United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellants	MR PAUL T ROSE (of Counsel) Instructed by: Messrs Burnside Kemp Frazer 4 Queens Terrace Aberdeen AB10 1XL


 


HIS HONOUR JUDGE SMITH QC

1. This is an application by the employers before the Employment Tribunal, Russell Sub-Surface Systems Ltd, for leave to proceed to a full hearing of an appeal against the decision of an Employment Tribunal held at Bristol on 30^th July 1999, the Chairman sitting alone, of which extended reasons were sent to the parties on 9^th August 1999 whereby the Employment Tribunal held that the Appellants had unlawfully deducted £9014 from the wages of the Applicant before the Tribunal, Mr N P Wallis, in breach of section 13 of the Employment Rights Act 1996, and ordered the Appellants to pay that sum to Mr Wallis.
2. We have had the benefit today of hearing a concise and clear argument on behalf of the Appellants by Mr Rose and we are indebted to him for his argument. We will have to consider his argument later in this judgment. We have reminded ourselves that the Appellants have only to show that there is a reasonable ground of appeal to be entitled to proceed to a full hearing.
3. It is first of all necessary for us to look carefully at the decision. The Chairman of the Employment Tribunal found that Mr Wallis was entitled, together with other remuneration, to a Key Manager bonus based on the achievements of agreed goals, as can be seen in paragraph 3 of the Chairman's reasoning. We now have the benefit, as a result of Mr Rose's helpful skeleton argument, of the full relevant contractual term. The full relevant contractual term reads as follows:-

"Satisfactory achievement of the objectives and the values of bonus payments will be at the sole discretion of the Board. Financial performance will be determined by customary accounting practices with expenses and revenues fully accrued (including bonus payments) subject to external and/or internal audit as appropriate"

4. In our judgment, and despite the submission made to us, it is clear from this clause that the decision as to whether or not satisfactory achievements of the objectives had been achieved, as well as the question as to the value of the bonus, was to be at the sole discretion of the Board. In other words, we are satisfied that on the proper construction of that clause, which is the construction which the Chairman preferred, the question as to whether or not there had been satisfactory achievements of the objectives, that is the question whether the targets had been reached, was a matter for the discretion of the Board. The Employment Tribunal found as a fact that after his resignation in December 1998, Mr Wallis had produced a document in January 1999 in justification of his claim that he had indeed met all the performance targets in connection with the Key bonus plan. As is clear from the findings of the Chairman, this document was submitted to Mr Stephens, who was at the relevant time the General Manager, and, we infer, the appropriate person to whom the document should have been submitted by Mr Wallis. Mr Stephens then recommended to Mr Frame, representing the American owners of the company, that the bonus should be paid at the "overachieved" level, ie; on the basis that all targets had been met, and that Mr Wallis should accordingly receive a bonus of 12.5% of his salary. Attached to the document setting out the claim and purporting to justify the claim, there were documents in support as we understand the finding of the Employment Tribunal.
5. At paragraphs 7-12 of the decision, the Chairman carefully reviewed the evidence called by the Appellants and concluded that he found their actions in relation to the key bonus to be most unsatisfactory, to use his words. He was particularly critical of the evidence of Mr Lomax, the Finance Director, and as a result he made important findings in that regard, particularly in paragraphs 12 and paragraph 18 of the decision. In paragraph 12 he found as follows:-

"I find the actions of the respondents and in particular, Mr Lomax, most unsatisfactory. He allowed the applicant and Mr Stephens to proceed in the belief that the bonus would be paid when he had specifically recommend that it should not and he failed at any stage to inform the applicant or the other key managers that a decision had been made not to pay the bonus or the reasons for this decision. His written evidence and his oral evidence are inconsistent. In the absence of evidence from Mr Neveu there is, therefore, no satisfactory evidence as to when the decision not to pay the bonus was made, who made it and what the reasons were".

Again in paragraph 18 of the decision:-

"However, I have no reliable evidence that either of them"

(that is to say either Mr Frame or Mr Neveu )

"could genuinely have exercised his discretion"

that is the effect of what the Chairman is saying there, and then this sentence:-

"I accept the applicant's evidence that on 4 march Mr Neveu was still indicating that no decision had been made"

6. The Chairman analysed the relevant law at paragraphs 13-17 and concluded that the nature of the employer's obligation when he has entered in to a contract to pay a discretionary bonus is to consider the situation at the appropriate time and exercise his discretion as to whether the bonus should be paid or not. He held that the onus was on the employer in order to justify a refusal to pay to show that the discretion had been exercised in good faith. In the light of that analysis, the Chairman expressed his conclusions at paragraphs 20 and 21of the decision as follows. Paragraph 20:-

"The conclusion I have reached, in this difficult case, is that the applicant worked throughout 1998 on the basis of a promise of a bonus should the Board take the view that the objectives had been met. Mr Stephens recommended that the bonus be paid. There is not satisfactory evidence as to who decided not to follow the recommendation and why. Accordingly, I find that, in breach of contract, the discretion was not properly exercised and that the applicant is entitled to receive the bonus as recommended."

Paragraph 21:-

"I have therefore come to the conclusion that the respondents' decision to refuse to pay the bonus was arbitrary and that the bonus is due and "properly payable" to the applicant. The sum involved is agreed, subject to liability, as £9,014."

7. The point taken by Mr Rose on appeal is that on a proper construction of the relevant contractual term, he submits that the onus only shifted to the Appellants to show that they had correctly exercised their discretion to refuse to pay, if and when Mr Wallis had established as a fact before the Employment Tribunal on the balance of probabilities that the bonus was properly payable in the sense that the targets had been met. Thus his criticism of the Chairman's decision is that, since he made no finding of fact that Mr Wallis had actually established to his satisfaction that he had met the targets, the Chairman had erred in law, so it is submitted, in finding that the bonus was properly payable due to the failure of the Appellants to exercise their discretion properly or at all. The submission is made that it was for the Applicant, Mr Wallis, to get over the hurdle first of establishing, on the balance of probabilities, that the bonus was payable in the sense that the targets had been met, before there could be any question of the employers being required contractually to exercise their discretion and that accordingly, since no finding to that effect was made, the Chairman misinterpreted and misconstrued the situation. Reliance is placed on the finding of the Tribunal as expressed by the Chairman in paragraph 18 in this way:-

"It seems clear to me that either Mr Frame or Mr Neveu could genuinely have exercised his discretion not to pay the applicant's bonus because the document prepared by the applicant does not address all the agreed requirements".

8. However, we find unanimously that the Chairman correctly analysed the respective obligations on Mr Wallis on the one hand and the Appellants on the other, in the light of the wording of the contractual term relating to the bonus. In our judgment it is clear from the wording of the relevant contractual term, as the Chairman held, that it was for the Appellants in exercise of their discretion to decide whether the targets had been met. That in our judgement is clear from the opening words of the opening sentence of the clause, namely,

"Satisfactory achievement of the objectives and the values of bonus payments will be at the sole discretion of the Board"

In our judgment those words could not be clearer. The obligation on Mr Wallis in our judgment was no more and no less than to put forward a claim by way of justification of an assertion that he had met all the performance targets set by the Key bonus scheme. In this regard we notice that it appears from the IT3 and the way in which the matter was there dealt with by Mr Lomax, that it may well be a matter of subjective judgment as to whether or not the targets have been completely fulfilled since Mr Lomax pleads the matter in this way in the IT3:-

"Additionally, he claims that the "sketchy" Key Manager bonuses were completely fulfilled which cannot be clearly ratified or verified by anyone but himself".

Those words, in our judgment, support our conclusion as to the fair and proper interpretation, in an industrial relations context, of this particular bonus scheme. This is the way the Chairman construed the clause and indeed the Chairman found that the General Manager at the time, Mr Stephens, having considered the claim put forward, recommended to the Board on the strength of Mr Wallis' documentary claim, that the bonus should be paid. The Chairman held that the contractual onus then switched to the Board to exercise its discretion to decide whether in fact the targets had been met and if so whether the bonus should be paid.

9. In our judgment, contrary to the submission made to us, that way of interpreting the contract makes good commercial sense and was a perfectly reasonable way of interpreting the clause. In our judgment the Chairman was correct in law to hold that on the facts which he found Mr Wallis had performed his side of the contract by putting forward the claim he did and obtaining the recommendation of the General Manager that the bonus should be paid. It was the Appellants who were then at fault and in breach of their obligations, on the correct findings of the Chairman, in failing properly or at all to exercise their discretion whether to pay the bonus, so that, as the Chairman in our judgment rightly held, the refusal to pay was arbitrary and had the result that the monies were "properly payable", under section 13 of the Employment Rights Act 1996. Accordingly, in the particular circumstances here, we have concluded that the contractual position is clear and that there is no reasonable ground of appeal and accordingly the application is dismissed. Leave to appeal is refused.