Daniel John Brader and others v Commerzbank AG

• Jurisdiction: Singapore
• Judge: Lionel Yee JC
• Judgment Date: 07 January 2014
• Neutral Citation: [2013] SGHC 284
• Court: High Court (Singapore)
• Hearing Date: 21 March 2013,26 March 2013,25 March 2013,19 March 2013,12 March 2013,11 March 2013,18 March 2013,11 November 2013,13 March 2013,22 March 2013,14 March 2013,20 March 2013,15 March 2013,16 April 2013
• Docket Number: Suit No 486 of 2011
• Plaintiff Counsel: Kenneth Tan SC and Soh Wei Chi (Kenneth Tan Partnership)
• Defendant Counsel: Lee Eng Beng SC, Lai Yew Fei and Alec Tan (Rajah & Tann LLP)
• Subject Matter: Contract
• Published date: 10 February 2014

Lionel Yee JC:

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 brought this action seeking to enforce it.

The Facts The Parties

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 10 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, 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

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.

The Defendant in turn put forward four witnesses: Michael Paul Reuther, a member of the Commerzbank’s Board who took over as CEO of DKIB from 12 January 2009; 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; Helmut Merkel, General Counsel for Dresdner Bank until May 2009; and Lee Lay Hoon, an employee of DB Singapore working in the Human Resources (“HR”) Department.

Background The payment of discretionary bonuses by DKIB

Before going into the material events, it is useful to set out the usual process by which DKIB issued discretionary bonuses for context. The 1st to 9th Plaintiffs’ respective employment contracts stated that, “The Bank pays a Performance Variable Bonus at its discretion.”¹ The 10th 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 and annually thereafter.”² All of the Plaintiffs’ employment contracts provided that the terms of their employment would be governed by the terms and conditions in the prevailing Employee Handbook.³ The Employee Handbook included the following clause:⁴

Variable Bonus The Bank has a performance variable bonus plan to award bonuses to deserving employees at the end of each financial year. The bonuses are granted at the Bank’s sole discretion and are subject to the Bank’s financial performance and the individual’s performance for the financial year. Bonus payment is usually made within the first quarter of the following year.

Accruals were made for a bonus pool in Dresdner Bank’s accounts on a monthly basis from the start of the financial year.⁵ The amount accrued could be increased or decreased during the year and the final bonus pool could be a different amount from the sum of the 12 months’ accrual.⁶ The fact that accruals for bonuses were made on a monthly basis in the accounts did not mean that there was a segregated pool of money set aside in a special account for bonus payments as these accruals were merely book entries.⁷ However, the bonus accruals would be communicated to staff members throughout the year, and they would therefore be aware of fluctuations in the bonus pool.⁸

The CEO of DKIB would negotiate an overall bonus pool with the CEO of Dresdner Bank. These negotiations would be influenced by a parallel process between the CEO of DKIB and his direct subordinates as to how much of a bonus pool they were requesting for their respective divisions. A similar process would be repeated down the hierarchy, ending with that between line managers and the individuals in their teams. These figures would be added up and communicated up the line to the CEO’s direct subordinates, who would then lobby the CEO for their division’s share of the overall bonus pool.⁹ Once the overall bonus pool was approved by the CEO of Dresdner Bank, the CEO of DKIB would then decide how to allocate that pool among his direct subordinates, with the process again repeated down the line.¹⁰

Even after the overall bonus pool had been decided and approved for DKIB and a pool had been allocated to each of the divisions, the CEO of DKIB could still reallocate the pool among the divisions if he wished to do so. This was to accommodate uncertainties in any of the businesses and the economy. Further, a contingent amount of about 3-5% of the overall pool was usually kept so that the CEO of DKIB could deal with ad hoc requests for bonuses without having to reallocate money among the divisions. If no such contingencies materialised, the unused amount would be retained by Dresdner Bank.¹¹ During the time that Dr Jentzsch was the CEO of DKIB, the final bonus pool was usually decided in November or December and the day on which the bonus awarded to individual employees was made known to them (known colloquially as “Letter Day”) was in December.¹²

The material facts

I now turn to the background of these proceedings. I will set out as much of the facts as are necessary to enable the parties’ cases to be understood. However, the details will be canvassed more extensively together with the discussion of the issues that arise for decision below.

In March 2008, Michael Diekmann, the Chairman of the Dresdner Bank Supervisory Board (“the Supervisory Board”) and the CEO of Allianz announced to the Supervisory Board that Allianz had decided to separate Dresdner Bank’s investment banking and commercial banking businesses as a prelude to exiting the investment banking business, either by selling DKIB, dramatically reducing the size of DKIB’s operations, or by winding DKIB down. This decision was subsequently made public.¹³ The Plaintiffs asserted that the employees of DKIB feared for the future of their careers at DKIB as new owners were not likely to retain existing personnel and there would be no work for them if DKIB were to be wound down.¹⁴ In his AEIC, Dr Jentzsch explained that employees were becoming increasingly restless in April and May 2008 given the uncertainty over their future and expected lay-offs, with morale and motivation deteriorating rapidly.¹⁵ On 16 May 2008, he received an email from Eddie Listorti, the Head of Fixed Income Currency and Commodities (“FICC”), which listed 10 individuals who had resigned and a further four who had resigned but who had been persuaded subsequently to stay.¹⁶ It also named the individuals in the foreign exchange options trading, interest rates and sales teams who were at risk of leaving DKIB. Eddie Listorti proposed the following solution:

I strongly believe we need to stop the interviewing [between employees and prospective employers] and talent drain and keep staff focused on performance… The most obvious solution is securing a bonus pool at FICC Sales & Trading level, conditional on achieving a target (which is actually higher than the budget and higher than last year’s revenues/residual income). This way it encourages staff to focus on producing and getting paid on production.

Dr Jentzsch in turn raised these concerns with Mr Diekmann, Dr Helmut Perlet (Chief Financial Officer (“CFO”) of Allianz), Dr Herbert Walter, Wulf Meier and Klaus Rosenfeld (who were the CEO, Head of Human Resources and CFO of Dresdner Bank respectively). In an email dated 16 May 2008, he said:¹⁷

As I have already informed you in the past two weeks, there has been a growing wave of notices of termination, in particular in the Fixed Income, Currencies & Commodities Division, in all three areas (Trading, Sales and Quantitative Analysis/Modelling). Employees are moving either individually or in teams, above all to Goldman Sachs, Citigroup and Unicredit/HVB, lastly involving four out of the five employees of the Analysis Team. Furthermore, we know that a majority of the employees are going for interviews with competitors and a substantial number of employees have requested a meeting under the key word “Resignation”.

In the event of further notices of termination, we will shortly no longer be in the position to manage the risks in the various accounts, let alone achieve trading revenues. …

I am very aware that you have issued the “No Retention” motto. Strict adherence to this guideline, however, will lead to the collapse of this business in just a few weeks and it will be extremely difficult for us to reconstruct this. I don’t need to point out the consequences on the current sales efforts, at least as far as evaluation issues are concerned.

…

In order to at least have a chance to prevent the threatening (employee) migrations, I would like to promise FICC on the whole, that for example, if they achieve revenues of €780 million, €40 million more than laid down in the budget, and €90 million more compared to last year’s earnings, the bonus fund for FICC will amount to at least €110 million. By comparison: the bonus fund for FICC last year amounted to €102 million for revenues totalling €690 million. This will give the Employees at FICC the certainty of receiving an acceptable bonus at the end of the year if objectives are reached and will give us the flexibility of allocating individual bonuses based on performance and also of allocating less on the whole, if the target of €740 is not reached.

[emphasis added]

In July 2008, Dr Jentzsch was asked for an explanation for DKIB’s poor performance in the...