‘1.9 … we understand that turnover is not considered an ideal indicator of business performance for NIAL by the [RC] since airports tend to have an unusually high profit margin relative to their turnover. However, in our consulting experience other measures (e.g. profit, employee numbers, etc) do not provide such a robust correlation to pay as turnover in most sectors of industry. As it is not possible to develop a comparator group of only airports, we have, as discussed, used a general industrial and service sector comparator group, where there is a strong correlation between turnover and pay. 1.10 [NIAL] is an unlisted company. It has not been possible to specifically consider the remuneration of executives in unlisted comparator companies: we have, therefore, created a comparator group of listed parent companies in the industrial and service sectors with turnovers similar to NIAL. … While each company is not necessarily a competitor, we suggest that the business challenges in these companies are similar to those faced by NIAL. The median turnover and the percentage of business outside the UK of these companies is similar to that of NIAL. We have used the turnover figure of£44m for NIAL, as advised by [Mr Friis].’
‘5.15 We have noted that some recent LTIPs, employed either by companies in fast-changing market sectors, or in organisations going through periods of significant change (eg growth or reorganisation), have included an element of [RC] discretion in their design. These plans recognise the volatile conditions under which the LTIP was adopted and permit adjustment of the performance conditions “in the event that failure to do so would produce an unfair result”. This could be applied, for instance, if expected company performance is substantially altered, negatively or positively, due to any circumstance that is considered entirely beyond the control of the LTIP participants.’
‘Refinancing – this is a one off matter to be considered as it will likely be on our agenda in due course. My comments are based upon my experience of events at Bristol. Should shareholders decide to extract value by refinancing [NIAL], then I feel it should be the case that management receives its fair share of the proceeds of its work which has created the opportunity. I would welcome a clause to that effect at a level commensurate with what has been achieved, perhaps best expressed as a simple percentage of value realised to each Executive. This would fit well with the broader approach you plan to take of establishing the principles without expressing contentious actual numbers as the precise amounts payable would ultimately be driven by a value number agreed by the Shareholders.’ (Emphasis supplied)
‘[RC] to retain discretion to vary performance conditions to avoid unexpected results where distorting events occur [with a reference to paragraph 5.15 of the Monks report, quoted above] and also to ensure management receives its fair share of the proceeds of any refinancing of the business that may occur during the plan period.’
‘… what was meant by fair share of the proceeds or even (certainly in the case of Cllr Malcolm or Miss Radcliffe) how large the refinancing might be. Miss Radcliffe was in effect asking the [RC] to authorise her to develop principles of a refinancing bonus when there were as yet no real principles to develop.’
‘With regard to new arrangements to be introduced from January 2006, the [RC] considered the report from [Monks] and the summary of its key points as set out in the Chairman’s [Principles Paper]. The [RC] also considered and discussed the principles of a market-based approach for new arrangements as set out on pages 4 and 5 of the Chairman’s [Principles Paper]. The [RC] agreed these principles and asked the Chairman to lead further work to put the principles into practice for the ensuing years.’
‘Minimum percentage (floor) 1% 1/3 FD, 2% 2/3 CEO’
‘Contract variations – amend or withdraw “restricted businesses” clause’
‘Simon, here are some notes for you to consider prior to our meeting on Friday. The [RC] has been considering this and the Chair is to propose the details in the attached paper shortly, having got approval in principle. There are other lesser issues to discuss and amend in the contracts. She wishes to get this done and new contracts in ready for her to sign very soon and certainly prior to 25 Jan. Please give me a call when you have read the notes. You already have our present contracts. Regards, John.’
‘• [RC] to retain discretion to vary performance conditions to avoid unexpected results where distorting events occur. (5.15) and also to ensure management receives its fair share of the proceeds of any refinancing of the business that may occur during the plan period – such fair share award to be a minimum of 1% to FD and 2% to CEO of refinancing proceeds, payable on completion.’
‘[RC] to retain discretion to vary performance conditions to avoid unexpected results where distorting events occur and also to ensure management receives its “fair share” of the proceeds of any refinancing of the business that may occur during the plan period. Such “fair share” awards to be a minimum payment of 2% to CEO and 1% to FD of refinancing proceeds, payable on completion.’ (The italics reflect the amendments, but were not in the original.) She circulated the paper, as amended (‘the Proposals Paper’), to the RC on 17 January, together with the Principles Paper, the minutes of the meeting of 7 December and Monks’ note of 12 January. She asked the RC members to read the note and indicate their approval by 23 January ‘so that we can proceed to make the necessary detailed arrangements’
‘2. A new schedule 2 has been inserted with details of the LTIP and refinancing payment. As a result, a definition of “incentive plan” has been inserted into the definitions section of the Service Agreement …. 5. A new clause 3.4 has been inserted to give the executive the right to treat any change in control as notice of termination of his employment served by the company which will trigger a payment in lieu of notice. In addition, clause 3.4 makes it clear that the rights set out in schedule 2, including the refinancing payment, will not be affected by any payment made on a change of control. Consequently a definition of change in control has been included in the definitions section. … 13. The definition of “restricted business” has been narrowed at Clause 14. It now only refers to the three airports ….’
‘… I have to say that I was surprised to hear [the bonus percentages] being questioned at this stage. The figures were clearly included in my Note to the [RC] sent on17 January 2006 , a Note of the contents of which was agreed by all members save only in relation to a comment made by [Mr Christiansen] … concerning the arrangements for annual bonus. Otherwise the proposals were agreed in their entirety. As you will see, Eversheds’ note confirms this audit trail.’
‘87. I accept that in general terms the instructions [Mr Parkin] had given to Eversheds were in accordance with what had been discussed and agreed with Miss Radcliffe on10 January 2006 . That said, in cross-examination Mr Parkin himself agreed that some of the instructions, in particular matters such as the definition of refinancing proceeds, had not been agreed. Again, he seemed to say that at the meeting Miss Radcliffe told him to seek advice from Eversheds about the effectiveness of the restrictive covenants, whereas he told Eversheds that it had been agreed that they should be released. That is a grey area because Miss Radcliffe undoubtedly went along with the suggestion that some of the airports fell outside the area of true competition. Nevertheless in those two respects (definition of refinancing proceeds and release of the restrictive covenants) I find that Mr Parkin and Mr Friis exceeded the scope of their actual authority.’
‘121. Again, Miss Radcliffe did not review the contracts properly before signing them. As she accepted, she did not require any legal advice or specialist knowledge to understand how the refinancing bonus clauses operated. She simply did not read them other than cursorily. If she had, she would either have deliberately signed the contracts in the full knowledge of what they contained, in which case Eversheds cannot be liable for the loss, or she would have referred the contents back to the [RC], in which case the loss would not have occurred.’
‘128. Miss Radcliffe’s conduct can only be judged by what she actually did. She did not feel that she needed a schedule of changes in order to enable her to review the contracts and she did not ask for such a document. She did not read documents which she had requested and which she knew were important; it is therefore unlikely that she would read a document which she had not requested. She had a special distaste for documents produced by lawyers. Her evidence was that she regarded these as necessary formalities, “legalese”, not something she was required to read. Even when she opened such documents she only skim-read them. However she consistently misread, missed or misunderstood contents which were inconsistent with her preconceived understanding of their meaning and effect. 129. I know that it is easy to be wise after the event and I do not mean to sound unnecessarily harsh in my judgment of the members of the [RC]. However the facts remain that, (a) if the [RC] had picked up on the terms of the new contracts they would not have been executed and (b) the members of the [RC] had both the opportunity and the ability to do so. 130. In all the circumstances of this case, it is fair to assume that if Miss Radcliffe had received advice from Eversheds directly and as a result had noticed anything unusual about the contracts, it would only have been the relaxation of the restrictive covenants. Her own evidence was that if this had been drawn to her attention she would have asked Eversheds to get on with drafting the rest of the contract. She said that notification from Eversheds on that point would not have caused her to instruct Eversheds to cease drafting the contracts in every other regard or caused her to make enquiries about any other aspect of the instructions. 131. Accordingly (even if I am wrong and there was a breach of duty causing loss to NIAL), NIAL’s own conduct broke the chain of causation. Eversheds sent the draft contracts to Miss Radcliffe. She failed to read them properly or to understand the meaning and effect of the refinancing bonus; she failed to read the schedule of changes at any time, she failed to circulate it to the other members of the [RC], Mr Binger and Mr Boserup failed to disclose their true position until12 October 2006 and none of the non-executive directors investigated or appreciated the meaning and significance of the refinancing bonuses until12 October 2006 . 132. I therefore agree that the loss which was undoubtedly sustained arose not out of breach of duty by Eversheds but as a result of failings on the part of others for whom NIAL is responsible … 133. By16 February 2006 Mr Binger and Mr Boserup knew that NIAL had made a mistake. They knew that the contracts provided for large non-discretionary refinancing bonuses to which the members of the [RC] had not applied their minds. They knew that the LA7 authorities were unaware of the significance of the bonuses. They therefore knew that loss had been suffered but failed to mitigate that loss by making the position known. In my judgment the loss could therefore have been mitigated entirely.’
‘146. I therefore accept Eversheds’ submissions that Eversheds acted in good faith on the basis of instructions which it was entitled to accept. I accept that this was not a case where Eversheds treated Mr Parkin in his personal capacity as the client. It followed his instructions because he was clothed with apparent authority and Eversheds had no reason to believe that any of his instructions were unauthorised. 147. Even on NIAL’s case as to the duty of care, any advice which Eversheds might reasonably have been expected to give Miss Radcliffe would not have been heeded as she did not read legal advice. 148. The real reason that NIAL suffered loss was because its non-executive directors failed to carry out their obligations to NIAL.’
‘3. With regard to the re-financing bonus particular attention should be given to:- 3.1 Clause 8 Schedule 2. Although the refinancing bonus sits within the LTIP Schedule, this bonus is in fact separate from the LTIP considered by [Monks] and is not limited by the LTIP cap of 150% of base salary. 3.2 We understand that the [RC] agreed that a discretion should be retained to ensure that management receives its “fair share” of the proceeds of any refinancing. As drafted the refinancing bonus provides for Mr Parkin and Mr Friis to receive 2% 1% (respectively) of the refinancing proceeds as of right. The [RC] only has a discretion to award more than 2% 1% (respectively). 3.3 The LTIP approved by the [RC] and vetted by [Monks] was subject to a cap of 150% of base salary. No such cap applies to the refinancing bonus. 3.4 The bonus is calculated as a percentage of “refinancing proceeds”. The definition of this phrase has been provided to us by Mr Parkin and has not been approved by [Monks]. It is important to note that the definition will produce a return to the executives, which is linked to the amount borrowed rather than the return to shareholders. 3.5 You should be aware that it appears that [Monks] have not approved the refinancing bonus either in their November 2005 report on the12 January 2006 comfort letter. We have not seen any approval either of the structure of the bonus, the level of the bonus or whether or not the bonus or its amount is in accordance with market practice. 3.6 The refinancing bonus is to be payable immediately upon completion of the refinancing. Sufficient funds will therefore have to be drawn down at the time of the refinancing to meet these bonuses. As it is currently drafted, the executive directors will be entitled to the payment in any event (including termination of their employment – see clause 20.3). … 14. The definition of “restricted businesses” has been narrowed at clause 14. It now only refers to 3 airports, Durham Tees Valley, Edinburgh and Carlisle airports. We have been informed by Mr Friis that the board consider that the current clause is too wide to be enforceable. We have been instructed to remove the following airports: Teesside, Manchester, Glasgow, Leeds/Bradford, Finningley, East Midlands, Prestwick and Hull. These airports have been removed to ensure the enforceability of the covenant on the basis of instructions received that none of the airports are competitors of NIAL. …’
‘74. … She is plainly a capable, experienced, worldly and intelligent person. She has a long and impressive track record of work in the field of corporate finance. Other witnesses attested to her abilities in glowing terms. However, it is hard to accept that she acted, as she insisted, reasonably and appropriately, having regard to her terms of engagement and responsibilities. Although she is an honest person, she plainly has what [Eversheds] has rightly termed a “blind spot of massive proportions” as to her role as chair of the [RC] and its significance. An important part of that role was to ensure that new contractual provisions affecting executive directors were subject to independent scrutiny by the [RC]. 75. Miss Radcliffe did not bother with minutiae; she concerned herself only with broader picture. In the course of her oral evidence she used the expression “legalese” in a contemptuous and dismissive manner on countless occasions [in fact, the judge was there wrong: Ms Radcliffe used the word “legalese” only once]. Although she readily accepted that she would have understood the terms of the executive directors’ contracts if she had read them she said that she did not in fact do so. Throughout she maintained that she did read clause 8 of the LTIP but did not appreciate that it provided for a minimum payment to the executive directors. However, she accepted that there was no other way in which it was possible to read clause 8.1 and that there was nothing in the clause she could and would not have understood if she had given the matter any thought. If she read documents at all, she only skim-read them. She said she had read clause 3.4 of the draft contracts but not clause 3.3. However her attempt to explain how she understood a change of control clause to apply to the refinancing bonus was tortuous. She said she never read definitions in contracts and did not appreciate that phrases with capital letters were defined terms. She did not acknowledge that she would or should want to ensure that notes of meetings were accurate in relation to important points. She seemed to think it was not her job to read any documents which could be categorised as legal documents. 76. On very many occasions Miss Radcliffe said that she did not bother to open, let alone read, attachments. One of those attachments was Ms Lightfoot’s summary of the changes [to the executives’ existing contracts] referred to above. Another was Appendix A to [Monks’] letter of12 January 2006 . A third was Counsel’s Opinion attached to Eversheds’ report sent on13 December 2006 . Mr Patten QC produced a long list of documents which, on Miss Radcliffe’s own evidence, she either did not read at all or read in such a superficial manner that she failed to understand them. 77. Miss Radcliffe consciously left all matters of detail relating to the new contracts to Mr Parkin and Mr Friis (whom she now firmly believes acted dishonestly, certainly in the case of Mr Parkin) but she did not tell either them or Eversheds that she was not applying any independent judgment to such matters. She has little recollection of the discussions which she had at the meeting of10 January 2006 of the two relevant areas, namely the minimum amount of the refinancing bonuses and the restrictive covenant. 78. Miss Radcliffe gave consistent evidence that she thought that the refinancing bonuses were entirely discretionary and that she continued to hold that belief until as late as21 December 2006 . As I find that she acted honestly I can only assume that her grasp of what was happening was foggy and that she thought that her role as a non-executive director was much more constrained than in fact it was. She has therefore had to re-write history, as much apparently for her own amour proper as to convince others. I say that because her belief as to the discretionary nature of the bonuses is impossible on any other basis to reconcile with what actually happened. 79. Thus she personally redrafted the refinancing bonus provision in the Proposals Paper and could give no satisfactory explanation as to how she could have ignored the clear reference to a minimum entitlement. She says she reviewed that part of the draft contracts which set the provisions about the refinancing bonuses in different language and read clause 4.2. She failed to react adversely in December 2006 to the documents which made it plain that the bonuses were substantial and non-discretionary, even an email from Mr Christiansen of18 December 2006 saying in terms that there was to be a minimum payment and an email from Mr Parkin mentioning the quantum of refinancing bonuses. Instead, she told Eversheds that no-one should have been surprised by the size of the bonuses. She failed to express any concern about the bonuses at all until other non-executive directors began to criticise her conduct. Tellingly, she failed to say that she thought that the bonuses were wholly discretionary until she made her witness statement in the previous proceedings. She seemed vague about the whole question of release of the restrictive covenants. 80. As I have said, although she acted honestly she was also defensive and, probably as a result, occasionally evasive. It was not always possible to understand her evidence which could be internally inconsistent, for example as to her conversations with Ms Rayner and what she had and had not asked [Monks]. Eventually she admitted that she knew that Ms Rayner had not advised on the percentage bonuses but was unable to explain why she did not tell this to the [RC] even as late as the meeting of27 February 2007 . What is crystal clear is that Miss Radcliffe did not think at all about what the refinancing bonuses might entail. She apparently did not realise at the relevant time that they were non-discretionary, she did not do the simple arithmetic to arrive at actual figures and she did not even realise that they were likely to be very substantial in amount.’
‘With regard to new arrangements, colleagues will recall that, as the Minutes indicate, we approved the principles that should underlie new arrangements to run from January 2006 and I was asked to lead further work to put these principles into practice. I have initiated this work with the help of our professional advisers ([Monks]), and a Note setting out my detailed proposals is also attached, together with a copy of [Monks’] letter of advice, dated12 January 2006 , that confirms compliance with best practice. May I ask you to read the Note and indicate your approval to me by Monday23 January 2006 so that we can proceed to make the necessary detailed arrangements.’