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England and Wales High Court (Queen's Bench Division) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Queen's Bench Division) Decisions >> Humphreys v Norilsk Nickel International (UK) Ltd [2010] EWHC 1867 (QB) (22 July 2010) URL: http://www.bailii.org/ew/cases/EWHC/QB/2010/1867.html Cite as: [2010] IRLR 976, [2010] EWHC 1867 (QB) |
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QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL |
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B e f o r e :
(sitting as a Judge of the High Court)
____________________
| DAVID SELWYN CENRIC HUMPHREYS |
Claimant |
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| - and - |
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| NORILSK NICKEL INTERNATIONAL (UK) LIMITED |
Defendant |
____________________
Akhlaq Choudhury (instructed by Salans LLP) for the defendant
Hearing dates: 13 and 15 July 2010
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Crown Copyright ©
His Honour Judge Richard Seymour Q.C. :
Introduction
"1.1 In this Agreement, unless the context otherwise requires, words and phrases the definitions of which are contained or referred to in Part XXVI of the Companies Act 1985 as amended shall have the same meanings thereby attributed to them and the following expressions shall have the following meanings:
"Board" the Board of Directors of the Company (or any director or committee of Directors duly authorised by the Board);
"Commencement Date" a date on or before 19 November 2004, such date to be mutually agreed by the Parties;
"Expiry Date" the third anniversary of the Commencement Date;
"Group Company" any company which is for the time being a subsidiary of the Company or a holding company of the Company or a subsidiary of such holding company (and "Group Companies" shall be construed accordingly);
2.1 The Company hereby appoints the Executive and the Executive hereby agrees to serve the Company to the best of his ability as its Chief Economist and as Chief Economist of such Group Company as the Company shall from time to time nominate and notify in writing to the Executive during the term of his engagement under this Agreement.
2.2 The Company shall employ the Executive and the Executive shall serve the Company and any applicable Group Company from the Commencement Date (and compliance with the Commencement Date is a condition of this Agreement) for a period of 3 years (subject to the provisions of clauses 3.5, 7 and 14) ("the Fixed Term") until the Expiry Date except that either Party may terminate this Agreement by giving not less than 6 months' written notice to the other Party to expire at any time.
3.1 The Executive shall faithfully and diligently perform the duties of Chief Economist of the Company. The Executive hereby acknowledges and accepts that he shall be provided with a list of duties in writing from the Company which shall not be exhaustive and that he will be required to perform, in addition, such duties as are consistent with his position and exercise such powers in relation to the business of the Company and any Group Company as may from time to time be assigned to or vested in him by the Board. Such duties may relate to the Company or any Group Company and will be performed by the Executive subject to such restrictions (consistent as aforesaid) as the Board may from time to time impose.
3.2 The Executive shall report to Mr. Michael Prokhorov, the President of the Company's parent company MMC Norilsk Nickel, when reasonably required by Mr. Prokhorov and to such other persons as directed by the Board.
4.1 The Company shall pay to the Executive during the term of his employment a salary at the rate of £420,000 (four hundred and twenty thousand pounds) per annum (less all appropriate deductions). Such salary shall be paid in equal monthly instalments in arrears on or before the 20th day of each month and shall be subject to review by the Board (with no obligation to award an increase in salary) during the last 3 months of the Fixed Term.
4.3 The Company shall pay to the Executive a Performance Bonus (less all appropriate deductions) in respect of each calendar year of the Executive's employment with the Company. Each Performance Bonus shall be payable by 28th February in the following calendar year. Subject to clauses 4.4 and 4.5, for the period from the Commencement Date to 31st December 2004 the amount of the Performance Bonus shall be fixed at £100,000 (one hundred thousand pounds). For the period from 1st January 2007 to the Expiry Date, the Performance Bonus will be pro-rated to the number of days worked. The amount of the Performance Bonus will be assessed by Mr. Prokhorov and the Board and depending on the performance level decided upon by Mr. Prokhorov and the Board, the Executive will be entitled to the following Performance Bonus:-
| Performance Level | Amount of Award in £ | ||
| Grade | 2005-2006 | 2007 | |
| 'Unsatisfactory' or 'Fails to meet Expectation' | 1 | £0 | £0 |
| 'Satisfactory' or 'At Expectation, meets all agreed objectives' | 2 | £200,000 | £139,800 |
| 'Above Average' or 'Exceeding Expectation on 25% of agreed objectives' | 3 | £360,000 | £251,640 |
| 'Excellent' or 'Exceeding expectation on 50% of agreed objectives' | 4 | £440,000 | £307,560 |
| 'Outstanding' or 'Exceeding expectation on 75% of agreed objectives' | 5 | £520,000 | £363,480 |
| 'Superior' or 'Exceeding expectation on 100% of agreed objectives' | 6 | £600,000 | £419,400 |
For the avoidance of doubt:
(a) Subject to clauses 4.4 and 4.5 the amount of the Performance Bonus for the year 2005 shall not be less than £200,000 (two hundred thousand pounds); "
"1.1 In this Agreement, unless the context otherwise requires, words and phrases the definitions of which are contained or referred to in Part 38 of the Companies Act 2006 shall have the same meanings thereby attributed to them and the following expressions shall have the following meanings:
"Board" the Board of Directors of the Company (or any director or committee of Directors duly authorised by the Board);
"Commencement Date" the date hereof;
"Expiry Date" 31 December 2008;
"Group Company" any company which is for the time being a subsidiary of the Company or a holding company of the Company or any subsidiary of such holding company (and "Group Companies" shall be construed accordingly);
2.1 The Company hereby appoints the Executive and the Executive hereby agrees to serve the Company to the best of his ability as its Chief Economist and as Chief Economist of such Group Company as the Company shall from time to time nominate and notify in writing to the Executive during the term of his engagement under this Agreement.
2.2 The Company shall employ the Executive and the Executive shall serve the Company and any applicable Group Company from the Commencement Date (subject to the provisions of clauses 3.5 and 13) until the Expiry Date ("the Fixed Term"). The Executive's employment with the Company shall terminate instantly and without further notice being given by the Company on the Expiry Date.
3.1 The Executive shall faithfully and diligently perform the duties of Chief Economist of the Company. The Executive [sic] non-exhaustive duties are set out at Appendix 1 to this Agreement. The duties contained in Appendix 1 are consistent with the Executive's position and the Executive shall exercise such powers in relation to the business of the Company and any Group Company as may from time to time be assigned to or vested in him by the Board. Such duties may relate to the Company or any Group Company and will be performed by the Executive subject to such restrictions (consistent as aforesaid) as the Board may from time to time impose.
3.2 The Executive shall report to such persons as directed by the Management Board of OJSC MMC "Norilsk Nickel" [ie, the Russian Parent] ("the Management Board").
4.1 The Company shall pay to the Executive during the term of his employment a salary at the rate of £462,000 per annum (less all appropriate deductions). Such salary shall be paid in equal monthly instalments in arrears on or before the 20th day of each month and shall be subject to review by the Board (with no obligation to award an increase in salary) during the last 3 months of the Fixed Term.
4.2 The Company shall pay to the Executive a Performance Bonus (less all appropriate deductions) for 2008. The Performance Bonus shall be payable by 28th February 2009 (the "Performance Bonus Payment Date"). The amount of the Performance Bonus will be assessed by the Management Board and depending on the performance level decided upon by the Management Board, the Executive will be entitled to the following Performance Bonus:-
| Performance Level | Amount of Award in £ | |
| Grade | ||
| 'Unsatisfactory' or 'Fails to meet Expectation' | 1 | £0 |
| 'Satisfactory', or 'At Expectation, meets all agreed objectives' | 2 | £220,000 |
| 'Above Average', or 'Exceeding Expectation on 25% of agreed objectives' | 3 | £396,000 |
| 'Excellent' or 'Exceeding expectation on 50% of agreed objectives' | 4 | £484,000 |
| 'Outstanding' or 'Exceeding expectation on 75% of agreed objectives' | 5 | £572,000 |
| 'Superior' or 'Exceeding expectation on 100% of agreed objectives' | 6 | £660,000 |
"
"The Executive shall:
(i) Provide regular briefings to the Management Board on the economic and market outlook;
(ii) Supply price forecasts for planning and budgeting purposes, with supporting analysis;
(iii) Research and issue long run prices and exchange rates for use in investment analysis;
(iv) Initiate and direct research on relevant industry issues (e.g. resources, costs, structures);
(v) Provide support to the rest of Strategy Group in relation to investment projects;
(vi) Generate and research ideas for value-creating opportunities inside and outside Russia;
(vii) Contribute to internal debate on strategic development of the company;
(viii) Provide timely advice on economic and industry questions, as required, to other HQ functions, including Finance, Marketing, Business Development and Investor Relations;
(ix) Manage and motivate Economics Department and effectively manage its budget;
(x) Assess and procure external research and data in co-ordination with HQ departments;
(xi) Develop and maintain close relations with external organisations in support of the department's analytical activities, e.g. industry associations and consultants;
(xii) Maintain dialogue on commodity and industry matters with investing community and press in London, in consultation with Investor and Public Relations departments;
(xiii) Provide input to corporate presentations and publications, as required; and
(xiv) Promote the profile and reputation of the company and build corporate contacts by attending and making presentations at professional and industry meetings."
"I have very mixed feelings about the news that you are leaving Norilsk. On the one hand I am convinced that your departure is a big loss for the Company, but on the other hand I can understand how difficult it was for you working in such an environment during last months.
Nevertheless, I want personally to thank you for the work you have done and your support during the days we were working together. Let me wish you good luck and let's stay in touch. Also please accept my warmest greetings with the upcoming Christmas and the New Year."
"You will recall that I communicated to the management of Norilsk Nickel in December last year the details of my work activities during 2008 to assist with the determination of my bonus for that year.
Under the terms of my contract, paragraph 4.2, this bonus is payable "by 28th February 2009".
I should be grateful for an early indication of what has been decided regarding my bonus and when I might expect it to be paid."
"I will review the situation and come back."
"Is there any progress to report on this matter?
A month has now passed since the bonus was due to be paid."
"David, many thanks. I believe it is a topic for Mr. Matvienko. I will speak with him today."
"Despite your assurances that it is under consideration, I have had nothing back from the company on this matter. This is the fourth time I have been obliged to make contact regarding my bonus and payment is now a month and a half overdue.
When my initial contract ended late in 2007, I agreed to stay on at Norilsk Nickel to the end of 2008 at the specific request of the General Director and on terms agreed with him directly and incorporated into my contract.
Unless I see some action on the matter before the end of the month, I propose taking legal action on how to progress things."
"David, many thanks. I would like to emphasize again that this is not the matter within my jurisdiction. I include Mr. Matvienko in this email. Please deal with him on this matter."
"I regret having to address you on this matter without having had the opportunity to meet but Norilsk Nickel is in default of certain legal undertakings made with me and Mr. Parinov informs me that this matter comes within your jurisdiction.
Mr. Parinov is in possession of all the documentation relevant to this case but the simple facts are these.
I had a three-year contract with Norilsk Nickel which expired in November 2007. This contract was made under UK law.
At the specific request of the General-Director, Denis Morozov, I agreed to extend my contract to the end of 2008.
This contract included provision for a bonus for 2008 to be paid before the end of February 2009.
The bonus was due to be paid without regard to whether or not I was still in the employment of the company.
I fulfilled my side of the agreement to the best of my abilities. My past bonus awards attest to the high level of my performance.
Norilsk Nickel have held me to the terms of my contract, denying me the opportunity to work for a competitor in the three months following my departure.
Since the payment of this bonus is now a month and a half overdue, I should be grateful if you could authorise a quick resolution of this matter. I do not want to have to go to law to settle it, but am prepared to do so should that become necessary."
"I'm writing you at the instance of Mr. Kirill Parinov to inform you that the issue concerning the bonus payments for the year 2008 was transferred for approval to Mr. Matvienko and in a few days he will contact you to discuss the matter in-depth.
In the meanwhile, I kindly ask you to provide me with a copy of your advice and presentation on the middle- and long-term economic development of nickel market, that you've prepared for the Meeting of the Management Board of MMC Norilsk Nickel held on 26-th of April, 2007 as well as your proposals for use of forward-looking projections on prices of nonferrous and precious metals for budgeting, financing of investment projects and acquisition of assets (the relevant request was made during the said meeting of Management board).
I clearly understand that currently you are not employed by Norilsk Nickel, but I will highly appreciate your assistance."
"Our client has been more than patient in the circumstances in waiting for payment of his bonus for this long. We therefore await your confirmation by the end of the working month (i.e. by close of business on Friday 29 May 2009) that our client will receive his bonus within 14 days from today's date. If we do not receive such confirmation from you by this time, we shall be advising our client on his options for enforcing payment of his bonus through the High Court."
"Turning to the substance of this case, your client's entitlement to a bonus under Clause 4.2 of the contract is not, as you suggest in your letter of 19 May 2009, unconditional and absolute. The award of any bonus is expressly conditional on the assessment of the Management Board, and dependent on the performance level decided upon by the Board. Clause 4.2 specifically provides for the possibility that your client will not be entitled to any bonus whatsoever if his performance is judged to be "unsatisfactory" or "fails to meet expectation".
We have been instructed that when the market was buoyant your client, unsurprisingly, was able to predict relatively safely that the price of nickel would rise. In effect, he was doing little other than following the market trends when making his forecasts. However, once the economic landscape changed your client's performance was not that of the leading-edge, incisive economist that in an easier climate he had appeared to be. Your client's forecasts of nickel were more than 50% off the actual price in the last quarter of 2008. Whilst your client's predictions were often supported by other economists, for example Ernst & Young, being as wrong as everyone else does not justify a performance bonus. Therefore the reasonable decision was made, taking into account all factors including the effect of your client's advice on the strategy of the Company, that your client's performance was unsatisfactory and fell within Level 1.
The fact that your client submitted "a more detailed summary of his activities" (as stated in the draft Particulars of Claim) than he had in 2007 is, with respect, of no consequence. The bonus was not awarded on the level of effort that went into compiling the summary, but on the performance level of your client throughout the year 2008.
It is therefore denied that your client is entitled to a bonus at Level 5. As stated above, your client's performance was assessed as Level 1, and accordingly no payment is due."
The pleaded case of Dr. Humphreys
"6. Two weeks previously, on 16 December 2008, the Claimant sent Mr. Sergey Batekin (the Deputy Chairman of the Management Board), Mr. Oleg Lobanov (Deputy General Director for Economy and Finance) and Mr. Kirill Parinov (Deputy General Director for Corporate, Proprietary and Legal) a detailed summary of his activities during 2008.
7. In 2005, 2006 and 2007 the Claimant had also submitted a detailed summary of his activities during each respective year for the purposes of his Performance Bonus. Following receipt of the detailed summaries of his activities the Claimant was graded for the purposes of the Performance Bonus as follows:
7.1 2005 Grade 4: 'Excellent' or 'Exceeding expectation on 50% of agreed objectives';
7.2 2006 Grade 4: 'Excellent' or 'Exceeding expectation on 50% of agreed objectives';
7.3 2007 Grade 5: 'Outstanding' or 'Exceeding expectation on 75% of agreed objectives'.
8. Despite the receipt of the detailed summary of his activities during 2008 the Defendant failed to award the Claimant any Performance Bonus for 2008 on the Performance Bonus date on 28 February 2009 or at all.
9. Moreover the Defendant failed to respond to the Claimant's detailed summary of his activities during 2008."
"As a result of the matters set out above the Defendant has acted in breach of clause 4.2 [of] the Agreement, causing the Claimant loss and damage.
PARTICULARS
In 2007 the Claimant was graded as Grade 5: 'Outstanding' or 'Exceeding expectation on 75% of agreed objectives'. In 2008 the Claimant submitted a more detailed summary of his activities during 2008 than the summary of activities during 2007. In both years the Claimant evidenced that he had developed and issued editions of quarterly reports, researched and issued price assumptions, given in-person briefings to the Management Board, researched and issued annual set of long run metals prices, participated in different meetings, provided general support to Moscow and also provided examples of management and representation. Accordingly the Claimant claims that he ought to have been graded by the Defendant as Grade 5 for 2008 and, pursuant to clause 4.2 of the Agreement, is entitled to a sum of £572,000 by way of Performance Bonus."
"11. The Claimant's performance in 2008 was unsatisfactory and/or failed to meet the Defendant's expectations:
a. The Claimant's forecasts for the price of non-ferrous metals, exchange rates and rates of inflation were far removed from the actual figures for the relevant periods in 2008;
b. The Claimant's forecast for the price of nickel, in particular, was more than 50% off the actual price for the relevant period (fourth quarter of 2008);
c. Consequently, the evaluation of Defendant's and the Group's strategies options in 2008 as well as formation of budget for the year 2009 were based on fundamentally flawed forecast provided by the Claimant;
d. The Group's financial position suffered a dramatic decline from a US$5,276 million profit in 2007 to a US$555 million loss in 2008;
e. The Claimant had clearly failed to act or carry out his duties so as to place the Defendant and the Group in a favourable position notwithstanding the market conditions in 2008.
17. Paragraph 19 is denied. The Defendant repeats paragraphs 8(b) and 9 to 13 above. The Defendant will further say that:
a. The assertion that the 2008 summary of activities was "more detailed" than that for 2007 is irrelevant. For reasons already set out, the contents of the summary and/or the level of detail thereof bore no direct relation to an assessment by the Management Board of whether the Claimant met the expectations of him set out in paragraph 6 above;
b. The developing and issuing of quarterly reports, the researching and issuing of price assumptions, the giving of in-person briefings to the Management Board, the researching and issuing of an annual set of long run metal prices, the participation in different meetings, the provision of general support to Moscow and the examples of management and representation set out in the summary amount to little more than a list of the Claimant's normal day-to-day duties as Chief Economist. The list fails to demonstrate that performance exceeded or even met the expectations referred to in paragraph 6 above and fails to show that his performance as a Chief Economist was satisfactory so as to warrant a bonus payment;
c. In any event, the Defendant will say that there are no circumstances in which the Claimant as Chief Economist would have been awarded a Grade 5 in a year when the Claimant's performance and/or the consequences for the Group were as set out in paragraph 11 above."
The Summary for 2008
"Analysis and advice: helping to improve decision-making
Developed and issued four editions of a new, consolidated, quarterly report containing quarterly, annual and long run metal prices, and associated exchange rate assumptions, for use in planning and investment analysis by Norilsk Nickel business units worldwide;
Researched and issued price assumptions for the 2008 Plan, with an October update.
Supervised compilation of monthly 'supplementary price information' reports (consensus metal price forecasts and forward market prices) to assist with planning and budgeting.
Gave three in-person briefings to Management Board on economic and market outlook and one briefing remotely by telephone.
Researched and issued third annual set of long run metals prices for use in project evaluation for approval by Management Board in April.
Directed development of detailed industry analysis back-up tables for above for nickel and PGMs.
Prepared paper on forecasts errors for July Management Board meeting.
Prepared Norilsk Nickel responses to questionnaires from the European Commission on competitive implications for copper of BHP Billiton Rio Tinto merger in consultation with company lawyers.
Provided general support for Strategy Group in Moscow and NNI, e.g. assistance with information on chromium ore, ferrochrome and sulphur and sulphuric acid etc., provision of data and analysis in relation to evaluation of Boliden and BCL smelters (including input to work by H&H and an analysis of the plants' sources of raw mats), provision of analysis on the economic importance of nickel to selected economies in connection with the Nickel Institute's work on the 30th and 31st ATP of the Dangerous Substances Directive, provision of data on salary escalators for NNI businesses.
Developed and made a presentation on economic and industry outlook for NNI strategy meeting in Singapore (July). Had several follow-up discussions with NNI managers.
Passed project ideas through to Moscow (e.g. Pamodzi, Kansteiner on Tanzania).
Extensive internal discussions on Nautilus Project (Rusal). Developed a series of position papers relating to Rusal, including an assessment of its competitiveness, an outlook for the aluminium market (with updates), an evaluation of Rusal's public statements relating to its performance, a review of its expansion plans, aluminium industry profit drivers and the assessment of Glencore's market shares of Ni and Co. Assisted with work on iron ore in relation to discussions with Metalloinvest, including acquisition of CRU iron ore study.
Prepared, at the request of Moscow, two parts of a strategy review, the first part analysing the economic background for a NN strategy to 2025, the second part (draft only) strategic development options amongst NN's existing commodity businesses.
Participated in various meetings and conferences to keep informed about economic and industry developments, source ideas and make contacts, e.g. IWCC, meetings of the Society of Business Economists, Stellenbosch Group, ICBE, Mines & Money.
Management: developing and maintaining the organisation and function
Directed, developed and motivated members of Economics Department.
Managed operation and budget of Economics. Liaised with NNEL management on London office matters and transfer of Economics from Norimet Ltd. to NNI (UK) Ltd.
Prepared paper for new management on the objectives and functions of Economics Department. Discussed with management in Moscow the role of Economics Department and co-operated on plans for the work of the department subsequent to my departure.
Maintained and developed relations with data suppliers (CRU, Brook Hunt, GFMS, WBMS, MEG, INSO, OEF, SFA, JM, Urandaline, Simon Hunt etc.) and corporate contacts, and coordinated purchases of consultants' materials with Moscow office to ensure cost effective acquisition and use of bought-in research and information.
Representation: helping to give Norilsk Nickel visibility and credibility
Provided support to Moscow's investor relations (IR) function by supplying input to presentations, writing commodity sections for annual report, company fact book, market briefings for road shows, etc.
Collaborated with UBS and others in preparation of materials for October roadshow (which never took place). Met and talked with IR consultants, Brunswick.
Undertook numerous one-on-one and group meetings with members of the broking community and investment funds.
Presented at investor relations meetings organised by Diapason (January), BNP Paribas (February), Goldman Sachs (June), Desjardins Securities (February and October).
Participated in investor conference, BMO Nesbitt Burns (Florida), in support of General Director and Deputy General Director of Norilsk Nickel in February.
Participated in, and wrote speeches for, Norilsk Nickel's General Director, Denis Morozov, to present at EuroNickel conference held in Moscow in April.
Contributed to several press events, including interviews in sidelines of World Mining Investment Congress, Norilsk Nickel press briefing in LME week (Oct), and interviews with Bloomberg and Japan Metal Bulletin during visit to Tokyo.
Cultivated and maintained relations with influential third-party organisations in academia, government and the financial sector, including the Centre for Energy, Petroleum and Mineral Law & Policy in Dundee, UNCTAD in Geneva, the Raw Materials Group of Sweden, and the Emerging Markets network of the OECD.
Conference speeches:
- International Wrought Copper Council, Vienna (May)
- World Mining Investment Congress, London (June)
- Symposium at Metal Economic Research Institute, Tokyo (Oct)
Publications:
- Article on state of commodity cycle in 'Global Capital' magazine (Feb)
- Article on copper industry in Russia in 'Mining Journal' (Sept)
- Commodities Viewpoint for 'Commodities Now' (LME week edition, Oct)
- Book review on UNCTAD's World Investment Report for 'Resources Policy'
- Chapter on 'Pricing and Trading of Metals and Minerals' for SME Mining Engineering Handbook (the so-called Mining Bible) (forthcoming)"
The Law
"Now, on carefully considering the contract between these parties, we are satisfied that the intention was that the defendants, if dissatisfied, whether with or without sufficient reason, with the progress of the work, should have the absolute and unqualified power to put on additional hands and get the work done, and deduct the cost from the contract price payable to the plaintiff, and therefore, if these terms had been ever so unreasonable, we should have felt bound to give effect to them, and to hold that, so long as the defendants were acting bona fide under an honest sense of dissatisfaction, although that dissatisfaction might be ill-founded and unreasonable, they were entitled to insist on the condition, and consequently that the replication, which only alleges that their dissatisfaction was unreasonable and capricious, but which stops short of alleging mala fides in the defendants in acting as is stated in the plea, is insufficient. "
"The first issue is whether the plaintiff has an arguable case to the effect that he is now a party to an unconditional contract of employment. The defendants say that he has [sic] not. They maintain that they made an offer which never became unconditional and hence never became capable of acceptance unless and until satisfactory references were furnished, and that meant "satisfactory to the defendants". Alternatively, if there was a concluded bargain it was subject to a suspensive condition which would discharge it if the references were not satisfactory. On either view, since the defendants were not satisfied with the references, and since it is not suggested that they acted otherwise than in good faith, the plaintiff has never had an enforceable contract of employment.
In response the plaintiff contends that this subjective approach to his rights is incorrect. It is not enough for the defendants to feel dissatisfaction. The facts must be such that a reasonable person, in their position, with this particular post to fill, would regard the references as a satisfactory basis on which to appoint the plaintiff. Furthermore, so the defendants contend, if the references appeared ambiguous or incomplete, as the defendants evidently found them to be, they should either have investigated further, both with the referees and the plaintiff himself, and reconsidered the matter in the light of what they had learned; or, if they chose not to make this investigation, they should have taken the plaintiff on the references as they stood.
I confess to feeling little doubt that on this short point of construction the defendants are right. It is true that Diggle v. Ogston Motor Co. (1915) 84 LJKB 2165 may be distinguishable on the ground that the dispute concerned not the making of a contract, but the meaning of a provision which entitled the employers to terminate a provision, moreover, which expressly stipulated that the satisfaction was to be that of the employers. I also accept that Astra Trust Ltd. v. Adams [1969] 1 Lloyd's Rep 81 and other cases concerned with expressions such as "subject to satisfactory survey" and the like are not conclusive, since they merely illustrate that "satisfactory" can have a subjective connotation, and do not go so far as to establish that such words must always have that connotation. Nevertheless, my own strong inclination is to give the words of the defendants' letter a subjective meaning here, since I believe that the natural reading of a communication, the purpose of which is to tell the prospective employee that part of the decision on whether he is firmly to be offered the post has yet to be made, is that the employer is reserving the right to make up his own mind when the references have been received and studied. Undeniably, it is possible for an employer to make an offer conditional on something to be objectively determined (for example, the passing of a medical examination), but I find it very hard to see that the defendants' letter falls into this category.
Nevertheless, I have been persuaded by Mr. Westgate that this point is just about arguable, and have also been persuaded that if the plaintiff is right on the issue of construction, so that the test is objective in the sense for which he contends, there is an argument for saying that it was not fulfilled. Thus, although I cannot disguise that I would assess the plaintiff's prospects of success at the trial as poor at best, I am willing to recognise that a trial judge might take a different view, and that it would accordingly be wrong to halt the inquiry into the grant of the injunction at the first stage."
"Quite apart from the additional contractual straightjacket for the discretion in this case, the employer's discretion is in any event, as a result of the authorities, not unfettered, as both sides have accepted to be the law in this case. Even a simple discretion whether to award a bonus must not be exercised capriciously ...United Bank Ltd. v. Akhtar [1989] IRLR 507 EAT, Clark v. BET plc [1997] IRLR 348 and Midland Bank plc v. McCann 5/6//1998 unreported EAT) or without reasonable or sufficient grounds (White v. Reflecting Roadstuds Ltd. [1991] IRLR 331 EAT, and McClory v. Post Office [1993] IRLR 159). I do not consider that either of these definitions of the obligation are entirely apt, when considering whether an employer was in breach of contract in having exercised a discretion which on the face of the contract is unfettered or absolute, or indeed even one which is contractually fettered such as the one here considered. Capriciousness, it seems to me, is not very easy to define: and I have been referred to Harper v. National Coal Board [1980] IRLR 260 and Cheall v. APEX [1982] IRLR 362. It can carry with it aspects of arbitrariness or domineeringness, or whimsicality and abstractedness. On the other hand the concept of 'without reasonable or sufficient grounds' seems to me to be too low a test. I do not consider it is right that there be simply a contractual obligation on an employer to act reasonably in the exercise of his discretion, which would suggest that the court can simply substitute its own view for that of the employer. My conclusion is that the right test is one of irrationality or perversity (of which caprice or capriciousness would be a good example) ie that no reasonable employer would have exercised his discretion in this way. I canvassed this provisional view in the course of argument with both counsel, and neither appeared to dissent, and indeed Mr. Temple QC in his closing submissions expressly adopted and used a test of irrationality. Such a test of perversity or irrationality is not only one which is simple, or at any rate simpler, to understand and apply, but it is a familiar one, being that regularly applied in the Crown Office or, as it is soon to be, the Administrative Court. In reaching its conclusion, what the court does is thus not to substitute its own view, but to ask the question whether any reasonable employer could have come to such a conclusion. Of course, if and when the court concludes that the employer was in breach of contract, then it will be necessary to reach a conclusion, on the balance of probabilities, as to what would have occurred had the employer complied with its contractual obligations, or, as Timothy Walker J put it in Clark v. BET plc [1997] IRLR 348, assess, without unrealistic assumptions, what position the employee would have been in had the employer performed its obligation. That will involve the court in assessing the employee's bonus, on the basis of the evidence before it, and thus to that extent putting itself in the position of the employer; but it will only do it if it is first satisfied, on the higher test, not that the employer acted unreasonably, but that no reasonable employer would have reached the conclusion it did acting in accordance with its contractual obligations, and the assessment of the bonus then of course is by way of an award of damages."
"59. First and foremost, the bank has a very wide contractual discretion. Mr. Keen has to show that the discretion has been exercised irrationally. It cannot be said that the decisions of the bank on bonuses for 2003 and 2004 are irrational on their face. The burden of establishing that no rational bank in the City would have paid him a bonus of less than his line manager recommended is a very high one. It would require an overwhelming case to persuade the court to find that the level of a discretionary bonus payment was irrational or perverse in an area where so much must depend on the discretionary judgment of the bank in fluctuating market and labour conditions.
60. Secondly, there is no independent evidence, expert or otherwise, lending any support to his claim of irrationality in the size of the bonus pools for the two years."
"111. An employee must establish, at least, a prima facie case of irrationality, before an employer is required to justify his decision. For example, an employee would be able to rely upon a refusal to pay an award, despite the success of his department, or a significantly lower award than one awarded to comparable fellow-employees. It is likely that such cases can only be met by a sustainable explanation from the employer. The need to provide reasons arises, not to give the right to challenge content, but because, without any explanation, the employee is likely to succeed. In short, in cases which do not rely upon a breach of the implied duty of trust and confidence, the absence of reasons is only of evidential significance. The absence of reasons is not dispositive of the issue of rationality.
112. Similarly, a failure to identify the decision-maker will only be of significance if there is some other feature of the award which suggests irrationality. If the employer fails to identify who decided what award should be made, it is likely to cast doubt on the value of any subsequent explanation which attempts to justify the decision. It may suggest either that the person providing the reasons is not the same person as the decision-maker, as in the instant appeal, or that the decision-maker could not by himself think of any good reason for his conclusion. Reasoning provided after a decision is much more likely to trigger a suspicion that there was no good reason for the decision at the time it was made. Thus, a failure to identify the decision-maker does not, of itself, demonstrate irrationality but will provide powerful support for a prima facie case."
The evidence as to whether the Management Board in fact held the bona fide view that the performance of Dr. Humphreys in 2008 was unsatisfactory, and as to irrationality
"4. The consideration of that duty [forecasting] alone cannot amount to the reasonable exercise of the discretion vested in the Management Board as contended at paragraph 5 of the Defence. In addition, with respect to the assessment of the Claimant's forecasting performance, the Defendant is highly selective, making reference to only one single forecast.
5. Further, throughout the duration of the Agreement, the Defendant, its employees or agents did not inform the Claimant either orally or in writing that he was underperforming in relation to forecasting or at all.
6. Moreover the Defendant, its employees or agents did not issue the Claimant with any form of warning and/or reprimand about his performance in relation to forecasting or at all.
7. In particular, at the material time, the Claimant received no criticism whatsoever that:
a. The Claimant's forecasts for the price of non-ferrous metals, exchange rates and rate of inflation were far removed from the actual figures for the relevant periods in 2008, as contended at paragraph 11 a of the Defence; and/or,
b. The Claimant's forecast for the price of nickel was more than 50% off the actual price for the relevant period (fourth quarter of 2008), as contended at paragraph 11 b of the Defence; and/or,
c. The evaluation of the Defendant's and the Group's strategies options in 2008 as well as formation of budget for the year 2009 were based on fundamentally flawed forecasts provided by the Claimant, as contended at paragraph 11 c of the Defence; and/or,
d. The Claimant had in any way caused or contributed to the Group's financial position suffering a dramatic decline US$5,276 million profit in 2007 to a US$555 million loss in 2008, as implied at paragraph 11 d of the Defence; and/or,
e. The Claimant had clearly failed to act or carry out his duties so as to place the Defendant and the Group in a favourable position notwithstanding the market conditions in 2008, as contended at paragraph 11 e of the Defence.
8. Further, the actions of the Defendant during the duration of the Agreement were inconsistent with its pleaded case that the Claimant was performing unsatisfactorily and/or was failing to meet expectations.
9. For the majority of 2008 the Claimant worked closely with the General Director and Deputy General Director of the Defendant on strategic and policy issues, including attending investor meetings with them and providing them with briefings and research.
10. For the avoidance of any doubt neither the General Director nor the Deputy General Director at any stage informed the Claimant either expressly or in implied terms that he was not performing satisfactorily and/or was failing to meet expectations in relation to forecasting or at all."
| Quarter | US$ per tonne | Percentage by which forecast differed from actual (- equals forecast too low, + forecast too high) |
| 1 | 28,948 | -7 |
| 2 | 25,675 | +5 |
| 3 | 18,954 | +21 |
| 4 | 10,838 | +112 |
| All | 21,104 | +18 |
"The chief economist of Norilsk Nickel, David Humphreys, was recruited into the company in 2004 to fulfil three specific functions and to institutionalise these functions by setting up an Economics Department in London. The decision to locate the activity in London was because London is the best place in the world to undertake this kind of work but also because it was deemed useful to have a head office function in London headed by someone known to London's financial community. (David Humphreys was chief economist of Rio Tinto for eight years.)
The three core functions of Economics Department are as follows:
Economic and market analysis
To provide briefings to the Management Board and senior management of Norilsk Nickel on the outlook for the world economy and for metals markets. To generate and circulate price and exchange rate forecasts for planning, budgeting and investment purposes throughout the Norilsk Nickel group worldwide.
Specific activities:
- Present a report on the market outlook to the Management Board four times a year.
- Issue a comprehensive set of price & exchange rate forecasts (for quarterly, annual and long term horizons) on a quarterly basis.
- Develop and present once a year a report on long run prices for use in investment analysis.
- Issue a summary of consensus price forecasts on a monthly basis.
Industry analysis
Public presentation"
"In April 2008 the Claimant expressly warned the Management Board in a written report, and in person, that nickel stocks were standing at their highest level since 1999 and that prices were being supported by high levels of buying of commodities by investment funds. Contrary to the consensus forecast the Claimant, therefore, expressly informed the Management Board that the market was inflated, which may be subject to correction [i.e. fall] to prices. In the premises (and contrary to the opinion of many respected global economists at the time) the warning of the Claimant was proved correct;"
" * Nickel prices remained well supported through the first quarter of the year despite LME stocks standing at their highest level since 1999. Support came from the expectation that nickel demand would rebound as a result of restocking by stainless steel producers and distributors, from the need to keep high-cost NPI in production, and from high levels of buying of all commodities by investment funds.
- Producers of stainless steel in Europe are increasing their operating rates and physical premiums for nickel have firmed. However, demand is not as strong as hoped and there are concerns about substitution of nickel in stainless steel and about the strength of final demand for stainless-containing products in the second half of the year. Prices of stainless steel in both Europe and Asia have been edging upwards but this mostly reflects the rise in raw material costs, not demand strength.
- China's output of stainless steel this year is forecast to grow around 25%. Although some nickel needs are being met by producers of nickel pig iron, output of this product is being constrained by power shortages and high coke prices. Imports of refined nickel into China were at record levels in January and February.
- Meanwhile, nickel is expected to face an acceleration of production through into 2009, with output growing from Jinchuan in China, Vale Inco in Canada and from the start up of BHPB's Ravensthorpe. Our expectation remains that market will be in balance for 2008 as a whole, but a balance tending towards surplus."
"In any event, at no stage during 2008 was I subject to any criticism regarding my price forecasting performance. Most senior managers in Norilsk well understood the extreme difficulty of price forecasting in such volatile economic times. At the Management Board meeting of October 2008, when I presented my report on the markets, I offered up my usual comparison of my price forecasts of a year ago and the subsequent actual price outcomes. Specifically, I compared my forecast of the average nickel price in 2008 made in October 2007 with an estimate of the likely average outcome in 2008 based on ten months data. Following the presentation of my report, the CEO [i.e. General Director], Mr. Vladimir Strzhalkovsky, asked why there was a discrepancy between my price forecast and the price outcome. I was surprised by the question since there are always discrepancies between forecasts and outcomes. In the event, I was excused from having to respond since, whilst I was awaiting interpretation, the Head of Marketing and the Head of Legal Affairs quickly reassured the CEO that the forecasts were in fact quite good."
"Metal price forecasts made by the Company for the first quarter of this year proved to be almost 100% accurate, which confirms that we are on the right road."
"I understand that the Management Board never formally met to assess David's performance in 2008. However, I am informed that, in the light of all the matters summarised or referred to in this Witness Statement, each and every one of the members of the Management Board has determined that David's performance in 2008 was 'unsatisfactory' and/or 'failed to meet expectations' and that, had a formal meeting taken place, that would unequivocally have been the Management Board's conclusion."
"10. I agree with Dr. Humphreys that the deterioration in the Norilsk Group's financial position in 2008 was only "partly accounted for by the direct effect of falling prices on Norilsk's revenues". However, it is still the case that Dr. Humphreys' forecasts were one of the major contributing factors to the remainder of the decline. In those circumstances, and given the Norilsk Group's losses, the Management Board could not sanction a bonus to reward Dr. Humphreys for his poor performance.
11. Moreover, in previous years, including 2008, the office of the Chief Economist in London consisted of three employees and was primarily in charge of producing quarterly forecasts and proving analysis of metal production. As far as I know, the budget of the said office was in excess of £3 million per year. At the same time, the Norilsk Group's yearly subscription for more extensive and in-depth quarterly bulletins and analysis prepared by major research firms like Brook Hunt, CRU, GFMS cost somewhere in the region of US$50 thousand per year. However, the analysis (on 168 pages) conducted by Brook Hunt for the 4-th quarter of 2008 was better than Dr. Humphreys' forecasts. The forecasts provided by Dr. Humphreys were, however, in-line with the forecasts of investment banks, which were distributed free of charge. On that basis, I do not accept that the value or level of Dr. Humphreys' performance was 'outstanding' or "exceeded expectations".
12. Dr. Humphrey's [sic] accepts that "better forecasting would have allowed Norilsk to have taken some evasive action by selling metal forward or by closing down high cost capacity more quickly". I entirely agree with Dr. Humphreys. However, in my capacity as First Deputy General Director and Deputy Chairman of the Management Board and then as Chairman of the Strategy Committee for the Supervisory Board, and therefore having been directly and heavily involved in the strategic decisions that were made based on Dr. Humphreys' input, the simple fact of the matter is that the Norilsk Group was unable to take that or any other evasive action. The simple reason for that was Dr. Humphreys failed to forecast that the markets would crash in the way that they did.
13. Dr. Humphreys goes on to say that this: "assumes not only that I could have outperformed the consensus by a greater margin with my forecasts, but that management were fully convinced by my price forecasts at the time, and were able and prepared to act on them. All of these are highly questionable assumptions, particularly given the extensive management changes that occurred in the second half of 2008".
14. I am surprised that Dr. Humphreys would say this, given the importance he himself and the Norilsk Group placed on his role and opinions as Chief Economist, as evidenced by the fact that he was being paid a basic salary of £462,000 a year. Also, I can confirm that Dr. Humphreys is wrong to suggest that the Management Board would have failed to respond to a forecast of an impending crash in the metal markets, whether because of extensive changes in the Management Board's composition or for any other reason. As the then Deputy Chairman of the Management Board, I am in a position to confirm that had Dr. Humphreys forecast and therefore warned the Management Board of the impending crash, for example, of a 62 percent drop in the price of nickel in 2008, I would have taken such a forecast very seriously indeed and acted upon it as described in paragraph 8 above.
15. Moreover, during the very difficult economic crisis of 2008, Dr. Humphreys failed to make any proposals on the strategic development of the Norilsk Group or, so far as I am aware, initiate any decisions of the Management to respond to the unfolding crisis. In my opinion, the role of Chief Economist, as one of the Norilsk Group's senior employees, should have played a proactive role in decision making process. Dr. Humphreys did not.
16. Lastly, Dr. Humphreys says, as regards the forward selling of metal, that "it was simply not Norilsk's practice to do this. In common with many large mining companies (this largely because their investors want direct exposure to commodity prices), Norilsk chose to sell its metal at the prevailing market price. This was not a decision of the chief economist but of the Management Board itself".
17. It is correct that such a decision would have to be approved by the Management Board. However, this decision was not made in the past due to the fact that the production costs for the Norilsk Group were lower than market prices. Dr. Humphreys' failure to predict the crash in the price of metals meant that the Norilsk Group had to suspend its production in Australia as its cost [sic] were substantially higher than in its Russian operations. It is possible that, had Dr. Humphreys forecast the impending crash, the Management Board would have decided on strategic hedging through forward selling or other financial instruments. However, by failing to deliver such a forecast to the Management Board, Dr. Humphreys prevented the Board from reviewing the matter and giving consideration to the possibility of the forward selling of metal.
18. At paragraph 74 of Dr. Humphreys' Witness Statement, he says that "within the confines of the forecasting world, it is hard to see how it would have been possible to do much better than this, so even on the very limited basis that Norilsk has chosen to assess my performance, the charge that my performance was unsatisfactory is unsustainable." This seems to sum up Dr. Humphreys' approach and attitude to the £572,000 bonus to which he says that he was entitled. However, Norilsk, like every other employer and business, is interested in results and the harsh reality is that Dr. Humphreys failed to deliver results that had any value to the Norilsk Group. The Norilsk Group found itself in an exceptionally difficult economic and financial position at the end of 2008 and, when it looked back at Dr. Humphreys' input during that year, it came to the inescapable conclusion that he had failed to give any adequate warning of the difficulties that the Norilsk Group was to face."
Conclusion
