Tradition Bond Brokers Ltd v Warner [1996] UKEAT 1028_95_1507

EAT

Tradition Bond Brokers Ltd v Warner

[1996] UKEAT 1028_95_1507 · 1996-07-15

JUDGE J HULL QC:

This is an appeal to us by Tradition Bond Brokers Ltd, who in their premises in Bishopsgate carry on the business of broking, as their name suggests. They deal as brokers in all manner of financial instruments (no doubt such things as futures, options, shares and debentures and so forth).

Mr Colin Warner, the Respondent to the appeal, is a gentleman who is now aged 33. He was described as "an Inter-Dealer Broker" and was employed at the Yen Desk where instruments denominated in yen were dealt with, no doubt on a world-wide basis, by this firm of Bond Brokers.

He was one of five and he first began his employment on 20 February 1992. Every year his contract was renewed until we get to 1994. His contract then for the third year was renewed; apparently each year in slightly different terms. The only relevance of that is that, if the terms were altered as appeared every year, not that the previous terms would have any direct relevance, but it did show that the parties were addressing their minds or, at any rate, one of them was addressing his or their minds, to the contents of the contract. The last of the contracts is with our papers on this occasion.

On 8 August 1994 there was an event which, from the Appellants' point of view, was certainly untoward and (they said) in breach of contract. We are not concerned directly with whether it was. Each of the five at the Yen Desk tendered his resignation and, apparently, made it clear he would like to go at once. This, of course, would be a very serious matter from the Appellants' point of view. They objected and wished each of them to work his notice. That did not work very well and on 14 September 1994 (there is a letter with our papers at page 35) they were released from their contractual obligations.

Mr Warner said that he had earned, under his agreement, a bonus of over £12,000, being a 1/5th share of the sum in what was called the compensation pot, or compensation pool, at the end of July. The bonus or an advance on bonus (I try not to pre-judge what is in issue here) was paid at the end of each quarter. He issued his complaint to the Industrial Tribunal on 3 November, that is at page 12 of our papers. He said he wanted outstanding monies but it was, of course, the bonus; apart from some very trivial sum there was nothing else outstanding, and the employers put in their Grounds of Resistance, which is the IT3 form at our page 14.

The Industrial Tribunal sat on 17 July, under the chairmanship of Ms Gay, with two industrial members, at Stratford and they decided, after holding a hearing, that the Applicant (the Respondent before us) was indeed entitled to his bonus. They decided the matter on two bases. They first of all construed the contract of employment which, of course, was the correct thing to do, and then they looked at the conduct of the parties. On the face of it (although one cannot say dogmatically they should not have done so) they should only do so for a limited purpose and in certain circumstances. If the parties have reduced their agreement to writing then what any court or tribunal is supposed to do is to look at the agreement and say what it means. They can, of course, take into account background factors, such as the nature of the business and matters of that sort; the way in which such a business must necessarily be conducted and matters of that sort; they may take that into account. But as to the actual way in which the parties interpreted the contract, that is strictly irrelevant.

It may be said that it is relevant, first of all, as indicating a consensus by the parties not to operate the contract in the way that it has been written. If that is so, then I think an Industrial Tribunal, proceeding informally, can look at it; but they should bear in mind that it is for that limited purpose, to see whether the contract has been varied; otherwise they should, like any other court of law, look at the agreement.

This Industrial Tribunal found against the employers, both on the true construction of the agreement, and on the behaviour of the parties, and Mr Howe says to us, with justice, that really there was insufficient in the conduct of the parties to give any indication of any variation of the contract. We think that the sound approach for us is to look and see whether there is a fairly arguable point for the Appellants on the construction of the contract itself.

The point really is this, and I am paraphrasing. It is set out very lucidly in the Skeleton Argument. Mr Howe says that the true view here, if you look at the contract, is that the bonus which was payable was a variety of commission and it was, in truth, an annual commission.

It was to be worked out at the end of each year, which ended in April. You were to look then and see over the whole year what commission had been earned. Equally, the employees did not have to wait until the end of the year, they would be paid quarterly at the end of every July, October and January. You would look and see what commission had been earned so far and that would be paid in advance but, of course, if you then found that in the next quarter a loss had been made, then it might very well be that that fell to be recouped and it might well be that at the end of the year, when the calculation was done in accordance with the contract, you would find that over the year as a whole, there was a loss and therefore any bonuses paid in respect of individual quarters fell to be repaid.

That is, I hope, an adequate statement of the way in which the employers put it and one could certainly understand that the contract might well make provision for that. It would be necessary for the contract or at any rate it would be highly desirable for the contract to say what was to happen to commission paid (so to speak) on account or in advance, in the event of employment ceasing for any reason in the course of the year, and one looks therefore to see what the agreement says. It is conveniently set out at page 22 of our bundle. It is part of the substantial written agreement which was Mr Warner's terms of service -

"5. REMUNERATION

5.1 Your salary is at a rate of £70,000.00 per annum. It accrues on a daily basis ..."

We pause there to say that that is an important statement in its context, certainly, excluding the old common law rule that an employee must work a full period of his employment before he is entitled to any salary, so that if he is employed on a weekly basis he must work a whole week. Here, the employers provide it is to accrue on a daily basis.

It goes on:

" ... and [this is the salary] is subject to such deductions as are required to be made by law or under the terms of your employment. It is paid fortnightly by direct bank transfer.

5.2 The company will pay you a further bonus ..."

One pauses there. What further bonus? Does it mean that salaries are a form of bonus? One does not know. It goes on:

" ... (`the additional bonus') which shall be calculated in the following manner. The Company shall establish a compensation pool into which shall be paid an amount equal to 35% of the gross commissions generated by your section. Gross commissions will be calculated in accordance with the accounting practices of the Company and/or its affiliated and associated companies in place from time to time. Your total remuneration, which covers salary, bonus [that I suppose can only be referring to the further bonus or additional bonus] and the annual cost of your Company vehicle (`the compensation') will be paid out of the compensation pool. The Company shall pay you as your additional bonus the amount, if any, remaining in the compensation pool after deduction of the compensation."

So, pausing there, 35% of the commission is to go into the pool and, presumably, the rest represents the company's overheads, profits and other outgoings, but that 35% is to be the employees' and out of that 35% is to be paid, on the face of it, a fairly generous salary, the car expenses which the Tribunal found were certainly not ungenerous, and the balance.

Then it goes on, concerning the bonus:

"Such bonus [as it is now referred to] will be paid for the quarters ending in April, July, October and January one month in arrears."

So in other words, pausing there, "You must wait a month after the end of the quarter and then it will be paid". It does not say, "An amount on account of such bonus will be paid". It does not say anything about the discretion of the management, except that we have seen that their rules with regard to compensation shall prevail, as they are from time to time.

Pausing at this point, one asks oneself, "What is this bonus?" It appears to us perfectly plain that the bonus is to be calculated quarterly, and it is to be subject to the deduction of a salary which accrues from day to day, of the annual cost of the company vehicle, and, subject to those deductions, it is to be calculated and to be paid for a particular quarter. There would be a delay of a month.

So that is perfectly plain. It is true that, so far as we can see, the contract is silent or virtually silent as to what is to happen if, at the end of any quarter, there is a deficit. Is simply nothing to be paid, or is there to be a recoupment from the employee? This is a matter on which the Industrial Tribunal commented.

Then the agreement goes on:

"5.3 Advances on the annual bonus will be made on a quarterly basis. ..."

Pausing there, is this speaking of what we have just read? Is this referring to the same bonus, now referred to for the first time as an annual bonus? Are these payments for the four quarters now being referred to as advances? Mr Howe says that is so. It goes on:

" ... If any amounts paid advances are subsequently determined to be greater than the amount which the employee is entitled to in 5.2 at the point in time the calculation is made, the employee authorizes the company to make the proper deduction from any next payment due to the employee."

One says to oneself, "What can this mean?" Presumably the amount of deduction depends entirely on the point in time the calculation is made which, so far as one can see, can be any time. What if there is no next payment due to the employee? Is there a claim against the employee, or is this merely an authorised deduction from a next payment due to him?

But what, above all, does it mean in substance? If any "amounts paid advances" are subsequently determined to be greater than the amount which the employee is entitled to in 5.2 at the point in time the calculation is made; assuming everything in favour of the employers; assuming that the word "advances" does refer to these quarterly payments; assuming that the bonus, which is now called "the annual bonus" is the same thing as the "additional bonus", "the further bonus" or the "bonus" or whatever it may be; assuming all that, what does this say? It is saying that there is to be, or may be, a calculation later on at an indeterminate time, and that that may find that the advances, a synonym for the quarterly payments, are subsequently determined to be greater than the amount which the employee is entitled to in 5.2? What is he entitled to in 5.2? The answer is, the sum calculated at the end of the quarter.

Of course, it may be found after that that there has been some mistake or misapprehension. It may be found a month or two later that the commission which has been credited to the Yen Desk should have been payable to the Dollar Desk or some other person or persons in the organisation. It may be found that a customer has, in error, paid commission and is now reclaiming it. It was not truly payable. All sorts of matters of that sort may be discovered later. Then, a calculation is to be done and if it is discovered that too much was paid at the end (say) of July, then it may be deducted, this, at any rate is clear, from any next payment due to the employee (if there is a next payment).

It seems to us that this is speaking not of some roll-up calculation at the end of the year or the end of some other period which is left indeterminate, which will show that there have been losses later which are to be set off against the bonus paid. It is dealing with the situation where the bonus paid at the end (say) of July is shown to be wrongly calculated; that is why the calculation is done.

If one looks at it in that light the matter falls into place. Describing it as an "annual bonus" is mere falsa demonstratio at worst and it carries the matter no further, describing the quarterly payments as "advances" carries the matter no further whatever. There is no express provision for a calculation to be done which will take into consideration losses suffered in subsequent quarters, which are to be set against bonuses and, if necessary, a sum reclaimed. It is not dealing with anything of the sort. The Industrial Tribunal were unable to give any meaning to the phrase "advances on the annual bonus". We think that the right way to look at that is that this is, to use the Latin expression, simply falsa demonstratio (putting a false name on it) and that what follows in 5.3 makes all sufficiently clear and that this is not (so to speak) a claw-back in the sense asserted by the employers at all. To some extent one sees that that view may be reinforced by what is said in clause 15, which is at page 29:

"15. The termination of this Contract (however it arises, including its wrongful termination by either party) will be without prejudice to the rights or remedies of either party against the other in respect of any antecedent breach of any of its provisions and will be without prejudice to the continuing obligations of you or the Company (as the case may be) under any provision of this Contract expressed to have effect after it has terminated."

What the employers are, in effect, saying to us on this appeal is that there is a way in which these clauses could have been written which would clearly have led to the very common sense result that if, at the end of the year, the net result was a loss, then that would be due as a refund from the employee and that what was being paid every quarter was simply a loan. If they had so expressed themselves of course there would have been no legal objection that we can see to the contract being given effect to in that way, but it is quite clear to us that these bonuses were, in fact, to be calculated quarterly. They were payable for a quarter and the alleged counter-claim or set-off, simply does not exist.

With regard to the alleged wrongdoing of the employees in failing to give proper notice or (if this is what it amounts to) the alleged conspiracy to damage their employers, that could properly, no doubt, be the subject-matter of a claim for damages, but there was nothing of that sort before the Industrial Tribunal.

It appears to us therefore that for the reasons we have given there is no fairly arguable point of law in this case at all. The Industrial Tribunal came to a correct conclusion though it may very well have been entirely unnecessary and perhaps inappropriate for them to look at what actually happened. The true construction of the document means that the employers must fail and the employee was entitled to succeed in his claim which was quantified in the sum of £12,281. We have to dismiss the appeal at this stage.