Royal Courts of Justice
Strand, London, WC2A 2LL
Before:
THE HONOURABLE MR JUSTICE OWEN
Between:
ATTRILL & Others | Claimants |
ANAR and Others - and - (1) DRESDNER KLEINWORT LIMITED (2) COMMERZBANK AG | Defendants |
Andrew Hochhauser QC and David Craig (instructed by Mishcon de Reya) for the Anar Claimants
Nigel Tozzi QC and Kate Livesey (instructed by Stewarts Law LLP) for the Attrill Claimants
Thomas Linden QC, Martin Chamberlain and Oliver Jones (instructed by Linklaters LLP) for the Defendants
Hearing dates: 9 May 2012
Judgment
Mr Justice Owen:
Interim Payments
There are two issues between the parties in relation to the claim for interim payments, first the appropriate interest rate and secondly the appropriate exchange rate for calculation of the damages due to each of the claimants.
The Interest Rate
The relevant principles are not contentious. The rate of interest is at the discretion of the court. Secondly the purpose of an award of interest is fairly to compensate the recipient for being deprived of money that he should have received. Thirdly a ‘broad brush’ approach is taken to determine what rate of interest is just and appropriate. As Andrew Smith J put it in Fiona Trust and Holding Corporation and Others v Yuri Privalov and Others [2011] EWHC 664 (Com) at para. 16:
“… it would neither be practical nor proportionate (even in a case involving as large sums as these) to attempt a minute assessment of what will precisely compensate the recipient. In particular, the courts do not have regard to the rate at which a particular recipient of compensation might have borrowed funds. This policy is adopted in order to control the extent of the enquiry to ascertain an appropriate rate: see Banque Keyser … the court will, however, consider the general characteristics of the recipient in order to decide whether to assess interest at a rate that is higher or lower than is conventional. So, for example, in Jaura v Ahmed [2002] EWCA Civ 2010, Rix LJ awarded interest at the base rate plus 3% to reflect that “small businessmen” had been kept out of their money and in recognition of the “real cost of borrowing incurred by such a class of businessmen”. Thus, the court will examine what has been called “a question of categorisation of the plaintiff in an objective sense” (see the Banque case Allman case) … recognise relevant characteristics of the party who was awarded interest and reflect them when determining the fair and appropriate rate. … ”
The claimants contend for an interest rate of 5% above Barclays bank base rate from time to time from 29 January 2009 to the date of payment. It is submitted on their behalf that such a rate reflects the cost of borrowing for a private individual over the relevant period, arguing that whilst the base rate fell significantly at the end of 2008 as a result of the global financial crisis, the cost of unsecured borrowing by individuals did not follow suit. In support of that proposition Mr Tozzi QC invited my attention to the Quarterly Bulletin for 2010 Q3 of the Bank of England Monetary Assessment and Strategy Division, which demonstrated the divergence between bank rate and new unsecured lending rates from 2008 to the date of the bulletin. He also invited my attention to tables produced by the Bank of England showing inter alia the UK MFI effective interest rates on both unsecured and secured loans over the period April 2010 to date. Such material substantiated his contention that a rate of 5% over base is a fair and reasonable rate to reflect the cost of unsecured borrowing to an individual.
The counter argument advanced by Mr Linden QC is that the normal rate of interest awarded in a commercial case is Bank of England base rate plus 1%, and that it is for the claimants to demonstrate that such a rate would be ‘substantially unfair’ in relation to their particular circumstances. But in my judgment his argument is based on a false premise, namely that this case is to be treated as a commercial case, or akin to a commercial case. The claims are brought by the claimants as individuals against their former employer. There is no sound basis upon which to assume that they could borrow at the rates available to commercial concerns.
I am satisfied that the appropriate rate at which to compensate the claimants for being kept out of their money is the cost of unsecured borrowing by individuals. There will therefore be an order for interest on damages at the rate of 5% above Barclays bank base rate.
The Anar claimants
There is a further issue with regard to the Anar claimants, namely the rate of interest that should apply from 3 March 2010, the date of expiry of the part 36 offer made on their behalf on 9 February 2010. They claim interest at 10% above base rate, that being at the upper limit set by CPR 36.14(3)(a). It was not suggested on behalf of the defendants that the circumstances are such that it would be unjust to make such an order, and bearing in mind that I have fixed the rate of interest for the Atrill claimants and for the Anar claimants prior to 3 March 2010 at 5% over base, I consider that it is appropriate to fix the enhanced rate at 10% over base.
The Appropriate Exchange Rate
I have found that the claimants are entitled to damages for breach of contract, namely the difference between the sums stated in his or her bonus letter and the sum in fact paid by way of discretionary bonus (see paragraph 194 of the judgment). The sums stated in the bonus letters of 19 December 2008 were in euros but were to be paid in “in local currency in February 2009”.
It is submitted on behalf of the claimants that the rate of exchange to be applied in calculating the claimants’ damages is that prevailing on 29 January 2009 when the February payroll would have been paid, namely an exchange rate of €1 = £0.9055.
The defendants do not agree. They contend that on the basis of my judgment, the first defendant was obliged to distribute the guaranteed minimum bonus pool ‘in the usual way’, and that the evidence demonstrates that the usual way in which bonuses were converted from euros to sterling was by using the average exchange rates for the year in question. They therefore contend for a rate of €1 = £0.798542 being the average rate for 2008.
Mr Linden based his argument on my conclusion as to the effect of the announcement of 18 August at paragraph 108 of the judgment. My conclusion was that the allocation to individuals would be made by reference to performance “in the usual way”; but I accept that it was implicit in my judgment that not only allocation but distribution would take place “in the usual way”.
Mr Linden then sought to demonstrate that the usual practice was for conversion using average exchange rates for the year in question by reference to the contemporary documentary evidence. Examples of the “Statement of total variable compensation” for both 2006 and 2007, see E1 pages 20 and 21, expressed the “Total variable award” in both euros and sterling, with a footnote in the following terms:
“Amounts quoted in € do not confer any contractual entitlement to be paid in €. Unless otherwise stated, all elements will be paid in local currency converted using the 2006 average exchange rates provided by Finance of €1 : GBP.6826 …”
The letters dated 18 August 2008 sent to those who were awarded a guaranteed individual bonus in addition to their entitlement to a discretionary bonus, contained the following:
“The cash award referred to above will be delivered in pounds sterling at the calendar year average foreign exchange rate set by Finance …” (B1 page 256).
The standard form of contracts of employment contained a paragraph within clause 3.2 in almost identical terms (e.g. B1 page 88).
Where an employee was given a guaranteed bonus for the year in which he joined the bank, his employment agreement expressed his entitlement in euros, and included the provision that such amounts would be delivered in £ sterling at the calendar year average (B1 page 88).
Finally and importantly Mr Linden relied upon the fact that the discretionary bonuses that were paid in February 2009 were calculated by reference to 2008 average exchange rates (see C15 page 5309A).
As he observed, such an approach was fair to both employer and employee as it had the effect of evening out any fluctuations in the exchange rate during the course of the year in question.
But his argument was vigorously contested by Mr Hochhauser QC for the Anar claimants on the basis that they had expressly pleaded the claim by reference to the rate of exchange on 29 January 2009, and that that element of the claim had never been put in issue by the defendants. The “Brief Details of Claim” contains the following paragraph:
“The claim is for payment in Euros because under the Claimants’ Contracts the payments are due in Euros. We certify that, according to Bloomberg, the rate current in London on 29 January 2009 for the purchase of Euros was €1 = £0.9055 and at this rate the debt, or specified amount claimed, €16,715,500, amounts to £15,135,885. ”
In the Anar claimants Particulars of Claim, the claim was expressed in the following terms:
“As against the First Defendant:
(1) Payment of the sums set out in the Schedule, alternatively damages in the said sum or their sterling equivalent as at the date that they should have been paid”.
The schedule expressed the ‘Amount claimed’ in euros, but with the sterling equivalent in the next column.
In their defence to the Anar claims, the defendants did not take issue with the claim to sterling equivalent at the date at which the bonuses should have been paid; and Mr Hochhauser submits that as the point was not taken in the defence, which went through three iterations, the defendants should not now be permitted to rely on it.
In resolving this issue it is necessary to bear in mind the position of the Attrill claimants. At paragraph 41 of their Particulars of Claim they claim “the bonuses identified in the 19 December 2008 letters which are set out in the list attached hereto as Appendix B”. The list expressed the ‘Claim Value’ in euros with no conversion to sterling. Thus their pleading is silent on the issue; and Mr Tozzi simply submits on their behalf that it would be manifestly unjust for a different exchange rate to be applied to each group of claimants. I agree.
Under the standard contracts of employment whereas salaries were expressed in sterling, discretionary bonus awards were to be made “… in accordance with the Company’s policies and practices from time to time, as set out in the Employment Handbook …” (see clause 3.1(b)). The Employment Handbook stipulated that base salaries would be paid in sterling (see clause 10.4), but did not make provision for discretionary bonuses. But the practice as to payment of discretionary bonuses is clear from the documentary material to which Mr Linden invited my attention. In the face of such material I am bound to conclude that the obligation was to pay the sterling equivalent of bonuses notified in euros at the average exchange rate for the year in question.
In response to the pleading point taken by Mr Hochhauser, Mr Linden sought leave if necessary to amend his defence to put that element of the Anar claimants claim in issue, an application that was resisted with characteristic vigour by Mr Hochhauser who argued that the time for such an amendment was long since past. The question is therefore whether the defendants are to be precluded from relying on the true position by reason of their failure to take the point in their pleaded case, or whether they are to be permitted further to amend the defence.
I have come to the conclusion that the defendants should be permitted to make the necessary amendment for two reasons. First it would be manifestly unjust to rule on exchange rates on an erroneous basis. Secondly I do not consider that the claimants are prejudiced by such an amendment. The issue did not arise until consideration had to be given to the terms of the judgment, and was resolved by reference to the documentary material. Its resolution was not affected by evidence that was or could have been given in the course of the trial.
The question of further amendment of the defence to the Attrill claim was not raised in the course of argument. But the same analysis obviously applies to it, and for the avoidance of doubt, if leave to amend is sought so that the position is clear on the pleadings, it will be granted.
It follows that judgment should be entered in both claims in sterling in sums calculated by reference to the average rate of exchange between the euro and sterling for 2008.
Costs
The defendants accept that the claimants are entitled to their costs, but there are two issues between the parties namely:
whether such costs should be assessed on the standard or indemnity basis;
whether it is appropriate for there to be interim payments on account of costs, and if so in what sums.
As to (ii), there is a further issue, namely whether, if I am persuaded that interim payments should be made, they should be discounted to reflect the fact that the defendants will contend, on detailed assessment, that the involvement of two sets of solicitors and counsel for the claimants resulted in a duplication of costs, and that the defendants should not have to bear the costs attributable to such duplication.
Should the costs be assessed on the standard or indemnity basis?
The claimants contend that they are entitled to orders for costs on an indemnity basis having regard to the circumstances in which the claims arose and to the manner in which the litigation has been conducted by the defendants. They rely on the cumulative effect of the following conduct on the part of the defendants:
“a. Introducing a MAC clause with the intention of seeking to deprive the Claimants of their bonus;
b. Misleading the Claimants as to their true intentions regarding the MAC clause;
c. Failing to comply with the terms of the MAC clause;
d. Failing to deal with the Claimants’ legitimate grievances in an appropriate way;
e. Trying to force the Claimants to drop their claims as the price of being offered continuing employment;
f. Taking every point they possibly could to defeat the claims when they were made;
g. Seeking summary judgment, thereby increasing the costs;
h. Requiring so many claimants to have to give evidence;
i. Failing to concede points which should have been conceded;
j. Effectively waging a war of attrition against claimants whose resources were nothing like as great as those of the defendants.
The authorities on indemnity costs were conveniently summarised by Akenhead J in Mayor and Burgesses of the London Borough of Southwark v IBM UK Ltd [2011] EWHC 653 (TCC):
“4. The following are unexceptional propositions:
(a) An award of costs on an indemnity basis is not intended to be penal and regard must be had to what in the circumstances is fair and reasonable: Reid Minty v Taylor [2002] 1 WLR 2800, Paragraph 20.
(b) Indemnity costs are not limited to cases in which the court wishes to express disapproval of the way in which litigation has been conducted. An order for indemnity costs can be made even when the conduct could not properly be regarded as lacking in moral probity or deserving of moral condemnation: Reid Minty, Paragraph 28.
(c) The court's discretion is wide and generous but there must be some conduct or some circumstance which takes the case out of the norm: Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson (A Firm) [2002] C.P. Rep. 67 , Paragraphs 12, 19 & 32.
(d) The conduct must be unreasonable to a high degree. ‘Unreasonable’ in this context does not mean merely wrong or misguided in hindsight: Kiam v MGN Ltd (No2) [2002] 1 WLR 2810, Paragraph 12.
(e) The pursuit of a weak claim will not usually, on its own, justify an order for indemnity costs, but the pursuit of a hopeless claim, or a claim which the party pursuing it should have realised was hopeless, may well lead to such an order: “[T]o maintain a claim that you know, or ought to know, is doomed to fail on the facts and on the law, is conduct that is so unreasonable as to justify an order for indemnity costs”: Wates Construction Ltd v HGP Greentree Allchurch Evans Ltd [2006] BLR 45 , Paragraph 27 and Noorani v Calver [2009] EWHC 592 (QB) , Paragraph 9.
…”
The conduct upon which the claimants rely falls into two categories, a – e, which relate to the introduction of the MAC clause and its consequences, and f – j, the conduct of the litigation. As to the latter, the litigation was hard fought, but not in itself conducted in so unreasonable a manner as to justify an award of indemnity costs.
As to the former the case in essence was very simple. It involved the deliberate breach of a promise made by a bank to its employees, a promise made with the intention of stabilising and incentivising the workforce so as to preserve the investment banking division pending the sale of the bank, and which achieved its intended effect. It involved an attempt to avoid the contractual commitments to which the promise gave rise by the imposition of the MAC clause, an attempt amounting to a breach of the implied term of mutual trust and confidence that goes to the heart of the relationship between employer and employee. The clause was introduced for reasons unrelated to the performance of DKIB, but was relied on to avoid payment of bonuses due to employees following a proper and unchallenged assessment of their individual performance.
At paragraph 221 of the judgment I concluded that the MAC clause was introduced as a result of pressure from Commerzbank which by that stage was committed to the purchase of DBAG, pressure that was “borne of an understandable sensitivity to the public perception of the payment of bonuses on such a scale in the context of the massive support for Commerzbank by the German government”. In short the contractual rights of the employees were sacrificed on the altar of public perception.
In my judgment the conduct of DBAG to those employed in DKIB was highly reprehensible, and was unreasonable to the high degree that warrants an order for indemnity costs. As I have already indicated I do not consider that the manner in which the defence was conducted of itself warrants such an order. But it certainly did not serve to mitigate the conduct that gave rise to the claims. The assessment of costs will therefore be on the indemnity basis.
I turn then to the argument advanced by Mr Linden that in determining whether there should be payments of costs on account, and if so in what proportion of the costs claimed, I should take account of the likelihood, as he asserts there must have been, of duplication of work by the two teams of solicitors and counsel. The point was raised by Linklaters by letter to the claimants’ solicitors dated 23 March 2011 following the acknowledgement by Mr Hochhauser before the Court of Appeal on 16 February 2011 that there was no material distinction between the Anar claims and the Attrill claims. Linklaters asserted that there appeared to be no valid reason why the claimants needed separate representation by different sets of solicitors and counsel.
The solicitors acting for each set of claimants responded to the effect that they did not consider that costs would be duplicated to any material degree, pointing out that there was close co-operation between the solicitors so as to avoid duplication. Stewarts Law also explained that both groups of claimants were funding the litigation by a combination of ATE insurance and a CFA, that the terms of such insurance and of the CFAs differed, and argued that it was highly unlikely that the court would “compel claimants who are content with the representation and the funding arrangements that they have had in place for some time now to change those arrangements”. They also asserted that the defendants’ proposal to ‘fuse’ the claimants’ arrangements at that late stage would not save costs, but would rather lead to unnecessary additional costs. Linklaters did not pursue the matter further.
In my judgment the points made by the claimants’ solicitors in their responses to the letter from Linklaters and developed by Mr Hochhauser in argument, were well made. I consider that it was entirely reasonable for the claimants to have rejected the suggestion that there be single representation, bearing in mind the late stage at which it was made, and the separate and different funding arrangements entered into by each group of claimants. To have attempted to rearrange the funding at that stage would have presented obvious and considerable difficulties.
It will of course be open to the defendants to seek to identify any unnecessary duplication of work on detailed assessment on costs. I would simply say that I was impressed by the degree to which the teams of solicitors and counsel acting for the claimants cooperated so as to avoid unnecessary duplication of work.
Accordingly I reject the argument that I should discount any interim payments on account of costs to reflect the fact that there were separate teams representing the claimants.
Interim Payments on Account of Costs
The claimants seek payments of 50% of their costs. The power to make an order for interim payment derives from CPR 44.3(8). The court must be satisfied that a payment on account will be of a sum that would “almost certainly” be demonstrated to be due on detailed assessment.
The Attrill claimants contend for a payment on account of £2.8m on the premise that their costs are likely to be in the region of £5.6m. They provide a break down of such costs in their skeleton argument. The Anar claimants contend for a payment on account of £2.5m. In their case they have produced a schedule of costs totalling £5.083m.
It is submitted on behalf of the defendants first that there is no reason to believe that the first defendant will not pay any sums found to be due on assessment together with interest, and that accordingly there is no prejudice to the claimants in not making an order for payment on account, but that secondly they should be ordered to pay at most 25% of the total sums claimed.
In oral submissions and in support of his argument that any such order should be limited to 25% of the costs claimed, Mr Linden argued that the sums claimed were in any event extremely high, far in excess of those incurred by the defendants. But as Mr Tozzi pointed out in response, a very substantial part of the costs are attributable to the funding arrangements, namely in the case of the Anar claimants an ATE premium of almost £1.5m and the conditional fee uplift for both solicitor and counsel totalling approximately £720,000.
In those circumstances I am entirely satisfied that that the claimants will recover at least 50% of the sums claimed, and accordingly there will be an order to that effect.
Permission to Appeal
Mr Linden set out the grounds upon which he seeks to challenge the judgment in detail in his skeleton argument, and accordingly it was not necessary for him to amplify them in his oral submissions. I have given them careful consideration; but as Mr Hochhauser observed in the course of argument, to succeed in an appeal the defendants will have to overturn the judgment on three fronts. I do not consider that there is a real prospect of success, and permission is therefore refused.
Finally there is the question of a stay pending an application to the Court of Appeal. There will be a stay until final determination of an application to the Court of Appeal for permission to appeal, alternatively if no application is made, until expiry of the period within which it must be made.
I therefore direct that the parties draw up a final order in accordance with the terms of this judgment. For the avoidance of doubt time for appeal to the Court of Appeal will be extended to 21 days after handing down of the final order.