered a material downturn in financial performance, or a material failure of risk management. I regard that regulatory background as being highly material to the exercise which the Defendant Bank had to perform with which I am concerned.
20. Although the Claimant Employee has pleaded that the Defendant Bank has been guilty of arbitrary, perverse and capricious conduct, none of that is evidenced by the material available to me.
21. The Claimant Employee's assertions of irrationality and perversity are doomed to failure. The Defendant Bank did not ever exonerate him, it merely deferred the taking of a decision until as full an investigation as was reasonably practical had been carried out and considered.
22. The letters from the Defendant Bank dated 21 June 2016 and 1 November 2016 do not bear the construction that the Claimant Employee has sought to attribute to them. In particular, the letter of 21 June 2016 expressly refers to the possibility of clawback under the Share Plan Rules in relation to the unvested shares. The letter makes no reference to the Settlement Agreement, is concerned largely with an historic potential tax liability, appears to be written in ignorance of other considerations and does not seem to me to advance the Claimant Employee's case.

That the Defendant Bank was carrying out a bona fide investigation, to inform itself with a view to exercising its discretion fairly and upon the basis of relevant material which the Claimant Employee had had ample opportunity to address and which was not confined to material pre-dating February 2012, is fully demonstrated by the terms of Wilmer Hale's briefing note of 14 April 2016. The reality is that unanswered – and it remains in substance unanswered – it is a devastating document with respect to the case which the Claimant Employee is attempting to run.

23. Equally damaging to the Claimant Employee's case is the Defendant Bank's "decision letter" of 1 November 2016. Far from supporting his pleaded case to the effect that "the investigation made no adverse findings against him", that letter recites serious reasoned and specific findings and sets out the Claimant Employee's failure to respond to the allegations against him.
24. I have reviewed the available material. There is no sign of inconsistency, pre-determination, defect of process or bad faith or something akin to it. In its discretion the Defendant Bank was entitled to conclude, via its Remuneration Committee, to which it was entitled appropriately to delegate the matter, as it did:

"Having carefully considered your case, the Committee concluded that you and a number of your direct reports appear to have actively assisted one or more U.S. clients in tax evasion and that you failed to adhere to HSBC policies and procedures regarding unlicensed cross-border banking activity. HSBC has suffered financial loss and reputational damage by way of negative publicity as a result of your actions and that of other employees over whom you had direct supervisory responsibility. As head of the relevant business unit at the time, you were expected to have maintained, and at all times acted fully in accordance with, an appropriate compliance and risk control environment and to have monitored and maintained the performance of compliance and risk control activities of the employees within that business. This, in the view of the Committee, you failed to do.

You were afforded two opportunities to put forward written representations for the Committee to consider. However, in your correspondence to the Committee dated 3 July 2016 and 24 August 2016 you chose not to provide a substantive response. Instead, you asserted that you had not been provided with sufficient information to enable you to respond.

In 2012, you were interviewed by HSBC's legal counsel on two occasions in connection with these matters and had your own legal representation in attendance at both interviews. These interviews lasted for more than 10 hours. In connection therewith, both you and your legal counsel were also provided with access to a significant volume of correspondence and other relevant documents.

The Committee is satisfied that you have at all times been in possession of sufficient information to enable you to respond with any detailed written representation you may have wished to make.

Accordingly, the Committee has determined that you will receive a nil discretionary variable pay award for 2011, that malus is appropriate in relation to your unvested awards and that the appropriate percentage of malus to be applied to your unvested awards is 100%."

25. I am wholly satisfied that the Defendant Bank was entitled to conclude that the Claimant Employee had sufficient material to enable him to respond to the substantive allegations against him, had he wished to do so, and that it was fair for the Defendant Bank to rely upon his failure to do so against him. I incline to the view that the Defendant Bank's relevant process and decision are entirely unimpeachable. Certainly, the Claimant has no realistic prospect of success with his claims on the merits. A fortiori, he has no prospect of showing bad faith or something akin to it in the nature of perversity or discrimination to defeat the operation of the exclusion clauses. There must be summary judgment for the Defendant Bank on the claim. There is no other compelling reason for a trial given my findings.
E. THE COUNTERCLAIM
26. Neither parties' skeleton arguments addressed the position in relation to the Defendant Bank's counterclaim as a separate area of consideration. Little time was devoted to it in oral argument.
27. The counterclaim proceeds upon the premise that either because the Claimant Employee's claims lack merit or, perhaps with more substance, because those claims are brought in breach of the exclusion clauses, advancing those claims at all gives rise to an entitlement to damages. I am not persuaded by that argument. I am unaware of authority for the proposition that simply bringing a claim, which in the event is found to lack merit, even if it falls foul of an exclusion clause or exclusion clauses, gives rise to a damages claim, absent fraud or malice, which are not alleged or made out. No convincing argument in support of the proposition was advanced before me. I accordingly decline to give summary judgment on the counterclaim.