B e f o r e :
MR. JUSTICE COULSON
|| MALCOLM RUTHERFORD
||- and -
||SEYMOUR PIERCE LTD.
Digital Transcription of Marten Walsh Cherer Ltd.,
1st Floor, Quality House, 6-9 Quality Court, Chancery Lane, London WC2A 1HP
Telephone: 020 7067 2900 Fax: 020 7831 6864 DX: 410 LDE
MR. ADAM SOLOMON (instructed by Synergy Employment Law Solicitors) for the Claimant
MR. MARTIN PALMER (instructed by Messrs. Memery Crystal LLP) for the Defendant
Hearing Dates: 8th -11th February 2010
HTML VERSION OF JUDGMENT
Crown Copyright ©
MR. JUSTICE COULSON:
- The claimant, Mr. Malcolm Rutherford, was employed by the defendant, Seymour Pierce Ltd ("SPL") for four and a half years between May 2003 and November 2007. SPL is a London-based investment bank and stockbroker providing advice to companies and institutions and raising finance for them. For most of his employment Mr. Rutherford was an institutional salesman. His employment was governed by a written contract of employment which he signed on 3rd May 2003.
- In May 2007 Mr. Rutherford was promoted to Head of Institutional Sales. He continued in that role until 28th November 2007 when he was summarily dismissed without notice. In subsequent proceedings in the Employment Appeal Tribunal SPL admitted that Mr. Rutherford had been unfairly dismissed on procedural grounds because he had been entitled to three months' notice under his contract. Those proceedings were eventually the subject of a Compromise Agreement dated 28th May 2008 which was in full and final settlement of all claims between the parties with one exception: Mr. Rutherford's claim relating to the non-payment of his alleged entitlement to a bonus for the last quarter of the financial year that had ended on 13th September 2007. That claim for the unpaid bonus is the subject of these proceedings.
- The first issue arises in connection with the contract of 3rd May 2003. It is SPL's case that there was an implied term of that contract that:
in order to be entitled to be considered for an award under the bonus scheme, an eligible participant has to be employed by and/or not under notice of termination of their employment (howsoever given) as at the date of payment of any award."
Although not originally pleaded as an implied term, SPL accept that this term was not expressly part of Mr. Rutherford's contract of employment. However, for a variety of reasons they now allege that the term was implied into that contract. I address that issue in Section 3 below.
- If I conclude that there was such an implied term, then that would be the end of Mr. Rutherford's claim for a bonus. If, on the other hand, I conclude that there was no such implied term, then I must go on and consider the second set of issues which arise out of the failure to pay Mr. Rutherford a bonus for the last quarter of the financial year ending in September 2007. Importantly, that includes a consideration of Mr. Rutherford's allegedly poor performance during his five months as Head of Institutional Sales in that financial year.
- Accordingly, I deal in Section 4 below with the relevant law relating to bonus claims of this type and set out the evidence and the relevant facts in Section 5. Thereafter, in Section 6 below, I analyse whether or not Mr. Rutherford was entitled to the payment of a bonus.
- The final issue, which only arises if I reject the implied term and I conclude that Mr. Rutherford was entitled to a bonus, is the quantification of the appropriate bonus. I deal with that in Section 7 below. I ought at the outset to express my gratitude to both counsel for their assistance on these issues.
3. WAS THERE AN IMPLIED TERM AS ALLEGED?
3.1 The Contract
- Mr. Rutherford's Contract of Employment was signed by him on 3rd May 2003. The relevant express terms were clauses 5 and 8 which were in the following terms:
On satisfactory completion of your probationary period you will be eligible to participate in the Company's discretionary bonus scheme. Any bonus payments or amendments made to the scheme are at the discretion of the Company.
Your initial employment with the Company will be on the basis of a probationary period of three months during which your employment may be terminated with one month's prior written notice on either side. The Company reserves the right to extend your period of probation.
On satisfactory completion of your probationary period your employment may be terminated with three months' prior written notice on either side
- In addition, the parties were agreed that SPL's disciplinary procedure and rules were set out in the Staff Handbook. The relevant extract is in the following terms:
Whenever a disciplinary issue arises the employee's manager, together with HR must investigate it promptly and fully and as part of the investigation the employee will be interviewed. The results of the investigation will then determine what disciplinary action, if any, is taken.
Stages of procedure:
If following an investigation it is considered on a balance of probability that a misconduct is justified, that warrants more than informal action, then a disciplinary hearing will be arranged. There are three important stages to the procedure.
Stage 1: Written Warning
If an employee's conduct or behaviour is alleged to have fallen below acceptable standards to the extent that a first written warning is appropriate.
Stage 2: Final Written Warning
If an employee's conduct or behaviour is alleged to be so serious as to warrant any one warning before dismissal or there has been a failure to improve or change behaviour following a current previous warning.
Stage 3: Where failure to meet standards set in previous stages or gross misconduct is involved which can result in dismissal without previous warnings."
- In considering whether the term set out in paragraph 3 above was implied into this Contract, I must consider the Contract in the light of all relevant background: see Investors Compensation Scheme Ltd. v. West Bromwich Building Society  1 WLR 896. Two matters were relied by SPL in this connection: the nature and purpose of the Bonus Scheme that they operated, and what they said was the widespread acceptance in the City of London of terms such as the one alleged here. The former was not particularly controversial; the latter very definitely was.
(a) SPL's Bonus Scheme
- SPL's bonus scheme worked in this way. 40% of the commission earned by SPL's employees and directors was set aside as the pool out of which bonuses would be paid. Half of that pool was distributed at the end of each of the first three quarters: namely, Q1 (October, November and December); Q2 (January, February and March); and Q3 (April, May and June). The remainder of the pool was distributed following the completion of Q4 (July, August and September), which marked the end of SPL's financial year. Thus, what was distributed at the end of each financial year was the other half of the pool referable to Q1, Q2 and Q3 and all of the pool referable to Q4. Whilst the other three bonus payments were made about two months after the end of the quarter to which they related, the payment for Q4 was not usually made until the week before Christmas, principally because SPL's accounts had to be signed off before a final decision could be made as to how much bonus should be paid.
- It is plain, and the witnesses agreed, that the principal purpose of the bonus scheme was to act as an incentive to the employees and the directors. It was retrospective, because it related to commission that had been earned in the past, and was not based on any future prospects of commission. The bonus scheme also encouraged loyalty, and I accept Mr. Solomon's submission that, in this connection, loyalty was a two-way process: the expectation of being paid a bonus operated to keep the employee loyal to SPL, but it was also a vehicle by which SPL could demonstrate their loyalty to and appreciation of those who had worked hard to earn SPL's significant commission.
(b) The Allegedly Widespread Use/Acceptance Of This Term
- It was SPL's case that an important part of the background to Mr. Rutherford's contract of employment, and clause 5 in particular, was the widespread use of and acceptance in the City of London of terms such as the one in issue here. In my judgment this part of SPL's case has not been made out.
- Although Mr. Feigen, SPL's former Managing Director, asserted that such a term was commonly accepted, he offered no evidence to support that view. He admitted in cross-examination that, beyond his assertion, there was no evidence for the allegedly widespread use of the term, and he said that he was not aware of other companies or institutions that utilised the implied term for which SPL now contended. In fact no contracts in use at other institutions were relied on during the course of the evidence, and no expert or third party evidence on any kind was tendered on this issue. I note that the bonus terms under consideration in Horkulak v. Cantor Fitzgerald International  EWCA Civ 1287 and Clark v. Nomura International Plc  IRLR 766, which were both cases involving City institutions, were different in both form and substance. Neither of them encompassed the sort of wide-ranging exclusion contended for here.
- Mr. Rutherford's evidence was that, whilst it was common for banks and other City institutions not to pay a bonus to an employee who had voluntarily resigned before the date that the bonus was distributed, the same was definitely not true in situations where the employee had been sacked or been given notice by his employer. He repeatedly said during cross-examination that, in his experience, entitlement to a bonus in such a situation would always depend on the facts. Moreover, in at least one passage in his cross-examination, Mr. Feigen accepted that, saying that in such situations the bonus would have to be dealt with on what he described as "a case by case basis". That evidence did not support the existence of the wide-spread used of the alleged implied term set out in paragraph 3 above.
- Accordingly, I cannot find that, as part of the background to this contract, there was a wide-spread use or acceptance of terms such as this one.
3.2 Implied Terms/Applicable Principles
- A term may be implied into a contract where it is necessary to give business efficacy to the contract and/or where the term represents the obvious but otherwise unexpressed intention of the parties: see Trollope & Colls v. The North-West Metropolitan Regional Hospital Board  1 WLR 601 and Liverpool City Council v. Irwin  AC 239.
- Although these authorities and many others demonstrate that the emphasis must be on the necessity of the term, and not merely reasonableness, a term will not be implied unless it is equitable and reasonable: see Young & Marten v. McManus Childs  1 AC 454.
- These principles have recently been restated by Lord Hoffmann in The Attorney General of Belize and Others v. Belize Telecom Ltd. and Another  1 WLR 1988 (PC). I respectfully agree with the observation by Lord Clarke in the case of The Reborn  2 LLR 639, that these passages of Lord Hoffmann's judgment are likely to become as regularly cited as the passages in Investors Compensation Scheme. As to implied terms, Lord Hoffmann said this:
"17. The question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs. The most usual inference in such a case is that nothing is to happen. If the parties had intended something to happen, the instrument would have said so. Otherwise, the express provisions of the instrument are to continue to operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls.
18. In some cases, however, the reasonable addressee would understand the instrument to mean something else. He would consider that the only meaning consistent with the other provisions of the instrument, read against the relevant background, is that something is to happen. The event in question is to affect the rights of the parties. The instrument may not have expressly said so, but this is what it must mean. In such a case, it is said that the court implies a term as to what will happen if the event in question occurs. But the implication of the term is not an addition to the instrument. It only spells out what the instrument means.
19. The proposition that the implication of a term is an exercise in the construction of the instrument as a whole is not only a matter of logic (since a court has no power to alter what the instrument means) but also well supported by authority.
21. It follows that in every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean. It will be noticed from Lord Pearson's speech [in the Trollope & Colls case] that this question can be reformulated in various ways which a court may find helpful in providing an answer the implied term must 'go without saying', it must be 'necessary to give business efficacy to the contract' and so on but these are not in the Board's opinion to be treated as different or additional tests. There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?"
- In the present case, SPL are also seeking to rely on usage and custom in support of the implied term. A term will be implied if it is usage is "invariable, certain and general" or "notorious, certain and reasonable": see the authorities summarised in Exxonmobil Sales and Supply Group v. Texaco  EWHC 1964 Com. It must be something more than a mere trading practice: see Sucre Export SA v. Northern Shipping Ltd.  2 Lloyds Rep 266.
- For the four separate reasons set out below, I am in no doubt that the alleged term was not implied into Mr. Rutherford's contract of employment.
- First, this term was not necessary in order for the contract to operate satisfactorily. On its face, the contract left open whether or not, if Mr. Rutherford was no longer an employee when the bonus was distributed, or was at that time under a notice either served by SPL or himself, a bonus would be paid to him. Payment would therefore depend on the particular circumstances in which the notice or dismissal had occurred, and there would be no inflexible rule either way. It seems to me that the contract did not require such an inflexible rule in order to work sensibly and fairly.
- Secondly, I consider that the term contended for is manifestly unreasonable. It would allow SPL the unfettered right to sack an employee the day before the bonus was distributed solely in order to avoid paying that bonus. That cannot be right. Indeed Mr. Feigen accepted that, when he agreed that there was at least a potential difference between the entitlement of someone who had been sacked and the right of an employee who had handed in their notice voluntarily. The "one size fits all" nature of the term contended for would, in those circumstances, give rise to a clear injustice.
- In Clark v. Nomura International, Burton J said at paragraph 38.1:
further, the employer cannot rely upon the fact that the employee has been dismissed to avoid liability for a bonus otherwise payable - i.e. he cannot, if he dismisses at or after the payment date, simply say that there is to be no bonus because the employee has no longevity because he has been dismissed. To allow for longevity as a separate factor risks the outcome that the employer can create lack of longevity by simply dismissing."
It seems to me that this is making precisely the same point about the unreasonableness of this alleged clause that I have outlined above.
- Thirdly, it cannot be argued that this term 'went without saying'. That is because, in later contracts of employment entered into by SPL and other members of their staff, these words have been made an express addition to clause 5. Thus SPL have seen fit to add an express term to cover the bonus position for those sacked or on notice. That, so it seems to me, is good evidence that, unless it was express, this term would not be implied.
- Fourthly, as I have indicated, there is no evidence to show that, in the City of London, a term such as this is 'notorious, invariable or certain'. I repeat my findings at paragraphs 12 to 15 above. At the very most and possibly not even that this term might be mere trade custom. It is certainly not a term that could be implied into this contract on the evidence before me.
- In reaching these conclusions I acknowledge the evidence that the vast majority of those who have left SPL in recent years have not been paid a bonus following their departure or the giving of notice. However, as I explained to Mr. Palmer during the course of argument, that evidence was of no real relevance to this issue. Any dispute about an implied term has to be considered on the basis of the evidence at the time that the contract was made, not subsequent events. In addition, there might be any number of reasons for the non-payment of a bonus in particular instances, including the fact that the express term referred to above was a feature of the departing employee's contract and/or the particular circumstances of their leaving. In any event, the evidence demonstrates that this rule was not universally applied. A handful of departing employees were paid a bonus after their departure. Mr. Rutherford's evidence was that SPL had not operated a system whereby anyone under notice was automatically not paid a bonus.
- Accordingly, for these reasons, I reject SPL's case on Issue 1. There was no implied term as alleged or at all that automatically deprived someone in Mr. Rutherford's position from being considered for a bonus.
4. ENTITLEMENT TO BONUS/APPLICABLE PRINCIPLES
- In many ways, the leading case in this area of the law is the decision of Burton J in Clark v. Nomura International. There are some similarities between this case and that. There, Mr. Clark was dismissed on three months' notice and, although he was paid his basic salary for that period and was still in employment at the date for payment of the annual bonus, he was not paid a bonus. He had earned substantial profits for the company during the relevant period. Other senior employees, including one whose department made a loss, were awarded substantial bonuses.
- The court held that an employer exercising a discretion which, on the face of the contract of employment, was unfettered or absolute, would be in breach of contract if no reasonable employer would have exercised the discretion in that way. Burton J said that the test of irrationality or perversity was simple to understand and to be preferred to the test of capriciousness which could carry with it aspects of arbitrariness or domineeringness, or whimsicality and abstractedness. On the other hand, he said, the concept of an obligation on an employer to act reasonably in the exercise of its discretion was too low a test and suggested that the court could simply substitute it own view for that of the employer. On the facts, the judge concluded that the decision to award a nil bonus to an employee who had earned profits for the company of over £6 million in nine months, and was responsible for a transaction which would probably bring into the company a further £16 million in the near future, was plainly perverse and irrational. The court went on to identify a bonus of £1.35 million rather than the nil award made.
- Accordingly, in circumstances where a decision is made as to a bonus, an employee can challenge it in the courts but only on the grounds of irrationality or perversity. At paragraph 40 of his judgment Burton J said:
"My conclusion is that the right test is one of irrationality or perversity (of which caprice or capriciousness would be a good example) i.e. that no reasonable employer would have exercised his discretion in this way. I canvassed this provisional view in the course of argument with both counsel, and neither appeared to dissent, and indeed Mr Temple QC in his closing submissions expressly adopted and used a test of irrationality.
That will involve the court in assessing the employee's bonus, on the basis of the evidence before it, and thus to that extent putting itself in the position of the employer; but it will only do it if it is first satisfied, on the higher test, not that the employer acted unreasonably, but that no reasonable employer would have reached the conclusion it did acting in accordance with its contractual obligations, and the assessment of the bonus then of course is by way of an award of damages."
- The approach in Nomura has been endorsed by the Court of Appeal in Horkulak v. Cantor Fitzgerald International and Keen v. Commerzbank AG  EWCA Civ 1536. In the latter case, where a bonus was paid, the claimant sought a larger sum, Mummery LJ stressed the very wide discretion that the bank had in arriving at its decision as to the amount of the bonus that it paid. In that case the claim failed.
- There are fewer authorities as to the proper approach in circumstances where the discretion has not in fact been exercised at all. In Horkulak, a case where there was no decision, Potter LJ said at paragraph 56:
"In the present case there was no decision; breach of contract has been established and the sole issue is the amount of damages. In that context the emphasis is slightly different. As Burton J said [in Clark v. Nomura] the court's task then is
assess, without unrealistic assumptions, what position the employee would have been in had the employer performed its obligation. That will involve the court in assessing the employee's bonus, on the basis of the evidence before it, and thus to that extent putting itself in the position of the employer
- Thus, if the court is required to calculate the bonus, it has the same unfettered discretion as the original bank, which discretion must, of course, be exercised reasonably. In particular, it cannot be assumed that the discretion would have been exercised so as to give the least possible benefit to a claimant, if such an assumption would be unrealistic on the facts: see Clark v. BET PLC  IRLR 348.
5. THE EVIDENCE
5.1 Oral Evidence
- I heard oral evidence from three witnesses: Mr. Rutherford; SPL's former Managing Director, Mr. Richard Feigen; and Miss Susan Rutherford (no relation), SPL's Chief Operating Officer.
- I consider that Mr. Rutherford was a patently honest witness. Unsurprisingly perhaps, he had a clear recollection of the relevant events and had set out in his witness statement a detailed refutation of the allegations of poor performance that were made against him. I consider that he was a reliable witness on all matters.
- I was not able to take the same view of Mr. Feigen. That was partly for reasons which were beyond Mr. Feigen's control. He had had very little to do with the day-to-day running of the Institutional Sales Team and his interaction with Mr. Rutherford seems to have been very limited. The almost total absence of contemporaneous documents in this case a topic to which I will return below - also created significant difficulties for Mr. Feigen in his attempt to counter what Mr. Rutherford said.
- However, there were a number of other reasons why I have concluded that Mr. Feigen's evidence was not as reliable as that of Mr. Rutherford. First, on a number of important questions, Mr. Feigen accepted in his cross-examination that his statement was wrong or, as he put it on a number of occasions, "could have been better worded". There were a number of important discrepancies between his written statement and his oral answers in cross-examination. Furthermore, on a number of important issues, he was obliged to accept that he was simply passing on what he had been told by others and did not know, of his own knowledge, whether it was true or not.
- Accordingly, where there are important differences of recollection between Mr. Rutherford and Mr. Feigen, I concluded that Mr. Rutherford's recollection is to be preferred.
- As for Miss Rutherford, her evidence was largely limited to a collation of the few relevant documents. She had very little direct involvement in the relevant meetings and other events. And although she was able to give direct evidence on two of the aspects of the allegations of poor performance, for the reasons noted in Section 6.4 below, I was obliged to conclude that her evidence on those matters was very unsatisfactory.
- I should add this in relation to the oral evidence. It is customary in cases such as this for counsel to seek to score points by pointing out all the hale and hearty potential witnesses on the other side who could have been called to support that party's case, but who were strangely absent from the courtroom. Usually these observations add nothing to the court's task of resolving the disputes before it. However, in the present case, a number of the allegations against Mr. Rutherford turned on alleged conversations that he had had with Mr. Doyle who, as Head of Trading, was at the same management level as Mr. Rutherford but who, in November 2007, became acting Head of Equities and Mr. Rutherford's line manager. He was therefore Mr. Rutherford's line manager in the days and weeks leading up to his summary dismissal. It was surprising, therefore, to say the least, given the nature of the allegations in this case, that Mr. Doyle was not called to give evidence on behalf of SPL. Mr Doyle continues to work for SPL. No explanation for his absence has been given.
5.2 Documentary Evidence
- It will become apparent from my analysis of the facts below that the number of relevant contemporaneous documents in this case was extremely small. This seems to have been the result, at least in part, of SPL's view that many of the documents sought by Mr. Rutherford by way of specific disclosure were irrelevant to this case. During the two days of evidence, as more missing documents were identified which were relevant, SPL's stance on disclosure began to look increasingly ill-judged.
- More importantly, the absence of contemporaneous documents highlights the shockingly summary nature of Mr. Rutherford's dismissal by SPL. As will become apparent below, there was not one single piece of contemporaneous material relating to the decision to sack Mr. Rutherford until the very moment that he was sacked. There were no written warnings, no memos suggesting default and ways to improve, and no threats of dismissal. Neither were there any internal e-mails or other documents of the kind which Mr. Rutherford would not have seen at the time but which, in a case like this, the court always expects to see, setting out the concerns that the other directors and managers might have had about Mr. Rutherford's performance. There were not even any internal records relating to the decision (apparently taken in mid-November 2007) actually to sack him.
- This lack of contemporaneous documentation is very surprising. Not only does it point to a significant failure to comply with the terms of his contract and the procedure set out in the Staff Handbook (to which I have already referred), it is also a sure indication that the decision to sack Mr. Rutherford, and therefore the failure to pay him a bonus, happened in something of a rush. That is a point to which I return below.
- There was a suggestion in Mr. Feigen's evidence to the effect that, because of Mr. Rutherford's seniority, a paper trail would deliberately not have been created in relation to concerns about his performance and the decision to sack him. That seems to me to be quite incredible and, in the absence of supporting evidence, it is an explanation I reject. Mr. Feigen admitted in cross-examination that he could not explain the rationale for it. It seems to me that the more senior the employee, the more he is likely to earn and therefore the greater any potential claim that he might make if he is unfairly dismissed. Thus the need for proper paperwork is more acute for someone in Mr. Rutherford's position than for a more junior employee. Moreover, this explanation ignores the fundamental rule of effective employment. If proper procedures are followed, and proper notices of concern are provided, there is a greater chance that performance will improve, thus avoiding the need for dismissal at all. This does not seem to have occurred to SPL in general, or Mr. Feigen in particular.
5.3 The Facts
- Between May 2003 and May 2007, Mr. Rutherford was an Institutional Salesman. For the year ending 30th September 2004 he was paid a bonus of £66,000, £45,000 of which was paid in relation to the final quarter, Q4, being July, August and September 2004. For the year ending 30th September 2005 his total bonus was £80,000 including £50,000 in respect of Q4. For the year ending 30th September 2006 his bonus was £82,500 including £50,000 referable to Q4.
- The working of the bonus system (which I have explained in paragraph 10 above) explains why the principal part of Mr. Rutherford's bonus for the years ending September 2004, 2005 and 2006 were referable to Q4. The Q4 bonus related not only to the last three months of the year but for the preceding nine months as well. Aside from Mr. Ratner, the Head of Research and, subsequently, Vice Chairman of SPL, Mr. Rutherford was the highest earning member of the Sales Team, and his bonus for these years reflected that. He was awarded a bonus for every quarter during these years. For the year starting on 1st October 2006 he was paid a bonus of £7,500 for Q1 and £5,000 for Q2, i.e. up to March 2007.
- In late 2006/early 2007 due to their concerns about the then incumbent, SPL decided to appoint a new Head of Institutional Sales. They made unsuccessful attempts to recruit externally. In early May 2007 the job was then offered to and accepted by Mr. Rutherford. It appears that at some point in the process, when he had accepted his new job, there was a meeting involving Mr. Keith Harris, SPL's Chairman, and Mr. Feigen.
- No amendments were made to Mr. Rutherford's contract of employment (referred to above) save that his salary was increased from £85,000 to £100,000 per year. This was marginally less than his predecessor. In addition, Mr. Rutherford signed a Job Specification relating to his new post. That described the purpose of the job as "to manage Seymour Pierce Ltd.'s sales function in accordance [with] the firm's strategic objectives whilst ensuring compliance with all regulatory requirements and controls".
- In addition, the 'Key Accountabilities' were described in the same document as:
"1. To develop and maintain relationships with institutional clients of Seymour Pierce Ltd, promoting the investment ideas generated by the firm's research product, maximising the generation of commission income and supporting the work of the Corporate Finance and Corporate Broking departments.
2. To manage the Sales department within its agreed budget, ensuring that the department is adequately resourced, remuneration packages are appropriate, responsibilities are clearly allocated, reporting lines are clear and that each employee is fully aware of the extent of his or her authority and any limitations thereon.
3. To develop and maintain a strong compliance culture in the department establishing and maintaining appropriate systems and controls and ensuring compliance with all the relevant regulatory requirements.
4. To monitor the financial and operational performance of the Sales department, reporting this performance to the board and to shareholders as required.
5. To ensure that Sales staff are encouraged to develop their potential, receive suitable training in accordance with the firm's policies and procedures and that their performance is appropriately monitored and assessed."
- In the court bundle there was also a piece of paper entitled "Competencies and Experience". It was unsigned, and it was not explained in the evidence of either Mr. Feigen or Miss Rutherford. It was suggested to Mr. Rutherford that, although it was not referred to on the face of the Job Specification, the Competencies document was given to him at the time. He denied that. In the absence of any evidence to the contrary I accept Mr. Rutherford's evidence.
- There were a number of disputes in connection with what was said, either at this meeting or in other conversations at this time. Mr. Rutherford told me that, although his basic salary was less than the previous Head of Institutional Sales, Mr. Feigen had said to him that, as a director, his Q4 bonus would be significantly higher. Mr. Feigen originally denied saying that, but he agreed in cross-examination that he did say to Mr. Rutherford that, as a Board Director, he could expect a larger bonus than previously. The agreed evidence was that the directors received a higher proportion of the bonus pool than other employees, usually between 50% and 70% of the total bonus pool. I therefore find that Mr. Feigen did say something to Mr. Rutherford at the outset about the likely increase in the size of his Q4 bonus now that he was a Board Director.
- It was Mr. Feigen's case that, at the same meeting, Mr. Rutherford was told that his bonus would be considered and paid by reference to a different set of criteria, now that he had a management role. After some questioning, it became apparent that it was not Mr. Feigen who had allegedly said this, but Mr. Harris. Mr. Rutherford denied that he had ever been told any such thing. It seems to me inherently unlikely that such a remark was made, because the immediate next question would be: "What are the new criteria and how might they affect the calculation of my bonus?" Mr. Feigen could not answer that question when it was put to him in cross-examination. Thus, even now, in connection with the allegations of poor performance, SPL have not been able to give a coherent answer to that question. Thus I do not consider that any such thing was said in May 2007.
- Mr. Rutherford performed the role of Head of Institutional Sales from about mid-May onwards. Between May and the end of September 2007 he personally generated commission of £144,223.67 including £63,244.38 in June alone. In August he was paid £7,500 in respect of his Q3 bonus together with the £12,500 paid in respect of Q1 and Q2. At no time during that period was any concern raised with Mr. Rutherford about his performance as Head of Institutional Sales. In addition, I accept his evidence that, in connection with the Q3 bonus, Mr. Feigen apologised as to its size, and said that he would be 'well looked after' at the time of the payment of the Q4 bonus. That was, of course, entirely consistent with what Mr. Feigen had said in May. It was entirely inconsistent with there being any concerns about Mr. Rutherford's performance in his new role.
- As we shall see when we look at the individual allegations of poor performance, there were a number of allegations to the effect that, during this period (that is to say, from mid-May through to the end of September 2007), Mr. Doyle asked Mr. Rutherford to carry out a number of particular tasks. Mr. Rutherford denied that, and said that Mr. Doyle was not in any event in a position to make such requests, because they were on the same management level. Mr. Doyle was not at that point his line manager. It seems to me that Mr. Rutherford's evidence in relation to these alleged requests must be accepted, particularly in the absence of any evidence from Mr. Doyle, and in the absence of any written documentation that would begin to support the existence of these requests. That is a finding to which I return, because a number of the performance allegations are expressly based upon the requests allegedly made by Mr. Doyle.
- On 3rd October, that is to say, a few days after the end of SPL's financial year with which I am concerned, Mr. Richard Ratner, the Vice Chairman, and Mr. Rutherford's line manager, had a serious heart attack in the office. He died four days later. It is clear that his death had a major impact on SPL, both on a personal level and in relation to the future of the business. I got the impression from the documents, and the other evidence that I heard, that there was a certain amount of panic within SPL at the loss of such a major figure. The difficulties subsequently experienced by Mr. Rutherford can, I think, be traced back to this tragic event.
- There are allegations concerned Mr. Rutherford's alleged failure in the immediate aftermath of Mr. Ratner's death to deal properly with his client list. I deal with those allegations in Section 6.4(e) below.
- There was a Strategy Meeting on 11th October 2007. Mr. Feigen, Mr. Doyle and Mr. Rutherford were all in attendance together with another Institutional Salesman, Mr. Howes, and various other personnel. The meeting was minuted by Mr. Feigen's secretary. The general part of those minutes reads as follows:
"The purpose of this meeting is to have an open discussion and reach an agreement on how the sales, sales trading, market making and research team can find an acceptable working process to improve revenues, client networking, client care and internal team building.
It was felt that Sales need to be more proactive with client contact helped by Research providing timely saleable notes, focussing on the small/mid cap stocks, fewer institutions (rather than the shotgun approach currently used), prioritising contacts at institutions, improving and increasing contact with the Fund Managers. Aim to raise Seymour Pierce's profile particularly in the secondary market."
- Then there follows in the minutes a series of action points. The specific action is identified on the left-hand side of the minutes and the person required to take the necessary action is specified on the right-hand side. It appears that only three of the 12 action points were matters for Mr. Rutherford to action, either on his own or with others. I identify each in turn:
(a) 'It was agreed that Research and Sales would compile a new more focused contact list': this was noted as an action point for Jim McCafferty, Alan Matthews, Malcolm Rutherford and John Howes.
(b) 'Research to be streamlined. Sales to confirm what research is required, new and existing coverage, meetings to be organised within individual analysts
Aiming for each analyst to cover 12/15 stocks and appoint a sales buddy for free flow of information of company/sector
Jim McCafferty noted time will be required by analysts to accommodate the above'. This was noted for action by Mr. Rutherford and Mr. Howes, although it is plain that it involved the Research Department as well.
(c) 'Exercise to be carried out on research database, discovering who receives notes, who is paying for this facility and to cull non-payers. Identifying who SP are servicing so that Sales can then target. List then to be provided to Sales'. The first part of this action was noted to be for Derek Brown, Jim McCafferty and Alan Matthews, the second part, in relation to Sales, was noted for Mr. Rutherford and Mr. Howes.
No other action point identified Mr. Rutherford as the person to undertake the necessary task.
- It was part of Mr. Feigen's oral evidence, although it was not clear from his witness statement, that by the time of this Strategy Meeting, if not before, he had developed serious concerns about Mr. Rutherford's performance. He said that he made these concerns clear at the meeting, and that after the meeting he asked Mr. Rutherford if he still wanted to do the job as Head of Institutional Sales. He told me that he indicated to Mr. Rutherford that it might be possible for him to return to the Sales Team. Mr. Rutherford denied that there had been any such exchange.
- I am unable to accept Mr. Feigen's evidence on this important point. I do not believe that any concerns were expressed about Mr. Rutherford's performance either during or after the meeting on 11th October. There is no hint of any such exchange in the minutes themselves, which contain no criticism of Mr. Rutherford. The meeting seems to have been a routine business meeting designed to improve the efficiency and profitability of the company. I therefore consider it inherently unlikely that there was any exchange afterwards which even touched on Mr. Rutherford's performance. Of course, the complete absence of any documents evidencing criticisms or concerns about Mr. Rutherford's performance only serves to undermine further the credibility of Mr. Feigen's account. For example, if he were right, at least some of the documents referred to in the relevant extract of the Staff Handbook (results of investigations, written warnings and so on) would have been created at this point. They were not.
- In early November, an internal rearrangement was put in place to deal with the aftermath of Mr. Ratner's death. In a memo dated 7th November 2007 it was noted that Mr. Doyle "will be appointed Acting Head of Equities
Simon Doyle will be responsible for managing Malcolm Rutherford, Jim McCafferty and Alan Matthews". There was a reference to the need for an individual meeting between Mr. Doyle and those named. There was no other reference to Mr. Rutherford in that memo.
- Mr. Rutherford said that a few days after this memo, Mr. Doyle (now his line manager) had come to see him to discuss the distribution of the Q4 bonus pool. At paragraph 74 of his witness statement Mr. Rutherford said this:
"Although Mr. Doyle did not disclose the total amount of the bonus pot to be distributed, I suggest that I receive 50% of the relevant pot, 30% should be paid to John Howes and the remaining 20% should be split between Jonathan Forbes and Claire Bowden. I recall Mr. Doyle commented to me that he would have been disappointed in me if I had asked for a lower split for myself. Given the timing of this conversation with Mr. Doyle, who by this stage had become my Line Manager, had there been any genuine concerns regarding my performance that either merited my summary dismissal or which would have impacted on my entitlement for a share of the bonus pot in any way, it seems inconceivable to me that he would have chosen to have this conversation with me at that time."
Mr. Rutherford was not asked any questions about that evidence and, as I have already indicated, Mr. Doyle was not called to gainsay any part of that paragraph.
- The significance of that exchange is highlighted by Mr. Feigen's evidence that the decision to sack Mr. Rutherford was taken in mid-November, i.e. at about the same time as this discussion. I am therefore invited by Mr. Solomon to infer that the decision was made to sack Mr. Rutherford because otherwise his bonus (which he had approximately calculated at 50% of an estimated pool of £165,000) would be significant. I am asked to draw the inference because, unhappily, there is not a single piece of paper relating to the making of the decision to sack Mr. Rutherford. Indeed, it is unclear who took it and on what basis it was made.
- Although such a cavalier attitude to what might be thought of as ordinary record keeping can only rebound to the detriment of SPL, I am not prepared to say that the decision to sack Mr. Rutherford was based solely on the prospect of avoiding paying him a significant bonus. I consider that other factors, including the changes in management necessitated by Mr. Ratner's untimely death, were also relevant to the decision. But I do infer that the likely amount of Mr. Rutherford's bonus was at least a factor in the decision to sack him before that bonus became payable.
- In the afternoon of 28th November 2007 Mr. Rutherford was called to a meeting with Mr. Doyle and Mr. Jarvis, the Human Resources Manager, at which he was summarily sacked. I find that this was the very first time at which Mr. Rutherford had been given any indication that there was any sort of unhappiness with his performance. It is therefore right to say that his sacking came entirely out of the blue.
- Although it was not seen by Mr. Rutherford until July of last year, SPL produced a note of that meeting. It is accepted that the note is accurate. It contained the following extracts:
"SD (Simon Doyle) opened the meeting by telling MR that there was no easy way to broach the subject and that we intended to terminate his employment with immediate effect. The reason given was MR's poor performance since having assumed the post of Head of Sales. SD stated there had been no improvement during his six-month tenure and as such the business had decided to let him go.
MR initially seemed somewhat shocked by the news however quickly regained composure to demand more details of the Compromise Agreement and when he could expect to receive it
BJ (Bob Jarvis) explained that within 14 days MR would receive a Compromise Agreement and that SPL would reimburse any legal costs. BJ advised MR that he should seek advice before entering into the Agreement.
MR stated that he expected the Agreement to be very generous given the timing of the announcement. BJ reminded MR of the Articles of Association of SPL and that there are no 'good leavers'. Besides, any bonus MR considered he might be due could not be factored in as being a discretionary scheme. MR was unaware what the amount payable in December would be and that prior bonuses were not any indication of the December payment. BJ explained that SPL would endeavour to make any settlement as tax efficient as possible.
MR reiterated that he felt he was being used as a scapegoat and that he had been invited by RF to accept the post as Head of Sales and was now being blamed for poor performance during 'the worst market conditions for 25 years'. BJ pointed out that with the post came responsibility and that the poor performance of the Sales Team was his direct responsibility.
SD asked BJ to try and ensure that the Compromise Agreement was prepared for MR as quickly as possible and BJ explained that 14 days was the maximum period MR could expect to wait and not an indication of how long MR will have to wait. BJ agreed to confirm with Susan Rutherford on the progress of the Agreeement."
- Amongst other things, the note of the meeting confirms that, other than a general assertion of poor performance, no details of what precisely it was said Mr. Rutherford had failed to do or done wrong were provided to him.
- It appears that the Q4 bonus was distributed in the week before Christmas 2007. Mr. Rutherford was not considered for a bonus (a matter to which I will return in Section 6.3 below). He did not receive the promised Compromise Agreement. On 3rd January 2008, SPL wrote to his solicitors to say that his contract had been terminated due to "poor performance during the six months since his appointment as Head of Institutional Sales in May 2007; dealing and commission revenues were extremely low during this period". No other explanation for his summary dismissal was provided.
- In the continuing absence of the promised Compromise Agreement, Mr. Rutherford commenced proceedings in the EAT. Those proceedings were compromised in the terms referred to above on 28th May 2008. SPL did not, in those proceedings, provide particulars of the allegations of poor performance either.
6. WAS MR RUTHERFORD ENTITLED TO A BONUS IN DECEMBER 2007?
6.1 Relevant Questions
- The first question is whether Mr. Rutherford was eligible to be considered for a bonus in December 2007 (Section 6.2 below). If "Yes", the second question is, whether Mr. Rutherford was in fact considered for a bonus in December 2007 (Section 6.3 below). If he was not in fact considered, then the third question is whether, if he had been considered, he would have been entitled, on a reasonable exercise of SPL's discretion, to a bonus. In dealing with that question it is necessary to consider the allegations of poor performance (Section 6.4 below) and the other evidence as to performance (Section 6.5 below). I set out a summary of my conclusions on this issue in Section 6.6 below.
6.2 Was Mr. Rutherford Eligible To Be Considered For A Bonus In December 2007?
- It seems to me plain that, in the absence of the alleged implied term, Mr. Rutherford was eligible to be considered for a bonus in December 2007. Mr. Feigen's evidence on this point was equivocal, but on at least one occasion during his cross-examination he appeared to accept that entitlement as a matter of principle. For the avoidance of doubt my reasons for concluding that Mr. Rutherford was eligible to be considered for a bonus are set out shortly in the next paragraph.
- First, the Q4 bonus was referable to Mr. Rutherford's performance throughout the whole of the financial year 2006/2007, when he was the highest earner in the Institutional Sales Team. He had been paid a bonus for Q1, Q2 and Q3 and was therefore entitled, at the very least, to his share of the remaining part of the Q1 to Q3 bonus pool. Mr. Feigen expressly confirmed in cross-examination the quality of Mr. Rutherford's performance during that period and admitted that, if someone had performed well in Q1, Q2 and Q3, they "would not get nothing" for Q4. Secondly, there was no example anywhere in the copious records relating to others that were disclosed by SPL of an employee, much less a director, who had been paid a bonus for Q1, Q2 and Q3 but who had not received a bonus for Q4. Thirdly, in July, August and September 2007, the three months during which Mr. Rutherford performed his role as Head of Institutional Sales, he also earned commission for SPL in the total sum of £60,660.22. Fourthly, I have found as a fact that at no time during that period was any criticism made of Mr. Rutherford's performance. Fifthly, Mr. Rutherford's three principal clients had paid SPL £431,000-odd in the financial year 2006/2007, a figure that dwarfed the commission earned by all the other members of the Sales Team who were paid the Q4 bonus. Finally, every director of SPL got a Q4 bonus in December 2007.
- In those circumstances it seems to me self-evident that Mr. Rutherford was entitled to be considered for a Q4 bonus relating to his performance during the financial year 2006/2007 as well as the particular period July to September 2007.
- The fact that Mr. Rutherford had been summarily dismissed was not of itself a reason to conclude that he was not eligible for a bonus. Otherwise, as I have said (and Burton J said in Nomura), unscrupulous employers could sack an employee the day before the bonus was due to be distributed and then say that, as a matter of principle, the employee was not entitled to be considered for a bonus. Of course, whether or not Mr. Rutherford was entitled actually to be paid a bonus was a different question and one which, on SPL's case (as confirmed by Mr. Palmer in his helpful closing submissions), turned on the allegations of poor performance. But that did not affect his eligibility at least to be considered for a bonus.
6.3 Was Mr. Rutherford In Fact Considered For A Bonus In December 2007?
- The next issue is whether Mr. Rutherford was in fact considered to be eligible for a bonus in December 2007. On the evidence, it seems clear to me that he was not considered by Mr. Feigen to be eligible for a bonus. Mr. Feigen's evidence made plain that, because Mr. Rutherford had been sacked, Mr. Feigen no longer regarded him as an employee and therefore no longer regarded him as being someone who was eligible to be considered for a bonus. There was no evidence at all to suggest that Mr. Feigen sat down in December 2007 and exercised any sort of judgment or discretion in relation to whether or not Mr. Rutherford should be paid a bonus. It was simply not a question he asked himself, because he had already (wrongly) decided that no bonus would be paid to somebody that he regarded as an ex-employee.
- Mr. Feigen's failure to consider Mr. Rutherford's entitlement on its merits has two consequences. The first is that it explained why, on many of the detailed allegations of poor performance, Mr. Feigen was unable to assist the court: it was clear that he was considering many of the detailed matters for the first time in the witness box. Secondly, and more importantly, this failure means that this is not a case where Mr. Rutherford has to demonstrate the perversity or irrationality of an existing decision, such as Nomura or Keen; instead, it is a case where there was no decision at all, and thus the court has to put itself in the position of SPL and consider the possible entitlement: see Horkulak.
- The correctness of this approach in the present circumstances was not ultimately in dispute. Mr. Palmer accepted that Mr. Feigen had acted on the basis of the implied term, so that if the court ruled against such a term, the issue became whether a bonus payment should have been made, not whether the (non-existent) decision was perverse or irrational. Indeed, it was in connection with this part of his submissions that Mr. Palmer very helpfully referred me to and accepted the passage in Horkulak which I have cited at paragraph 32 above.
6.4 The Allegations Of Poor Performance
a). The Allegations Themselves
- I have already noted that no specific allegations of poor performance were made to Mr. Rutherford during his tenure as Head of Institutional Sales. In addition, no specific allegations were made either at the meeting on 28th November or in the letter of 3rd January 2008. The failure on the part of SPL to particularise these alleged incidences of poor performance continued throughout the proceedings in the EAT and in the defence to these proceedings. Eventually, the allegations of poor performance were the subject of a request for further information made on 19th December 2008. In the reply to Request 11, provided on 13th January 2009, SPL set out nine different allegations of poor performance. This was the first time that these particular allegations had ever been made against Mr. Rutherford.
- In many ways these allegations and the evidence surrounding them are the most important part of the case. If the allegations, or even some of them, are justified, then even if SPL failed to treat Mr. Rutherford properly or fairly when they sacked him, it may very well mean that Mr. Rutherford was not entitled to be paid a bonus for December 2007: that entitlement will depend on the outcome of my consideration of the allegations of poor performance. It was this part of the case on which Mr. Palmer's cross-examination and final submissions concentrated. I deal with each allegation in turn below.
b). Allocation of Sales Executives
- The first allegation is in the following terms:
"(a) He was asked by Simon Doyle in or around June 2007 to implement an account management process in Institutional Sales based upon a sales executive being allocated to manage each institutional client account. However, he failed to do this."
- It seems to me clear that this pleaded allegation is a straightforward one to the effect that Mr. Rutherford failed to allocate a sales executive to manage each institutional client account. It was this failure to allocate which was the subject of the witness statements of both Mr. Rutherford and Mr. Feigen. It was this failure to allocate which formed the sole basis of the cross-examination of Mr. Rutherford on this topic.
- In my judgment, on the evidence, the allegation was misconceived. First, for the reasons that I have already noted, I found as a fact that there were no requests from Mr. Doyle who was not, in any event, in a position to make such requests. Secondly, Mr. Rutherford's evidence was clear: a sales executive was allocated to each account and neither Mr. Feigen nor Miss Rutherford were in a position to say otherwise. Indeed, in cross-examination, Mr. Feigen admitted that allocation had been achieved, and that he was aware of it. Furthermore, the documents in the bundle, including the Contacts List which, unfortunately, was only discovered by Mr. Rutherford last week made plain that the allocation process had indeed occurred. Mr. Rutherford said of that list that it was in general circulation and that "everyone had it".
- During the course of this short trial it must have become apparent to SPL that this allegation was going nowhere. As a result, during his evidence, Mr. Feigen tried to introduce other allegations about Mr. Rutherford's failure in respect of the account management process, saying cryptically that allocation "was only the first step in a long process". As I made plain then, and repeat now, this appeared to be an attempt to bolster a failing allegation by expressing new concerns, not about allocation, but about other aspects of account management. However, no other allegations in relation to account management, other than the failure to allocate sales executives, had ever been made against Mr. Rutherford, and none were put to him during his cross-examination. As Mr. Feigen agreed, it was not a matter that was raised in the minutes of 11th October meeting. In those circumstances it was wholly inappropriate for Mr. Feigen to attempt to create a new case during his oral evidence.
- The allegation as to the failure to allocate sales executives was simply wrong on the facts. I find that this was always known to SPL. I therefore reject this allegation of poor performance.
c). Records of Commission
- The pleaded allegation is in the following terms:
"(b) He was asked by Mr. Simon Doyle in or around June 2007 to ensure adequate management information about how much commission each institutional client was paying the defendant and which were the best paying clients. However, he failed to do this."
- Mr. Rutherford's evidence was that he had originally volunteered to produce a list of the best paying institutional clients but that, due to the limitations of SPL's internal systems, it had not been possible to collate the information. Mr. Smith, a colleague of Mr. Rutherford's, had also encountered the same difficulties with SPL's back office. Mr. Rutherford said that he explained this to Mr. Feigen, who apologised and promised that it would be resolved by Christmas.
- Although Mr. Feigen could not recall the conversation and said that he thought it unlikely, none of the substance of Mr. Rutherford's evidence on this point was challenged. It was put to Mr. Rutherford that it was his task to put together the list and Mr. Rutherford agreed, but he said that he was not responsible for the Settlement Department who kept the relevant records and that, having made his report to Mr. Feigen, there was nothing else that he could do. Mr. Feigen confirmed that Mr. Rutherford had made this specific complaint to him.
- Thus, in view of the limited challenge to Mr. Rutherford's evidence and the clarity of his answers in cross-examination, it seems to me that this allegation has not been made out. There was nothing to suggest that there was anything more that Mr. Rutherford could have done and which he failed to do. Indeed, the evidence was that Mr. Rutherford was as keen as anybody to sort out the problem.
d). Increasing Contacts
- The pleaded allegation is in the following terms:
"(c) He failed to broaden his own contacts with institutional clients (and in so doing only spoke primarily to no more than three institutions) despite his own commission levels falling away."
- Mr. Rutherford had three principal institutional clients who provided the vast bulk of his commission. However, he explained that, on becoming Head of Institutional Sales, he introduced new clients to the company. This was borne out by his Contacts List, which identified 11 institutions for which he was the sole or principal point of contact.
- In those circumstances, it was a little difficult to see how much further this allegation could be taken. This was not a matter that was raised on 11th October. Further, the other evidence also demonstrated that, contrary to the pleaded allegation, Mr. Rutherford was dealing with more than simply his three principal clients. There was no cogent evidence that there were other specific institutional clients which, in some way, Mr. Rutherford was ignoring at SPL's expense. Mr. Feigen's evidence did not fill these gaps. Although at one point there was a suggestion that Mr. Rutherford was not servicing other clients, it was not a pleaded matter and it was not put to him in his cross-examination. Accordingly, it seems to me that this rather vague allegation has simply not been made out.
e). Mr. Ratner's Clients
- The pleaded allegation is in the following terms:
"(d) Following the death of Mr. Richard Ratner he was asked three times by Miss Susan Rutherford between 15th October 2007 and 9th November 2007 to ensure that all of Mr. Ratner's clients were formally allocated to new sales executives. However, he failed to do this."
As noted in the allegation itself, this is one of the two specific allegations of poor performance on which Miss Rutherford was able to give direct evidence.
- The position in relation to Mr. Ratner's clients was plain. The evidence was that, after his death, Mr. Rutherford was provided with a typed list of Mr. Ratner's 10 principal clients. He sat down with this list and spoke to each of them, sorting out their position for the future. Some were allocated to different sales executives; others were retained by Mr. Rutherford himself. No one on the list was ignored and detailed accounts of each of the calls was set out in paragraphs 45 to 48 of Mr. Rutherford's witness statement. None of that material was challenged. The other evidence suggested that the clients on this list were responsible for about 85% of the commission earned by Mr. Ratner for SPL.
- Mr. Rutherford's position had been clearly stated in his witness statement. The typed list with the 10 names on, together with Mr. Rutherford's manuscript annotations noting the calls, had always been part of the disclosure. Thus there was nothing in any of the other material, including the witness statements of Mr. Feigen or Miss Rutherford, which sought to address or get to grips with that detailed response. In his cross-examination Mr. Feigen was unable to assist further with this allegation at all.
- Unhappily, on the first morning of the trial Miss. Rutherford produced a document which she had obtained from the SPL records. It was undated. It purported to be a much longer list of Mr. Ratner's clients. Furthermore it was suggested to Mr. Rutherford for the first time during his cross-examination that this longer list had been provided to him on 15th October 2007 and that the real allegation of poor performance was that he had failed to deal with this longer list of Mr. Ratner's clients.
- It was, I am afraid, typical of the difficulties in which SPL repeatedly found themselves that, again, an existing allegation having been successfully refuted by Mr. Rutherford, attempts were made at the last moment to create a new case. I accept Mr. Rutherford's evidence that this list was not provided to him. There was no contemporaneous record to the contrary. I find that at no time prior to the week before the trial did anyone at SPL consider that Mr. Rutherford's performance failure was not as alleged, but was instead a specific failure to deal with this longer list. In any event, although the list was longer, it must be remembered that the further names on the list were only responsible for 15% of Mr. Ratner's commission, and therefore could not be reasonably regarded as a priority in the days after his death. For all those reasons, therefore, this allegation must fail.
f). Meetings Between Institutional Clients And Corporate Clients
- The pleaded allegation is in the following terms:
"(e) He was asked by Mr. Simon Doyle on a number of occasions between June 2007 and October 2007 to arrange meetings between institutional clients and corporate clients of the defendant. However, he failed to do this."
- I am bound to say that this is one of a number of these allegations which appear to me to be meaningless and trivial, and somewhat removed from a genuine allegation of poor performance. In any event, it was wholly refuted on the evidence. First, as previously noted, I find that Mr. Doyle did not make the alleged requests. Secondly, as Mr Rutherford explained at paragraph 50 of his witness statement, he arranged some meetings, but the difficulty was that the institutional client base was reluctant to meet SPL's corporate clients, in part because the institutions had lost a lot of money investing in some of the companies that SPL had brought to the market. There was, Mr. Rutherford said, a consequential reluctance to invest further. Palpably, none of that was Mr. Rutherford's fault.
- Paragraph 50 of Mr. Rutherford's witness statement was not contradicted by the evidence of Mr. Feigen or Miss Rutherford. Mr. Feigen he said he had no way of challenging Mr. Rutherford's evidence and explanation. Mr. Rutherford was not challenged on that detailed explanation in cross-examination. For that reason again, therefore, this allegation fails. In my view this particular allegation should never have been made.
g). A Programme Of Entertaining Institutional Clients
- The pleaded allegation is in the following terms:
"(f) He was asked by Mr. Simon Doyle on a number of occasions between June 2007 and October 2007 to make arrangements for a programme of entertaining of institutional clients. However, he failed to do this."
- Again, this allegation seems to me to be utterly trivial. Again, it faces the fundamental difficulty that Mr. Doyle did not make the request. In any event, paragraph 51 of Mr. Rutherford's witness statement made plain that he did arrange entertainment. Indeed they are specified in that paragraph and include golf days at both Swinley Forest and The New Zealand Club, and the taking of clients to the Rugby World Cup in Paris. Mr. Rutherford said he also regularly took clients out to lunch. He was not challenged on that paragraph in his cross-examination. In his own cross-examination, Mr. Feigen's suggestion was that in some way, although he accepted that Mr Rutherford had organised entertainment, it did not extend to a sufficient number of the clients. That allegation, which again had not been made before and had not been put to Mr. Rutherford, was not further particularised. What would a sufficient programme have been? How many clients should have been included on it? What was the justification for such a number? Why was the existing programme too small? The questions raised by the new point were many and there were no answers to them. In the absence of any cogent evidence to support the pleaded allegation, it must fail.
- The pleaded allegation is in the following form:
"(g) He failed to manage his staff appropriately. Although the claimant completed Appraisal Forms for the annual appraisals of his team, the appraisal meetings were not properly prepared or conducted and the appraisals had to be subsequently redone."
- It is no exaggeration to say that this allegation gave rise to something of a farce. It was Mr. Rutherford's evidence that he had carried out the appraisals of his team properly and carefully and he said that it was never suggested to him that in any way the appraisals were inadequate. When he came to be cross-examined on this allegation, the case that was put to him was that he had not carried out any appraisals at all, an allegation which he completely refuted.
- Last week, before Master Foster, Mr. Rutherford had made an unsuccessful application for specific disclosure, and the documents sought included the records of the annual appraisals that he had carried out as Head of Institutional Sales. The application was successfully resisted by SPL on the basis that the documents were irrelevant. I am bound to say that I cannot see how that could be the case, since the appraisal records are expressly referred to on the face of the pleading (see paragraph 102 above). Be that as it may, at the end of the first day of the trial, I indicated that the appraisal forms should be disclosed. They were disclosed at the start of the second day. On their face, they demonstrated that what Mr. Rutherford had said in evidence was quite right: not only had he carried out the appraisals of three of the four members of his team (the other being absent for at least some of the relevant period due to maternity leave), but also that those appraisals had been fully and carefully performed.
- When Mr. Feigen and Miss Rutherford came to give their evidence, they suggested that the appraisals had not been properly carried out. They sought to make this good by reference to the appraisal records themselves. Thus, in order to keep this allegation going, SPL were forced to rely on the contents of documents which only last week they said were irrelevant, and by making allegations that had not been put to Mr Rutherford in cross-examination. This volte face may obviously have costs ramifications.
- However, dealing solely with this specific allegation, I am in no doubt that, even bolstered by this further evidence, it is hopeless. There was nothing in the oral evidence of Mr. Feigen or Miss Rutherford which indicated that the appraisals actually carried out by Mr. Rutherford were in any way deficient. Indeed, in relation to the appraisal of Mr. Forbes, Mr. Feigen admitted that it was "just what a good line manager would do".
- On the further cross-examination of Miss Rutherford on this topic, it became apparent that the reason that this allegation had been made at all was because Mr. Doyle had told Miss Rutherford that he had had to carry out further appraisals on the staff members after Mr. Rutherford had left the company. There was, however, no evidence of these further appraisals either from those being appraised or from Mr. Doyle.
- Accordingly, during Miss Rutherford's cross-examination, Mr. Solomon asked her where the records were of the further appraisals that had allegedly been carried out by Mr. Doyle, and on which this allegation now seemed to hinge. Miss Rutherford admitted that she had searched the SPL system but had been unable to find them. On being pressed, she admitted that a record should have been kept by Mr. Doyle of these further appraisals. Accordingly, as Mr. Solomon was quick to point out, this resulted in the extraordinary position whereby Mr. Rutherford was defending himself against allegations that he had failed to carry out appraisals properly (although the forms suggested to the contrary), as a result of alleged further appraisals carried out by Mr. Doyle, on which there was no documentary record at all.
- I am entirely confident that this allegation was bogus and, in the absence of any of evidence from Mr. Doyle or others, it was doomed to fail.
i). Recruitment Of New Staff
- The pleaded allegation is in the following terms:
"(h) He failed to recruit new sales staff despite being instructed to by Mr. Simon Doyle in June 2007. Since the claimant's departure the defendant has been informed by various recruitment agents that the reason it could not recruit sales staff in the second half of 2007 was the claimant's attitude."
- Mr. Rutherford dealt with this allegation in detail at paragraphs 53 to 57 of his witness statement. In addition, his evidence was supported by his Exhibit C1 which contained a list of diary entries there were 20 in all of interviews that he had carried out with prospective applicants. Two new employees did join the Sales Team during his tenure as Head of Institutional Sales.
- Again, therefore, it appeared that this allegation had been successfully refuted by Mr. Rutherford, particularly as, when it was put to him in cross-examination that this was a failure on his part, he gently explained that, since the interviews of prospective recruits had been conducted by both himself and Mr. Feigen, it could only fairly be described as a failure of them both.
- When Mr. Feigen came to give evidence, he suggested that recruitment had been unsuccessful because the candidates did not want to work for Mr. Rutherford. That put a rather different gloss on the pleaded allegation. Mr. Feigen was cross-examined as to the basis of this serious allegation, there being no documents to support it in any way. It appeared from his explanation that the basis of this allegation was the purest form of hearsay: what a candidate had allegedly told a head-hunter, who had allegedly passed it on to Mr. Feigen, who had forgotten about it (because it was not in his witness statement) until his cross-examination. It seems to me that the way in which this 'evidence' arose in Mr. Feigen's cross-examination was extremely unfortunate. Personal allegations of this type require something rather more substantial to support them than rumour and gossip.
- For all those reasons, therefore, this allegation fails.
j). Matters Raised On 11th October 2007
- The last of the pleaded allegations is in the following terms:
"(i) The claimant had failed to implement properly actions raised at a meeting on 11th October 2007, to develop and improve working practices which were intended to increase revenues and improve liaison between the partners."
- I have set out at paragraph 57 and 58 above the minutes of this meeting and the individual bullet points recorded against Mr. Rutherford for action. There was no evidence that any of these tasks were not carried out and Mr. Rutherford explained how he had set about completing each of them. Mr. Feigen's evidence was that this allegation added nothing new to the matters already identified and he properly accepted that, even on his own case, two of the three bullet points in the minutes had been actioned by Mr. Rutherford and the other one was a question of improving the back office. For all those reasons, if it had been intended to pursue this as a separate allegation of failure on the part of Mr. Rutherford, such an allegation must fail.
k). Levels of Commission
- In the list of pleaded failures of performance on the part of Mr. Rutherford, there was no separate allegation that, in some way, Mr. Rutherford performed poorly because the commission earned by the Institutional Sales Team was not higher. Mr. Palmer confirmed that that was not a matter on which he sought to rely in making criticisms of Mr. Rutherford's performance.
- For the reasons set out above, I reject each of the allegations of poor performance: they were wholly unsupported by any evidence.
6.5 Other Evidence
- What other evidence was there of the adequacy of Mr. Rutherford's performance as Head of Institutional Sales? One clear answer, so it seems to me, lies in the records of the commission earned during his tenure.
- The evidence is that, for the five months that Mr. Rutherford was in post up until the end of September 2007, the commission earned by the Institutional Sales Team was £306,084. That was an improvement of 17% on the five months prior to his appointment. Given that the previous Head of Institutional Sales was removed for poor performance, I consider that this comparison alone demonstrated the value provided by Mr. Rutherford. In my judgment, it is the best indication of his performance.
- Whilst the commission figures generated by the Institutional Sales Team were about 20% down at the end of the financial year in September 2007, compared to the previous year, it seems to me that that was largely explained by the fact that the Sales Team had been reduced from eight to three (or sometimes four). It is inevitable that income will decrease if the number of sales personnel are so significantly reduced. I have already found that that reduction in number was not Mr. Rutherford's responsibility.
- Throughout this period Mr. Rutherford remained the highest earning member of the Institutional Sales Team and, although his commission was lower than in previous years, that is referable to the difficult market conditions (as to which he referred in his interview on 28th November 2007 and which was not refuted) and his additional management responsibilities which would inevitably mean that he spent less time selling and more time in a management role.
- On commission earned, the only specific figures that Mr. Rutherford was cross-examined about concerned the difference between two figures for commission: one for the month of September 2006, which identified a commission of £633,000-odd and one for September 2007, which demonstrated a figure of just £86,000. It was suggested to Mr. Rutherford that that was the best indication of his failure to perform. However, as he pointed out and as Mr. Feigen expressly admitted in his own cross-examination this was simply not comparing like with like. The £633,000-odd figure included earnings which were nothing to do with the Institutional Sales Team. In any event, that figure seemed unlikely since it was contradicted by all the other figures provided by SPL and was on any view out of all proportion to any other monthly figure revealed in the totality of these records. It was therefore a wholly unreliable figure to take for comparison purposes. Mr. Feigen had accepted that it was not a comparison that he had himself undertaken in December 2007.
- In all those circumstances it seems to me that the commission generated by Mr. Rutherford both as a salesman and as the Head of Institutional Sales, in the absence of any proper performance-related criticism, only demonstrated his entitlement to be paid a bonus.
- For the reasons set out in Section 6.2 above, I consider that Mr. Rutherford was eligible to be considered for a bonus in December 2007. For the reasons set out in Section 6.3 above, I conclude that he was not in fact considered for a bonus as a result of an error of law on the part of Mr. Feigen.
- In the circumstances I have to consider whether, on the evidence, an entitlement to a bonus has been made out (notwithstanding the fact that the bonus was an entirely discretionary scheme), operating on the basis that the exercise of such a discretion must be performed reasonably. In the light of my rejection of the allegations of poor performance (Section 6.4 above) and the other findings that I have made, both as to Mr. Rutherford's performance by reference to commission and generally (Sections 6.2 and 6.5 above), I have reached the firm conclusion that, in a reasonable exercise of SPL's discretion, Mr. Rutherford was plainly entitled to be paid a bonus in December 2007.
- I have already made the point, but repeat here, that every other director of SPL received a bonus in December 2007. In the light of my rejection of the allegations of poor performance, and the other findings that I have made, there is no proper basis on which it could reasonably be said that Mr. Rutherford should be treated any differently.
- For the avoidance of doubt I should add this. If in some way I am wrong as to the appropriate test, and the issue is whether the non-payment of the bonus to Mr. Rutherford in December 2007 was irrational and perverse, I have no hesitation in concluding that it was. All the facts and matters set out in Sections 5 and 6 of this Judgment point inescapably to that conclusion. There was no rational basis on which Mr. Rutherford could be deprived of a bonus referable to his performance during the entirety of the financial year 2006/2007 and/or during Q4 when he was the Head of Institutional Sales.
- The final issue is the amount that SPL should have paid Mr. Rutherford as a bonus for Q4 in December 2007. That would be the amount of the damages recoverable by Mr. Rutherford in these proceedings. The following seem to me to be the relevant parameters:
(a) Mr. Rutherford had suggested to Mr. Doyle 50% of an estimated figure of £165,000. That produced a figure of £82,500, to which he refers in his witness statement. It seems to me that that would be the upper limit of the damages claim. If Mr. Rutherford had asked for that, it is fair to say that he plainly would have accepted less.
(b) Mr. Rutherford had received a Q4 bonus of £50,000 in both 2005 and 2006. Thus it seems to me that £50,000 would be the lower limit of the damages claim, in view of the fact that he had much greater responsibility as Head of Institutional Sales and was now a Director. I also note that no Director received less than £50,000 in relation to their Q4 bonus for the year ending in September 2007.
(c) The previous Head of Institutional Sales had received Q4 bonus payments of £75,000 in both 2005 and 2006.
- In all the circumstances I consider that the right figure in this case is £70,000. That is between the upper and the lower limits that I have identified. It is generally commensurate with the bonus payments made to the other Directors and, although it is slightly less than the amount paid to Mr. Rutherford's predecessor in 2005 and 2006, that modest reduction is, I think, justified by reference to the overall drop in commission earnings by the Institutional Sales Team.
- In relation to quantum I should make one final point. Because Mr Palmer had not dealt with quantum at all in his final submissions, I asked him what figure he contended for, and Mr. Palmer took specific instructions from SPL. His instructions were that, by reference to the records pertaining to an unknown employee (not a director) who, unlike Mr. Rutherford, had not received a Q2 bonus either, the right figure was nil. No explanation for the reasonableness of this comparison was offered. No other figure was put forward. I regret that SPL's response, even on quantum, was so unreasonable and so uncompromising. But it was at least in keeping with their attitude to this claim as a whole.
- For all those reasons therefore, I order that SPL pay Mr. Rutherford £70,000 together with interest to be paid in 14 days from today.
8. INTEREST AND COSTS
8.1 Interest on the £70,000
- Mr Rutherford offered to accept £50,000 on 20.8.09. That was an offer in accordance with CPR Part 36. He has done better than that offer. Accordingly, unless I consider it unjust to make such an order, he is entitled to interest on the £70,000 at up to 10% over base, in accordance with CPR 36.14(3)(a). Not only do I think that it would not be unjust to make such an order, I conclude that it would be just and appropriate. This is for the same reasons that have led me to conclude that SPL should pay Mr Rutherford's costs on an indemnity basis for the period prior to 11th September (21 days after the offer) as well as for the period after. Those reasons are set out in paragraph 136 below.
- Pursuant to r36.14(3)(a), I conclude that the appropriate rate of interest is 4% over base. That is a fair reflection of the outcome, and is in accordance with the decision of the Court of Appeal in Petratrade Inc v Texaco Ltd  1 WLR 947. The fact that Mr Rutherford is an individual, rather than a commercial organisation, is of some relevance but, in the end, I have concluded that 4% over base is the right figure.
8.2 Indemnity Costs
- Mr Rutherford is plainly entitled to all his costs. In accordance with CPR 36.14(3)(b), Mr Rutherford is entitled to those costs on an indemnity basis from 11th September, unless that would be unjust. Again, for the reasons set out in paragraph 136 below, I consider that such an order is entirely just.
- As for his costs prior to 11th September, I have concluded that those should also be assessed on an indemnity basis pursuant to CPR 44.3(4) (Conduct) and 44.4(1)(a). That is because:
a) SPL's conduct and their treatment of Mr Rutherford was lamentable, for all the reasons noted in this Judgment. Since his wrongful dismissal, SPL have continued to act in a disreputable fashion, in order to try and keep their leaky defence to this modest claim afloat. To take just one example out of many, to support spurious allegations of poor performance, SPL sought to rely on the last day of the trial on the content of documents that had not been put to Mr Rutherford at all, and which SPL had originally maintained were irrelevant when refusing Mr Rutherford's request for disclosure of such documents;
b) SPL must or should have known that the implied term argument could not succeed and that therefore they needed to make some sort of offer to Mr Rutherford. The commercial imperatives, dictated by the relatively modest sum at stake and the likely costs expenditure, also pointed the same way. But SPL unreasonably failed to make him any offer at all.
- The modern principles relating to indemnity costs are set out in the Court of Appeal decisions in Reid Minty v Taylor  1 WLR 2800 and Kiam v MGN No 2  1 WLR 2810. The essential question is whether there has been unreasonable conduct to such a degree that it warrants such an order. The unreasonable failure to abandon a claim (or a defence) is also relevant: see Wates Construction Ltd v HGP Greentree  BLR 45. For the reasons that I have noted, this is a case where I have concluded that SPL's conduct does warrant an order for indemnity costs.
8.3 Interest On Costs
- Pursuant to CPR 36.14(3)(c), Mr Rutherford is entitled to interest on costs at the same rate as noted above, namely 4% over base. All the same reasons apply again.
8.4 Interim Payment On Account Of Costs
- As to the interim payment on account of costs, I am told that the total bill is £63,000. Taking a conservative view as to what may be recoverable in accordance with Mars v Teknowledge  2 Costs LR 44, I make an order for an interim payment on account of costs of £45,000. That order is made pursuant to CPR 44.3(8). It seems to me that, on any view, Mr Rutherford will recover at least that amount. That sum is also to be paid in 14 days from today.