Brader Daniel John v Commerzbank AG

• Jurisdiction: Singapore
• Judgment Date: 07 January 2014
• Date: 07 January 2014
• Docket Number: Suit No 486 of 2011
• Court: High Court (Singapore)

Brader Daniel John and others

Plaintiff

and

Commerzbank AG

Defendant

[2013] SGHC 284

Lionel Yee JC

Suit No 486 of 2011

High Court

Contract—Contractual terms—Contract of employment providing for discretionary bonus—Whether employer obliged to act in bona fide and rational manner

Contract—Contractual terms—Implied terms—Implied duty of trust and confidence in employment relationship—Threshold for breach—Whether employer acted without reasonable cause and in manner calculated to destroy or seriously damage relationship of confidence and trust

Contract—Formation—Whether requisite elements of binding contract arose from unilateral announcement by company's CEO to its employees

Dresdner Bank AG (‘Dresdner Bank’) was a bank incorporated in Germany. It had a global investment banking division known as DKIB. The Plaintiffs were ten employees who formerly worked within DKIB in Singapore. Dresdner Bank became a subsidiary of the Defendant, Commerzbank AG, in 2009. By operation of German law, all the assets and liabilities of Dresdner Bank passed to the Defendant.

On 18 August 2008, DKIB's CEO, Dr Stefan Jentzsch, announced via a business update that was watched live and over the internet by DKIB's employees that there would be a minimum pool of €400 m guaranteed for DKIB from which their bonuses for 2008 would be paid out (‘the 18 August Announcement’). On 19 December 2008, a letter was sent to all DKIB employees who were eligible to be considered for discretionary bonuses, including the Plaintiffs (‘the 19 December Letter’). This declared the bonus that was provisionally awarded to them for 2008. The letter included a clause that provided for the bonus declared to be reviewed by a stipulated process if there were additional material deviations in DKIB's revenue and earnings (‘the MAC clause’). On 19 February 2009, a letter was sent to all DKIB employees announcing that the bonus awards issued on 19 December 2008 would be reduced by 90% pro rata.

The Plaintiffs brought this action seeking either the balance 90% of the bonuses declared in the 19 December Letter or damages. Their primary argument was that the 18 August Announcement constituted a contractually binding promise that there was a bonus pool with a guaranteed minimum of €400 m that would be paid out regardless of DKIB's financial performance. The Defendant was obliged to pay the Plaintiffs their bonus as declared in the 19 December Letter and their failure to do so constituted a breach of this promise. The Plaintiffs' second argument was that, irrespective of the contractual effect of any promises made, the Defendant's failure to pay them their bonuses in full in accordance with its promises was a breach of its duty to behave in a way that preserved the trust and confidence that an employee should have in his employer. The Plaintiffs' third argument was that the Defendant was bound by the MAC clause and had failed to comply with its terms in reducing their bonuses.

Held, allowing the claim:

(1) The requisite elements of acceptance, consideration, intention to create legal relations and certainty were established in respect of the 18 August Announcement. Dr Jentzsch also had the authority to make that announcement. Consequently, a binding contract between the Plaintiffs and Dresdner Bank arose from the 18 August Announcement pursuant to which Dresdner Bank would pay all or substantially all of the €400 m in the bonus pool to its DKIB employees, including the Plaintiffs, as bonuses: at [67] , [70] , [71] , [81] , [94] , [98] and [100] .

(2) In order for a breach of the term of trust and confidence implied into employment relationships to be established, the impugned conduct of the employer had to be without reasonable cause and such conduct had to be calculated and likely to destroy or seriously damage the relationship of confidence and trust. It would take quite extreme behaviour on the part of the employer to satisfy these requirements: at [114] .

(3) Dresdner Bank had suffered significant losses in 2008, such that the Defendant had to increase Dresdner Bank's capital by €4.0 bn in the first quarter of 2009. Further, the Defendant's own employees were not receiving a bonus for 2008, and it might have appeared untenable for the management of the Defendant to pay out sizable bonuses in one of its subsidiary companies in such circumstances. In a similar vein, the Defendant had received significant amounts of financial assistance from the German government and would have feared an unfavourable juxtaposition between the payment of bonuses and prevailing economic conditions. These all constituted reasonable and proper causes for not following through with the 18 August Announcement and there was therefore no breach of the implied term of trust and confidence: at [114] , [115] and [117] to [119] .

(4) The Defendant was not bound by the MAC clause as the basis of its purported contractual effect was not made clear. Further, the 19 December Letter was expressly stated to be provisional: at [121] and [122] .

[Observation: The 18 August Announcement largely superseded whatever the existing contractual position might have been regarding the Plaintiffs' contractual entitlement to a discretionary performance-based bonus for 2008. As such, there was no need for a definitive pronouncement to be made on the Plaintiffs' submission that Dresdner Bank had to act in a bona fide and rational manner, taking into account proper facts, in deciding whether to award discretionary bonuses and, if so, how much to award: at [106] .]

Attrill v Dresdner Kleinwort Ltd [2012] EWHC 1189 (QB) (refd)

Cantor Fitzgerald International v Horkulak [2004] IRLR 942 (refd)

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (folld)

Cheah Peng Hock v Luzhou Bio-Chem Technology Ltd [2013] 2 SLR 577 (folld)

Chwee Kin Keong v Digilandmall.com Pte Ltd [2004] 2 SLR (R) 594; [2004] 2 SLR 594 (refd)

Clark v Nomura International plc [2000] IRLR 766 (refd)

Currie v Misa (1875) LR 10 Exch 153 (folld)

Dickson Trading (S) Pte Ltd v Transmarco Ltd [1987] SLR (R) 674 (folld)

Dresdner Kleinwort Ltd v Richard Attrill [2013] EWCA Civ 394 (refd)

Edwards v Skyways Ltd [1964] 1 WLR 349 (refd)

Gay Choon Ing v Loh Sze Ti Terence Peter [2009] 2 SLR (R) 332; [2009] 2 SLR 332 (folld)

Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503 (folld)

Latham Scott v Credit Suisse First Boston [2000] 2 SLR (R) 30; [2000] 2 SLR 693 (refd)

Lee Chee Wei v Tan Hor Peow Victor [2007] 3 SLR (R) 537; [2007] 3 SLR 537 (folld)

Malik v Bank of Credit and Commerce International SA [1998] AC 20 (folld)

Mamidoil-Jetoil Greek Petroleum Company SA v Okta Crude Oil Refinery AD [2003] 1 Lloyd's Rep 1 (refd)

Manuel Misa v Raikes Currie (1876) 1 App Cas 554 (folld)

Saleem Khatri v Cooperatieve Centrale Raiffeisen-Boerenleenbank BA [2010] IRLR 715 (refd)

Sea-Land Service Inc v Cheong Fook Chee Vincent [1994] 3 SLR (R) 250; [1994] 3 SLR 631 (folld)

Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 (folld)

Wong Leong Wei Edward v Acclaim Insurance Brokers Pte Ltd [2010] SGHC 352 (folld)

Evidence Act (Cap 97, 1997 Rev Ed) s 104

Kenneth Tan SC and Soh Wei Chi (Kenneth Tan Partnership) for the plaintiffs

Lee Eng Beng SC, Lai Yew Fei and Alec Tan (Rajah & Tann LLP) for the defendant.

Judgment reserved.

Lionel Yee JC

1 Are there circumstances in which an employee can have a legally enforceable right to a bonus? That was the question that arose for decision in this case. The plaintiffs' former employer had promised its employees that they would be paid bonuses from a pool of funds that had been specifically set aside for that purpose. The bonus that was eventually paid out did not accord with that promise, and the plaintiffs (‘the Plaintiffs’) brought this action seeking to enforce it.

The facts

The parties

2 Dresdner Bank AG (‘Dresdner Bank’) was at all material times a bank incorporated in Germany. It had a Singapore branch (‘DB Singapore’) and a global investment banking division, which was not a separate legal entity, known as Dresdner Kleinwort or DKIB. The Plaintiffs are ten employees who formerly worked in DB Singapore and within DKIB. Dresdner Bank was originally a wholly-owned subsidiary of Allianz SE (‘Allianz’). However, it was sold and became a wholly-owned subsidiary of the defendant (‘the Defendant’), Commerzbank AG (‘Commerzbank’), from 12 January 2009. By operation of German law, all the assets and liabilities of Dresdner Bank passed to Commerzbank. It is for that reason that Commerzbank is the named Defendant in this suit.

The witnesses

3 All of the Plaintiffs gave evidence in court. In addition, they relied heavily on the evidence of Dr Stefan Jentzsch, who was formerly a member of the Management Board of Dresdner Bank (‘the Management Board’) and the Chief Executive Officer (‘CEO’) of DKIB.

4 The Defendant in turn put forward four witnesses:

(a) Michael Paul Reuther, a member of the Commerzbank's Board who took over as CEO of DKIB from 12 January 2009;

(b) Joerg Hessenmueller, formerly the Global Head of Financial Control of DKIB and the Head of the Finance Department of the Investment Banking Division of the Commerzbank Group from 12 January 2009;

(c) Helmut Merkel, General Counsel for Dresdner Bank until May 2009; and

(d) Lee Lay Hoon, an employee of DB Singapore working in the Human Resources (‘HR’) Department.

Background

The payment of discretionary bonuses by DKIB

5 Before going into the material events, it is useful to set out the usual process by which DKIB issued discretionary bonuses for context. The first to ninth Plaintiffs' respective employment contracts stated that, ‘The Bank pays a Performance Variable Bonus at its discretion’. The tenth Plaintiff's employment contract stated, ‘As you are aware, the Bank makes discretionary bonus awards and you will be eligible for consideration in early 2009...