Managers at Germany’s second largest bank, Commerzbank, are facing the prospect of having to find £42million after Mr Justice Owen, sitting in the High Court in London, held that 104 former City bankers at Dresdner Kleinwort are each entitled to bonus payments of up to £1.3million each.
The Bank claimed to be entitled to withhold payments when it faced massive financial pressure as part of the general turmoil in 2009. In 2008 the business was struggling and in May it was put on the FSA’s "watch list" as a result of the apparent fragility of its business. With a view to avoiding mass defections resulting from the instability this caused CEO Dr Stefan Jentzsch promised at a meeting that there would be a 400 million euros’ guaranteed bonus pot. This was a verbal representation to the employees concerning what was described as a discretionary bonus scheme.
In early 2009 the Bank decided to reduce the resulting allocated bonuses by 90%. Commerzbank, which had taken over Dresdner in the meantime, contended that the promises made the previous August were not binding and the Bank could rely on a "material adverse change" clause in the relevant contracts.
However, Mr Justice Owen disagreed with the Bank’s approach and, in a judgment delivered on 9 May stated, "I am satisfied that the promise made by Dr Jentzsch on August 18 gave rise to a contractual obligation to pay discretionary bonuses from a guaranteed minimum pool of 400 million euros.
Unsurprisingly, the Bank has stated that it will appeal the decision. Although the amounts involved are huge, the message is the same for all employers. There is no reason why employees should not rely on representations, including those which are verbal, made by or on behalf of employers. The best intentions in carefully drafted documents can be entirely undermined by injudicious assurances. "But you promised" could well become a familiar refrain in numerous forthcoming tribunal and High Court cases.