Bankers win High Court battle for £42m in bonuses
Ruling backs more than 100 former Dresdner Kleinwort staff in their claim for a mega-payout
Thursday 10 May 2012
More than 100 London bankers have won their claim for £42m in unpaid bonuses against Germany's Commerzbank in the High Court.
At least five are set to collect payouts in excess of £1m for bonuses promised just before the financial crisis.
The 104 investment banking staff claimed their former employer, Dresdner Kleinwort, now owned by Commerzbank, should pay the bonuses which were guaranteed in August 2008.
Commerzbank failed to persuade the court the bonuses were discretionary, rather than a contractual obligation.
The ruling, by Mr Justice Owen, is a blow to the German banking giant, headed by chief executive Martin Blessing.
Commerzbank immediately said it would appeal – a decision that prompted anger from the bankers because Mr Blessing had previously indicated that he would accept the court's ruling.
Clive Zietman, head of commercial litigation at Stewarts Law, who represented 83 of the bankers, said: "In our view it was quite wrong of the bank to renege on its commitment. By doing so, it acted contrary to well-established principles of English contract and employment law. It would be a pity if this case were to continue since it would seem to us that the only beneficiaries of further action will be the lawyers, not the parties," he added.
The 83 bankers who were represented by Stewarts Law are due around £28m, plus interest.
The biggest claimants include Jonathan Powell who was due £1.34m, Jeremy Thomas £1.28m, Ian Robertson £1.21m, Steven Garrett £1.16m and Amir Berberian £1.03m.
If interest for the last three years is paid on the unpaid bonuses, the final figures are likely to be much higher.
A further 21 bankers were represented by Mishcon de Reya.
The bankers claimed Stefan Jentzsch, then chief executive of Dresdner Kleinwort, promised them that a€400m (£321m) bonus pot had been set aside.
Dresdner wanted to prevent a staff exodus just before the global banking industry went into meltdown and Lehman Brothers collapsed.
The court heard that Dresdner had informed the Financial Services Authority about the bonus pot after the City watchdog had demanded reassurance that the bank had taken action to stabilise its London operation.
But Commerzbank, which bought Dresdner in late 2008, argued that it should not have to pay the bankers because of a "material adverse change" in its economic fortunes.
Dresdner racked up huge losses and Commerzbank required a multibillion-pound bailout by German taxpayers.
A Commerzbank spokesman said: "The bank believes that the decision to reduce discretionary bonuses in light of €6.5bn of losses at Dresdner Kleinwort for 2008 was responsible and justified. The main argument revolves around whether the announcement on 18 August amounted to a legally binding agreement. It is the bank's submission is that there is every prospect that the Court of Appeal would come to a different view on this matter."
Those close to the bank expressed surprise at the High Court ruling and pointed out that senior British politicians and regulators have been calling on bankers to show restraint.
However, Mark Levine and Daniel Naftalin, partners at Mishcon de Reya, said the result could encourage other City bankers to sue over bonuses.
"This case is likely to have significance whenever employment contracts are varied, particularly on... verbal commitments or actions," they said.
Mr Justice Owen said: "The issue in this case arose within a narrow ambit that concerns the nature and existence of contractual obligations owed to the claimants by their employer.
"This did not concern the wider issues of the structure of remuneration within the banking industry."
Case study: Vindicated - we deserved to get paid for our record profits
Jan Cernohorsky, former foreign exchange options trader at Dresdner Kleinwort, claims he is owed €324,000 plus €15,000 interest. He talked to Jim Armitage
"This is a vindication of what we have been saying for all these years. I thought originally this issue would be settled in six months – how wrong I was. Commerzbank have dragged this on and on and on, and now they're appealing, so we'll be waiting again.
I won't be celebrating until I cash that cheque, but I am very happy we have had a moral vindication.
I worked for Dresdner for 12 years, and the only pay-off I got was £4,000 because I refused to sign the waiver to say I would not join this class action.
I can see why some people would say that we should all pay the price for the performance of the bank as a whole, but I would say this: my team had a record year that year: we made an average of €3m profit for the firm each, so why shouldn't we get paid?
But the wider point was that these bonuses were offered for retention, not performance. If somebody goes into an agreement with you, that is a business transaction. You cannot just break it.
[The period of the takeover] was one of great uncertainty for us. You went from feeling you had a steady job to a time of great concern. That was why the FSA was worried about the situation and asked the bank what it was going to do to ensure staff would be there to manage the risks properly. It was at the FSA's behest that this agreement should be paid in the first place.
Blessing said we should have had "loyalty". That's so off the wall. Loyalty to whom? Why should I have felt any loyalty to Commerzbank when I knew I was likely to be let go from the restructuring they were planning to carry out?
At the time I remember I was hoping the issue would be resolved quickly. I was thinking: "Well, if they're going to fire me I'll still get a year's salary." How wrong I was.
In the end I was made redundant in January 2010 on three months' pay, so I left in April 2010. I was able to get another job at Westpac, which I started the following month.
I can't answer for why Commerzbank tried to fight this case. They've now lost in the US, the UK and probably will in Singapore".
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