Is there an onus on the bonus?

The High Court recently handed victory to 104 bankers who brought claims against Dresdner Kleinwort and Commerzbank for their bonuses. Mr Justice Owen handed down a second judgment saying that the bank was “highly reprehensible” and “unreasonable to a high degree”.

In colourful language, he said that the “contractual rights of employees were sacrificed on the altar of public perception”. As well as refusing Commerzbank leave to appeal, he awarded punitive levels of costs and higher than commercial levels of interest against the bank.

What Mr Justice Owen considered unreasonable was a decision to reduce bankers’ bonuses by 90 per cent due to the impact of the credit crunch when there was a real risk that Dresdner could collapse. He considered it unreasonable because the Dresdner chief executive had announced in a town hall meeting that there would be a guaranteed €400m (£322.9m) bonus pool for some staff. At the time of the announcement, no banker knew how much (if anything) they might receive. Shortly after the announcement, Dresdner was taken over by Commerzbank, and Lehman Brothers’ collapse triggered the worst banking crisis in more than 70 years, the effects of which are still felt today.

When the bankers received their bonus letters, the awards were subject to the caveat that they might be reduced if significant additional losses materialised for November and December 2008. The bank determined that there were such losses and reduced the bonuses.

This may seem unfair and a case of the bank breaking its promise. On the other hand, between the town hall announcement and the adjustment of the bonuses there was a financial tsunami that led to banks (including Commerzbank) being bailed out by taxpayers, and Dresdner almost going bust. If Commerzbank had not been bailed out by the German taxpayer, it might not have been able to take over Dresdner, which might then have followed Lehman, and the bankers would probably not have received any bonus at all.

Clearly, staff were told they would get something, but when banks’ survival is at stake and taxpayers are funding their rescue, should we really be concerned because a bank has gone back on its word about discretionary bonuses?

This background is interesting because the merits of a case always inform the legal approach.

If you think the merits lie with those who should have been able to rely on what they were told, you put forward contractual arguments to support this, including arguments going back to Carlill v Carbolic Smoke Ball Company and the issue of unilateral contracts.

If you think that the bank was entitled to go back on what was announced because of the dramatic circumstances, you find ways to show that there was no contract, preferring arguments about lack of certainty and the informality of the presentation.

This was the approach Mr Justice Simon took at the original summary judgment application.

Human nature is to make a judgment on the merits and then try to justify it intellectually and rationally and, rightly, it is often said that judges like merits.

Litigation is risky at the best of times, but outcomes are even more difficult to predict when the merits can be argued both ways.