Lichters and Another -v- Depfa Bank Plc

• Jurisdiction: Ireland
• Judge: Mr. Justice Hedigan
• Judgment Date: 18 January 2012
• Neutral Citation: [2012] IEHC 10
• Judgment citation (vLex): [2012] 1 JIC 1808
• Court: High Court
• Date: 18 January 2012

[2012] IEHC 10

THE HIGH COURT

[No. 1509S/2009]

[No. 1510S/2009]

Lichters & Hass v DEPFA Bank Plc

BETWEEN

ROLAND LICHTERS

PLAINTIFF

v.

DEPFA BANK PLC

DEFENDANT

JURGEN HASS

DEPFA BANK PLC

JOHN ORR LTD v ORR 1987 ILRM 702

FINNEGAN v J & E DAVY 2007 18 ELR 234

CLARKE v NOMURA INTERNATIONAL 2000 IRLR 766

EMPLOYMENT LAW

Remuneration

Bonus - Contract of employment - Terms of bonus - Cash bonus - Deferred stock plan - Deferred cash bonus awarded in lieu of allocating shares - Whether breach of contract tin imposing deferred cash bonus scheme - Payment withheld as plaintiffs no longer in employment - Whether contractual provision in restraint of trade - Discretionary bonus - Discretion to be exercised reasonably - Whether new scheme fair and reasonable and in interests of employees - John Orr Ltd v Orr [1987] ILRM 702; Finnegan v J & E Davy [2007] ELR 234 and Clarke v Nomura International [2000] IRLR 766 considered - Claims dismissed (2009/1509S & 1510S - Hedigan J - 18/1/2012) [2012] IEHC10

Lichters v DEPFA Bank PLC

1 Judgment of Mr. Justice Hedigan delivered the 18th day of January 2012.

2 1. The plaintiffs were at the material time employed by the defendant bank. The defendant, DEPFA Bank Plc is a public limited company with a registered office at 1 Commons Street, Dublin 1.

3 2. In this action Mr Lichters claims:-

4 (1) Judgment in the sum of €190,000.00.

5 (2) Interest pursuant to statute.

6 (3) Such further or other order as seems fit.

7 (4) The costs of these proceedings.

8 Mr Hass claims:-

9 (1) Judgment in the sum of €40,000.00

10 (2) Interest pursuant to statute.

11 (3) Such further or other order as seems fit.

12 (4) The costs of these proceedings.

Background Facts

13 2 3.1 The plaintiffs were employed by the defendant bank until their resignations in April 2008. Mr Lichters commenced employment with the defendant in August 1997. In 2004 he took up a position in Dublin as Head of Global Market Risk. Mr Hass commenced employment with the defendant bank in August 1998. In 2002 he took up a position in Dublin as Associate Director, Group Strategy with DEPFA Europe. Both plaintiffs had contracts with the defendant which provided that part of their remuneration structure included the provision of a bonus. The terms of the bonus was governed by the defendants "Incentive Compensation Program" ("ICP") which provided for a "cash bonus pool" and a "deferred stock plan".

14 3 3.2 Clause 2 of the ICP provided for the "cash bonus plan". It sets out the purpose of that plan as being:-

"In order to incentivise performance and to give recognition to value added to the operations of the company"

15 The ICP then goes on to set out that in each year there would be a cash bonus pool established and that awards of cash to employees might be made. Rule 2.2(e) provided that as soon as reasonably practical after the making of a cash award to an employee the company should pay him a cash bonus of the amount of the award. Clause 3 of the ICP provided for a "deferred stock plan" and that purpose is stated to be:-

"In order to incentivise and retain executives and staff"

16 Clause 1.2(b) of the ICP provided as follows:-

"No person shall be entitled as of right to receive an award and the decision as to who shall receive any award and the time and extent of any award made to him shall, subject to the rules, be made by the committee at its absolute discretion."

17 Under the deferred stock plan, stock awards were lost if the employee was no longer employed by the defendant on the vesting date.

18 4 3.3 The "deferred stock plan" established under the provisions of the ICP, required the Compensation Committee of the Board of Directors of the defendant to establish an amount to be applied for the purchase of shares in the company for each year. The amount to be applied was paid to the trustees of the deferred stock plan. The trustees of the deferred stock plan were then to purchase the shares and allocate them to employees as per the instructions of the Compensation Committee. The allocated shares would then vest in accordance with various provisions of the deferred stock plan.

19 5 3.4 Clause 3.5 (b)(iii) of the ICP provided that shares would vest immediately upon a change in control. There was a change in control of the defendant in October 2007. The entire share capital of the defendant was purchased by Hypo Real Estate Group. This had the effect of making it impossible for the defendant to allocate further shares. On the 13 ^th February, 2008 the defendant wrote to Messrs Lichters and Hass informing them that in respect of the year ending 31 ^st December, 2007 it had decided to award them a deferred cash bonus in lieu of allocating shares. Mr Lichters was awarded a cash bonus of €200,000 and a deferred cash bonus of €180,000 in lieu of shares. Mr Hass was awarded a cash bonus of €40,000 and a deferred cash bonus of €40,000 in lieu of shares. The deferred sums were to be paid if Messrs Lichters and Hass remained in the defendant's employment as of February 2010. Messrs Lichters and Hass both left the defendant's employment in April 2008 and were therefore not paid the deferred cash bonus. They claim that in imposing the deferred cash scheme the defendants acted in breach of contract. In the within proceedings they seek payment of the sums deferred.

Plaintiffs Submissions

20 2 4.1 Messrs Lichters and Hass understood and believed that they would be awarded a cash bonus for their performance in 2007 and that it would be paid to them in accordance with the provisions of Clause 2 of the ICP. They had received payments pursuant to the ICP for the years 2005, 2006 and 2007 in reflection of their work with the company in each preceding year, respectively. The annual letters sent to Messrs Lichters and Hass notifying them of this bonus contained the following statement:-

"The Award (where applicable) will be in addition to any bonus guaranteed to you under the terms of your contract."

21 The Cash Award will be payable with your next monthly salary (subject to local payroll processing dates) under local conditions and in local currency (where applicable)."

22 3 4.2 In February 2008, Messrs Lichters and Hass received a letter awarding them their bonus for 2007. The bonus consisted entirely of cash and total amount payable to them was in line they claim, with the level of reward that they expected to receive. However, the defendant purported to defer the payment of part of the bonus and to impose conditions on the making of the said payment that were never agreed to by Messrs Lichters and Hass. Indeed the conditions were not notified to them until the date of letter awarding the cash bonus, i.e. 13 ^th February, 2008. The plaintiff's submit that the defendant was not entitled to defer any part of their cash bonus. The express terms of the ICP provided for the immediate payment by the defendant to the plaintiff's of any cash bonus. That in the plaintiff's submission is the end of the matter.

23 4 4.3 In refusing to pay the deferred component of the bonus the defendant relies upon provisions in the February 2008 document that provided that the plaintiff's had to be in employment with the defendant in February 2010. This provision, they argue, is manifestly unenforceable being in restraint of trade. The law in relation to such provisions was set out by Costello J in John Orr Limited v Orr [1986] WJSC 836:-

"The principles of law to be applied in the issue are not in controversy and can be briefly stated. All restraints of trade in the absence of special justifying circumstances are contrary to public policy and are therefore void. A restraint may be justified if it is reasonable in the interests of the contracting parties and in the interests of the public. The onus of showing that a restraint is reasonable between parties rests on the person alleging that it is so. Greater freedom of contract is allowable in a convenant entered into between an employer and employee. A covenant against competition entered into by the seller of a business which is reasonably necessary to protect the business sold is valid and enforceable. A covenant by an employee not to complete may also be valid and enforceable if it is reasonably necessary to protect some proprietary interest of the covenantee such as may exist in a trade connection or trade secrets. The courts may in certain circumstances enforce a covenant in restraint of trade even though taken as a whole the convenant exceeds what is reasonable, by the severance of the void parts from the valid parts."

24 In the instant case the defendant has not advanced "any special justifying circumstances" such as would lead the Court to enforce the clause. Further, and critically, the defendant cannot even establish that the restriction was incorporated in the plaintiff's contract in circumstances where the plaintiff never agreed to it. In Finnegan v J & E Davy [2007] ELR 234 Smyth J found that a precisely analogous term referable to bonus payment was in restraint of trade. He found that no evidence had been tendered to justify the provision and that in any event that to enforce such a condition it must be fairly and reasonably brought to the other party's attention.

25 The provision that the defendant seeks to rely upon was imposed after the event.

26 5 4.4 The defendant was obliged to make discovery of any documents generated by the Compensation Committee in relation to the awards to Messrs Lichters and Hass. It is remarkable that notwithstanding this obligation no such documentation has been discovered. Furthermore the defendant has not said what payments were made on account to the trustees for 2007 in accordance with the provisions of the ICP and whether the trustees had...