Brogden & Anor v Investec Bank Plc
2014
COMMERCIAL COURT
United Kingdom
CORAM
- MR JUSTICE LEGGATT
Areas of Law
- Contract Law
- Employment Law
2014
COMMERCIAL COURT
United Kingdom
CORAM
AI Generated Summary
Andrew Brogden and Robert Reid sued Investec Bank for unpaid bonuses for the financial year 2010/2011. They claimed bonuses based on alleged oral agreements and the improper exercise of the EVA formula calculation in their employment contracts. The High Court, led by Mr. Justice Leggatt, dismissed their claims, holding no binding oral agreement existed and that the Bank acted within its discretion. The case elucidates key principles in contract interpretation and the exercise of discretion in employment contexts.
Judgment
Section Para A. INTRODUCTION 1 The bonus clause 2 The dispute 4 The arguments in brief 6 Witnesses 9 B. FACTUAL BACKGROUND 12 The claimants join Investec 13 The Structured Equity Derivatives business 15 Investec retail structured products 17 EVA 24 Bonuses for 2008/2009 26 Bonuses for 2009/2010 28 Bonuses for 2010/2011 31 C. THE ISSUES 33 Accord and satisfaction 33 The rate issue 35 Other issues 38 D. WAS THERE AN ORAL AGREEMENT? The alleged oral agreement 39 The claimants’ evidence 42 The Bank’s evidence 47 The claimants’ credibility 49 No documentary evidence 52 Inconsistent conduct 54 Possible discussions 60 The claimants’ own evidence does not support their case 66 Conclusion 68 Other matters allegedly agreed 69 E. INTERPRETATION OF THE BONUS CLAUSE 73 The applicable legal principles. 74 The meaning of EVA 75 Good faith and rationality 91 Discretion and its limits 95 The allegations of bad faith and irrationality 102 F. THE RATE ISSUE 104 The claimants’ case 105 Discussion 107 Reasonable expectations 115 G. OTHER ISSUES 118 Reserving for kick out products 119 Adjustments to the Funding Gap Reserve 123 The ‘profit payaways’ issue 133 The ‘early bird’ issue 142 H. CONCLUSION 149
Mr Justice Leggatt :
Introduction
On 10 April 2007 Mr Andrew Brogden and Mr Robert Reid, the claimants in this action, entered into contracts of employment with the defendant, Investec Bank (UK) Ltd (“Investec” or “the Bank”). They joined Investec as, respectively, the Head and Deputy Head of Equity Derivatives. The claimants’ contracts of employment provided in each case for a basic salary of £120,000 per annum but the main part of their remuneration was expected to consist of bonus. An important consideration for the claimants in deciding to join Investec was that their bonuses were not discretionary but a matter of contractual right.
The bonus clause
Mr Brogden’s contract provided for a guaranteed bonus of £6,200,000 payable in his first year of employment. This amount was payable on the condition that Mr Brogden’s employment with the Bank was not terminated by reason of his resignation or gross misconduct at any time before 30 June 2011 – in which event the full amount would be repayable. The bonus clause in the contract further provided as follows (with underlining added):
“In your second financial year of operation starting on 1 April 2008, the bonus calculation will be based on an EVA formula calculated as 40% of the EVA generated by the Equity Derivative b