Banking and finance – Contracts – Bonus payments – Summary judgments

Parties Named in Schedule A v (1) Dresdner Kleinwort Ltd (2) Commerzbank AG; Fahmi Anar & Ors v (1) Dresdner Kleinwort Ltd (2) Commerzbank AG: QBD (Mr Justice Simon): 28 May 2010

The applicants (D) applied for summary judgment in respect of the claims of the respondents (R) to recover sums said to be due as bonuses for the calendar year 2008 or damages for breach of contract. R were employees who worked for D’s global investment banking division. They were entitled under their contracts of employment to be considered each year for the payment of a discretionary bonus as a supplement to their salary.

There was an established mechanism for fixing individual bonuses. That involved the allocation of a bonus pool and allocations from the pool to individual employees in a process which took place in November. In about mid-December, each employee received a letter from the human resources department confirming the amount of the bonus. The cash element of the bonus was paid with the salary in January of the following year, provided that the employee was still employed on the payment date and had not given or received notice to terminate his or her employment.

In the first half of 2008, there was considerable uncertainty about the future of the investment banking business and speculation that it would be sold. At a ‘town hall meeting’ in August the chief executive officer announced that there would be a guaranteed minimum pool of €400m available for staff bonuses. That was done with the express purpose of encouraging staff to remain in their employment. Thereafter, it was announced that the business was being sold. There were a number of subsequent references to the continued existence of the guaranteed minimum pool by senior executives. In December 2008, letters were sent to employees stating that a discretionary bonus of a particular amount had been provisionally awarded ‘subject to review in the event that additional material deviations in... revenue and earnings, as against the forecast... are identified’.

In the event that such additional material deviations were identified, D reserved the right to review the provisional award and, if necessary, to reduce it. After the sale of the business was completed the bonus awards were in general cut by 90%. R claimed the balance of the sums which had been provisionally awarded in the December letters. R submitted that the ‘town hall’ announcement and/or the provisional award letters gave rise to a legally binding obligation to pay the amount of the bonus specified in the letters. D contended that there was neither acceptance of any offer in the announcement or the letter nor consideration for it.

Held: (1) The claim based on the announcement and subsequent statements prior to the December letters had no realistic chance of success at trial. The ‘town hall’ announcement and subsequent references to the minimum bonus pool did not even arguably create rights which R could enforce by action. A number of factors made it highly unlikely that the hypothetical reasonable employee would regard what was said as a binding offer to that individual. First, it was difficult to see how individual employees could enforce a promise to pay from the minimum bonus pool without any stipulation about how much any individual would receive or the basis on which they were to receive it. Second, there was uncertainty about who might qualify for a bonus. Third, there were difficulties in construing the announcement as being the establishment of a sum which would be unaffected by the considerations set out in the relevant provisions of the employment contract relating to discretionary bonuses, such as market trends and the financial performance of the company. Fourth, there was the relative informality of the way in which the announcement was made, if it was intended to be an irrevocable and legally binding commitment.

(2) There were real difficulties in the argument that D had bound themselves not to impose any conditions on the allocation of bonuses, at least provided such conditions fell within the criteria it mentioned in the relevant provisions of the employment contracts. However, the confirmation of the bonus in the December letter was subject to two conditions, both described as a ‘review’.

The first stage review was of D’s revenue and earnings. If there were ‘additional’ material deviations from the forecast, the second stage review would be triggered. Once the second stage review was triggered a wide discretion in relation to the award of the bonus was reserved, as was the right to reduce the provisional award. R focussed on the significance of the word ‘additional’ in the phrase ‘additional material deviations’ and the relevant date of the forecast with which the actuals fell to be compared. Those points raised questions which could not be resolved summarily. They raised reasonable grounds for believing that a fuller investigation into the facts would add to or alter the evidence available and so affect the outcome of the trial. There was also a further issue which R might properly be able to advance at trial, namely whether the assurances given by the chief executive as to how the reviews described in the December letter would be carried out gave rise to enforceable rights. It followed that D failed to show that R had no real prospect of success in their claims.

Application refused.

Nigel Tozzi QC, Kate Livesey (instructed by Stewarts Law) for the claimants in the first action; Andrew Hochhauser QC, David Craig (instructed by Mischon de Reya) for the claimants in the second action; Jonathan Sumption QC, Martin Chamberlain (instructed by Linklaters) for the defendants.