Civil procedure – Bonus payments – Summary judgements

Saleem Khatri v Cooperatieve Centrale Raiffeisen-Boerenleenbank BA: CA (Civ Div) (Lords Justice Rix, Longmore, Jacob): 23 April 2010

The appellant former employee (K) appealed against a decision ([2009] EWHC 2606 (QB)) refusing his application for summary judgment against the respondent bank.

K had worked for the bank as a derivatives trader and was entitled to a discretionary bonus. K signed a new contract which entitled him to a performance-related bonus, calculated according to a set formula. The contract stated that the bank ‘maintains the right to review or remove this formula-linked bonus arrangement at any time’. Several months later, K was told that he was at risk of redundancy. The bank offered him a suitable alternative position for a trial period of three months. It sent him a letter informing him that under his new terms and conditions he would be entitled to an annual discretionary bonus. The letter stated that K should sign to indicate his acceptance of the offer. K did not sign the letter. He continued to carry out the same work and received the same salary, but reported to a different person. Shortly before the end of the trial period, K indicated that he did not accept the new terms and wished to be paid his performance-related bonus. He was later dismissed on the grounds of redundancy but did not receive the performance-related bonus. The bank submitted that a trial was needed to determine the factual matrix. The bank also argued that under the old contract it was entitled to remove the performance-related bonus at any time, and the bonus had been varied by K’s subsequent acceptance by conduct of the new terms.

Held: (1) The factual matrix was key to understanding what the parties must have intended by the words they used in a written contract. But it far from followed that the need to know what that matrix was required a full trial with discovery, evidence and cross-examination of witnesses. If there was no actual conflict of evidence on a relevant point of background matrix, it was only when there really were reasonable grounds for supposing that a fuller investigation of the facts might make a difference to the construction that the court should decline to construe the contract on a summary judgment application, Nigeria v Santolina Investment Corp [2007] EWHC 437 (Ch) applied. In the present case, there was no relevant factual issue which needed a trial. The question of the correct construction of the contract could be determined at the present hearing.

(2) The first question was whether K was entitled to a performance-related bonus according to the formula in the old contract. It was purely one of construction and fell to be decided by how the words would be understood by a reasonable person having all the background knowledge, which would reasonably have been available to the parties in their situation at the time of the contract. The language of the clause in the old contract contained words of entitlement such as ‘you will be eligible’ and ‘the bonus due’. To say that all of that entitlement was potentially taken away by the words ‘at any time’ at the end of the clause was simply not the most rational way to read it. It made much better sense to read the clause as a whole as saying that ‘this bonus formula applies for this year but it might all be different next year’. The factual matrix, that the clause was replacing a discretionary bonus, reinforced that conclusion.

(3) It was said in Solectron Scotland Ltd v Roper [2004] IRLR 4 EAT that when considering whether an employee had accepted a variation the fundamental question was whether the employee’s conduct, by continuing to work, was only referable to his having accepted the new terms imposed by the employer. Applying that test to the present case, it was clear that it would be quite wrong to infer from all the circumstances that K had accepted changes to his contract, changes which were wholly to his disadvantage, Rigby v Ferodo Ltd [1988] ICR 29 HL considered, and Solectron applied.

In reality, he had carried on doing the old job for the same pay. The only difference was in reporting to a different superior. That was a trivial difference and miles away from a clear unequivocal act from which one could infer that K accepted the new terms. It was particularly striking that K had not signed the offer letter and the bank had not required K to sign or even queried why he had not signed.

Appeal allowed.

James Goudie QC (instructed by Gannons) for the appellant; David Craig (instructed by Allen & Overy) for the respondent.