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High Court of Ireland Decisions |
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You are here: BAILII >> Databases >> High Court of Ireland Decisions >> Lichters & Anor -v- Depfa Bank PLC [2012] IEHC 10 (18 January 2012) URL: http://www.bailii.org/ie/cases/IEHC/2012/H10.html Cite as: [2012] IEHC 10 |
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Judgment Title: Lichters & Anor -v- Depfa Bank PLC Composition of Court: Judgment by: Hedigan J. Status of Judgment: Approved |
Neutral Citation Number: [2012] IEHC 10 THE HIGH COURT 2009 1509 S BETWEEN ROLAND LICHTERS PLAINTIFF V DEPFA BANK PLC DEFENDANT
2009 1510 S BETWEEN JURGEN HASS PLAINTIFF V DEPFA BANK PLC DEFENDANT JUDGMENT of Mr. Justice Hedigan delivered on the 18th day of January, 2012 1. The plaintiffs were at the material time employed by the defendant bank. The defendant, DEPFA Bank plc. is a public limited company with a registered office at 1, Commons Street, Dublin 1. 2. In this action, Mr Lichters claims:-
(2) Interest pursuant to statute. (3) Such further or other order as seems fit. (4) The costs of these proceedings.
Mr Hass claims:-
(1) Judgment in the sum of €40,000.00 (2) Interest pursuant to statute. (3) Such further or other order as seems fit. (4) The costs of these proceedings. Background Facts 3.1 The plaintiffs were employed by the defendant bank until their resignations in April 2008. Mr Lichters commenced employment with the defendant in August 1997. In 2004, he took up a position in Dublin as Head of Global Market Risk. Mr. Hass commenced employment with the defendant bank in August 1998. In 2002, he took up a position in Dublin as Associate Director, Group Strategy with DEPFA Europe. Both plaintiffs had contracts with the defendant which provided that part of their remuneration structure included the provision of a bonus. The terms of the bonus were governed by the defendants’ ‘Incentive Compensation Program’ (“ICP”) which provided for a “cash bonus pool” and a “deferred stock plan”. 3.2 Clause 2 of the ICP provided for the “cash bonus plan”. It sets out the purpose of that plan as being:-
3.3 The “deferred stock plan” established under the provisions of the ICP, required the Compensation Committee of the Board of Directors of the defendant to establish an amount to be applied for the purchase of shares in the company for each year. The amount to be applied was paid to the trustees of the deferred stock plan. The trustees of the deferred stock plan were then to purchase the shares and allocate them to employees as per the instructions of the Compensation Committee. The allocated shares would then vest in accordance with various provisions of the deferred stock plan. 3.4 Clause 3.5 (b) (iii) of the ICP provided that shares would vest immediately upon a change in control. There was a change in control of the defendant in October 2007. The entire share capital of the defendant was purchased by Hypo Real Estate Group. This had the effect of making it impossible for the defendant to allocate further shares. On 13th February, 2008, the defendant wrote to Messrs. Lichters and Hass informing them that in respect of the year ending 31st December, 2007, it had decided to award them a deferred cash bonus in lieu of allocating shares. Mr. Lichters was awarded a cash bonus of €200,000 and a deferred cash bonus of €180,000 in lieu of shares. Mr. Hass was awarded a cash bonus of €40,000 and a deferred cash bonus of €40,000 in lieu of shares. The deferred sums were to be paid if Messrs. Lichters and Hass remained in the defendant’s employment as of February 2010. Messrs. Lichters and Hass both left the defendant’s employment in April 2008 and were therefore not paid the deferred cash bonus. They claim that in imposing the deferred cash scheme the defendants acted in breach of contract. In the within proceedings, they seek payment of the sums deferred. Plaintiffs’ Submissions 4.1 Messrs. Lichters and Hass understood and believed that they would be awarded a cash bonus for their performance in 2007 and that it would be paid to them in accordance with the provisions of Clause 2 of the ICP. They had received payments pursuant to the ICP for the years 2005, 2006 and 2007 in reflection of their work with the company in each preceding year, respectively. The annual letters sent to Messrs. Lichters and Hass notifying them of this bonus contained the following statement:-
4.3 In refusing to pay the deferred component of the bonus, the defendant relies upon provisions in the February 2008 document that provided that the plaintiffs had to be in employment with the defendant in February 2010. This provision, they argue, is manifestly unenforceable being in restraint of trade. The law in relation to such provisions was set out by Costello J. in John Orr Limited v. Orr [1986] WJSC 836:-
4.4 The defendant was obliged to make discovery of any documents generated by the Compensation Committee in relation to the awards to Messrs. Lichters and Hass. It is remarkable that notwithstanding this obligation, no such documentation has been discovered. Furthermore, the defendant has not said what payments were made on account to the trustees for 2007 in accordance with the provisions of the ICP and whether the trustees had purchased any shares prior to that date. It is remarkable that there was no effort to consult with senior executives; instead, the bank unilaterally changed the entire ICP scheme. Not only was the deferred stock scheme changed, but the compensation committee was dissolved. The compensation committee had a central role in determining whether bonuses should be paid. The defendant had discretion whether or not to award a bonus; however, once it decided to award a bonus, that was the end of the discretion. There was no discretion in the ICP to replace stock with cash. In these circumstances, Messrs Lichters and Hass are entitled to payment of the sums deferred. Defendant's Submissions 5.1 The deferred stock plan, provided for in Clause 3 of the IPC provided for the awarding of deferred stock which would vest on 1st, 2nd and 3rd anniversary of the award. Following the acquisition of the defendant bank by Hypo Real Estate (HRE), it was no longer possible for the defendant to make awards under the share award scheme as provided in the ICP. Although it was not required to do so, the defendant introduced a deferred cash bonus in lieu of a deferred stock bonus. The deferred cash award was subject to similar limitations as the previous deferred stock award and was for the purposes of incentivising employees to remain in the defendant’s employment. The terms and conditions of this award were set out in the letter of 13th February, 2008 and the accompanying document entitled “information on deferred component of performance related bonus”. The defendant maintains that these deferred awards were subject to the condition that they were only payable to Messrs. Lichters and Hass if they remained in the employment of the bank in February 2010. 5.2 The defendant submits that the bonuses paid to Messrs Lichters and Hass for 2007 were entirely consistent with the bonuses paid in previous years. In 2004, Mr Lichters received a cash bonus of €100,000 and stock of €100,000. In 2005, he received a cash bonus of €120,000 and stock of €120,000. In 2006, he received a cash bonus of €175,000 and stock of €175,000. In 2007, he received a cash bonus of €200,000 and deferred cash in lieu of stock of €180,000. Mr. Lichters could not have expected a cash bonus in 2007 of €380,000. The 2007 bonus was entirely consistent with the pattern in the preceding years. The same situation applies to the bonus paid to Mr Hass. In 2004, Mr Hass received a cash bonus of €40,000 and stock of €40,000. In 2005, he received a cash bonus of €45,000 and stock of €40,000. In 2006, he received a cash bonus of €50,000 and stock of €50,000. In 2007, he received a cash bonus of €40,000 and deferred cash in lieu of stock of €40,000. The 2007 bonus was consistent with the pattern in the preceding years. It is submitted by the defendant that the award of the deferred cash bonus was a reasonable exercise by the defendant of its discretion in circumstances where it could no longer award stock. 5. 3 The defendant submits that the award of a deferred cash bonus in lieu of a deferred stock bonus is not in restraint of trade. The purpose of the deferred stock bonus was to “incentivise and retain executives and staff.” Messrs. Lichters and Hass were entitled to resign from the defendant bank and were free to take up employment wherever they wished. The contractual provisions which were the subject of dispute in Orr related to restraint in respect of soliciting the plaintiff company’s customers and competing with the plaintiff company after employment had terminated. No such restraints whatsoever are created by either the deferred stock plan under the ICP or the deferred cash bonus granted in February 2008. The plaintiff also referred to Finnegan v J & E Davy [2007] ELR 234 and asserted that a precisely analogous term referable to bonus payments was restraint of trade. The provisions which were the subject of the dispute in Finnegan were not analogous. The High Court in Finnegan struck down a unilateral retrospective alteration which resulted in the entirety of the plaintiff’s bonus being subject to a deferral process. The situation in the instant case is entirely different. The plaintiff in this case has received a cash bonus comparable with his previous year cash bonus and a deferred cash bonus in lieu of a deferred stock bonus also in a comparable amount. 5.4 Whilst the IPC is stated to be entirely discretionary, it is accepted by the defendant that the discretion must be reasonably exercised. The defendant in this case has exercised its discretion towards Messrs. Lichters and Hass in a reasonable fashion by providing them with a cash bonus comparable with their previous year and a deferred cash bonus comparable with the previously existing, but no longer possible, deferred stock plan. The exercise by employers of their discretion in these types of circumstances has been considered in a number of cases. In Clarke v Nomura International [2000] IRLR 766, the following test is set out by the Court of Appeal:-
Decision of the Court 6.1 The issues are common to both cases and may be dealt with in one judgment. 6.2 The contract of employment was one which included a bonus scheme as an integral part of the plaintiff’s remuneration package. The terms of this bonus scheme are to be found in the ICP. It is the ICP which is central to this case. Its terms were, firstly, that it was discretionary. The employer had the absolute discretion as to whether it would or would not make an award and the time and extent thereof if it did so. Clause 1.2 (b) of the ICP states as follows:-
6.4 This new scheme was constructed without negotiation with the plaintiffs. The essential change was deferred cash in place of deferred shares. It is common case that had either DEPFA or HRE shares been awarded, they would have been worthless by the end of 2008. The evidence was that the deferred cash was paid to the DEPFA employees who remained in the employment of the defendant in 2010. 6.5 The question for the Court is whether this change in the bonus part of the plaintiffs’ remuneration package was a breach of their contract of employment. The plaintiffs claim also that the retention provision re deferral was a condition in restraint of trade and should not be enforced. In relation to this last element, the plaintiffs rely on the judgment of Costello J. in John Orr Ltd v. Orr [1986] WJSC 836. The relevant part of that judgment is set out above. I note in particular the phrase:-
6.7 Even if it were a condition in restraint of trade, is it one that may be justified as per Costello J’s dictum as cited immediately above? Is it reasonable in the interests of the plaintiffs and the public? No interest of the public is raised or argued in this regard herein. The real question must be, is it reasonable in the light of the plaintiffs’ interests. HRE clearly was in a difficult situation. If they were to award bonuses to the staff of DEPFA, they had to find a way of replacing the value of the deferred shares that had previously formed a part of the scheme. The solution they arrived at is to be judged by what criterion? The court must bear in mind the employer had an absolute discretion as to whether to award a bonus. It is agreed herein that that discretion must be exercised reasonably. In Clarke v Nomura International [2000] IRLR 766, the Court of Appeal for England and Wales considering this type of situation observed:-
6.9 Whether in the context of a contract in restraint of trade, if that is the case, or to determine the proper exercise by the defendant of its discretion as an employer, the question for the court is as to whether it can be considered that in the circumstances of this case, no reasonable employer would have acted as the defendant company did. By any measure, it appears to me that in the circumstances that prevailed, the scheme decided upon by the defendant company to replace the previous bonus scheme was a fair and reasonable one and in the interests of the plaintiffs and all the other employees at that time. It seems to me that the plaintiffs have fallen a long way short of meeting the standard of unreasonableness necessary to overturn the actions of the defendant company herein, either under their contract of employment or on the basis of a restraint of trade. I must therefore dismiss the claims of both plaintiffs.
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