Wignall v Bank of NT Butterfield & Sons Ltd
| Jurisdiction | Bermuda |
| Judgment Date | 17 November 2003 |
| Docket Number | Civil Jurisdiction 2002 No. 119 |
| Date | 17 November 2003 |
| Court | Supreme Court (Bermuda) |
In The Supreme Court of Bermuda
Kawaley, J
Civil Jurisdiction 2002 No. 119
Mr. A. Dunch for the Plaintiff
Mr. P. Smith for the Defendant
Delaney v StaplesELR [1992] 1 AC 687
Cerberus Software Ltd v RowleyUNK [2001] IRLR 160
Re Maxwell Communications Corporation (Lexis transcript 25 June 2001)
Abrahams v Performing Rights Society LtdICR [1995] ICR 1028
Mannai Investment Co Ltd v Eagle Star Life Assurance Co LtdWLR [1997] 2 WLR 946
Investors Compensation Scheme Ltd v West Bromwich Building SocietyWLR [1998] 1 WLR 896
Moffat Kinoshita Partnership v Minister of WorksBDLR [1991] Bda LR 1
Prenn v SimmondsWLR [1971] 1 WLR 1381
Youell v Bland WelchUNK [1992] 2 Ll Rep 127
The Karen OltmannUNK [1976] 2 Ll Rep 708
Termination of employment — Preliminary issue — Calculation of damages — Whether by reference to contract — Termination or to six months notice
The Plaintiff applied by Specially Endorsed Writ of Summons dated March 26, 2002 for, inter alia, salary and benefits which would ordinarily have been paid to him for a six months period from an alleged termination of his employment on January 4, 2002, pursuant to clause 25 of his contract of employment.
On October 2, 2003, pursuant to the Defendant's August 15, 2003 application by Summons, this Court ordered the following question to be tried as a preliminary issue with the agreement of both Counsel:
‘Whether a summary and immediate termination of the Plaintiff's employment by the Defendant on about 4 January 2002 would entitle the Plaintiff to damages and/or contractual compensation calculated by reference to a contractual termination date of 27 April 2002 or by reference to six month notice period from 4 January 2002’
‘For the avoidance of doubt, the question whether the Plaintiff's employment was in fact terminated on 4 January 2002 is reserved for trial’.
The parties sensibly agreed a Bundle of Documents, the most important item of which was a November 10, 2000 Contract of Employment (‘the Contract’). Subsidiary documents included a March 5, 1996 Letter Contract of Employment (‘the 1996 Contract’), and two draft contracts.
The issue to be tried was essentially whether the Contract entitled the Plaintiff to six months remuneration in the event of summary termination without cause or whether if terminated with less than six months of the contractual period to run, the Defendant was only required to compensate him for remuneration he would have received during the remaining contract period.
As the question of whether termination had in fact occurred was reserved to trial, it was assumed for the purposes of the application that summary termination had occurred. The Defendant contended that the Contract did not entitle the Plaintiff to any more than damages for wrongful dismissal, namely what he would have earned to the end of the contract period. The Plaintiff argued that the Defendant had agreed to give six months notice or pay six months remuneration in lieu, even if summary termination occurred inside the last six months of the contract period.
The Contract between the Bank and Mr. Wignall employed the latter as Senior Vice-President, Asset Management and Managing Director, Bermuda Asset Management Ltd., for the period April 27, 1999 to April 27, 2002. This was by way of renewal of the original contract dated March 5, 1996.
Under Section H (‘TERMINATION’), clause 25 of the Contract provides as follows:
‘The Bank may terminate this Agreement without cause, at any time, upon six (6) months notice to you. In the case of serious misconduct, the provisions of the Staff Manual in effect from time to time shall apply.
In lieu of such notice, the Bank may require you to terminate at once and pay salary equal to the period of notice otherwise due to you under this clause.’
Clause 26 required the Plaintiff to give six months notice of his intention to terminate his employment with the Bank. Clause 40 provides: ‘If the Bank gives you notice it may elect to pay you in lieu of working the notice period.’
In paragraph 5 of his Written Submissions, Mr. Smith contended as follows:
‘Clause H 25 of the contract of employment permits the Bank to terminate the contract at any time, without cause, upon six months notice to the Plaintiff. The Clause provides the Bank with the option to terminate on notice. It does not, on its true construction, mean that the Bank has to give six months notice of termination if it desires the contract to expire through effluxion of time.’
Counsel proceeded to point out that this type of contractual provision had been the subject of legal learning, and that his main submission was supported by clear authority. He framed the issue by citing the following passage from the House of Lords opinion of Lord Browne-Wilkinson in Delaney v StaplesELR[1992] 1 AC 687 at 692:
‘The phrase ‘payment in lieu of notice’ is not a term of art. It is commonly used to describe many types of payment the legal analysis of which differs. Without attempting to give an exhaustive list, the following are the principal categories.
(1) An employer gives proper notice of termination to his employee, tells the employee that he need not work until the termination date and gives him the wages attributable to the notice period in a lump sum. In this case (commonly call ‘garden leave’) there is no breach of contract by the employer. The employment continues until the expiry of the notice: the lump sum payment is simply advance payment of wages.
(2) The contract of employment provides expressly that the employment may be terminated either by notice or, on payment of a sum in lieu of notice, summarily. In such a case if the employer summarily dismisses the employee he is not in breach of contract provided that he makes the payment in lieu. But the payment in lieu is not a payment of wages in the ordinary sense since it is not a payment for work to be done under the contract of employment.
(3) At the end of the employment, the employer and the employee agree that the employment is to terminate forthwith on payment of a sum in lieu of notice. Again, the employer is not in breach of contract by dismissing summarily and the payment in lieu is not strictly wages since it is not remuneration for work done during the continuance of the employment.
(4) Without the agreement of the employee, the employer summarily dismisses the employee and tenders a payment in lieu of proper notice. This is by far the most common type of payment in lieu and the present case falls into this category. The employer is in breach of contract by dismissing the employee without proper notice. However, the summary dismissal is effective to put an end to the employment relationship, whether or not it unilaterally discharges the contract of employment. Since the employment relationship has ended no further services are to be rendered by the employee under the contract. It follows that the payment in lieu is not a payment of wages in the ordinary sense since it is not a payment for work done under the contract of employment.
The nature of a payment in lieu falling within the fourth category has been analysed as a payment by the employer on account of the employee's claim for damages for breach of contract. In Gothard v Mirror Group Newspapers Ltd. [1988] ICR 729, 733, Lord Donaldson of Lymington M.R. stated the position to be as follows:
‘If a man is dismissed without notice, but with money in lieu, what he receives is, as a matter of law, payment which falls to be set against, and will usually be designed by the employer to extinguish, any claim for damages for breach of contract, i.e. wrongful dismissal. During the period to which the money in lieu relates he is not employed by his employer.’
In my view that statement is the only possible legal analysis of a payment in lieu of the fourth category. But it is not, and was not meant to be, an analysis of a payment in lieu of the first three categories, in none of which is the dismissal a breach of contract by the employer. In the first three categories, the employee is entitled to the payment in lieu not as damages for breach of contract but under a contractual obligation on the employer to make the payment.’
Mr. Smith contended that applying Lord Browne-Wilkinson's four categories, clause 25 in the Contract and the dismissal in the present case fell into category (4). As six months notice was not given, a breach of contract occurred and category (2) did not apply. He submitted that the preliminary issue turned on an analysis of three cases, two on which he positively relied, and one on which Mr. Dunch would rely. These cases supported the proposition that under a clause such as clause 25 as read with clause 40, ‘the payment of salary in lieu of notice is an option available to the employer in the event that the employer wishes to terminate the contract without being in breach of contract. The employee cannot insist on the payment in lieu of notice, and his remedy for any summary dismissal without such payment sounds in damages’.
The first case on which Counsel relied was Cerberus Software Ltd. v RowleyUNK[2001] IRLR 160, a decision of the English Court of Appeal. In this case, the key contractual provision was as follows:
‘18. Termination of employment.
Employment under this contract shall continue unless and until determined by the employer under clause 17 above and Appendix 1 or by either party giving to the other not less than 6 months notice of termination.
Notice may only be given as to expire at the end of a monthly pay period. It is agreed that the employer may make a payment in lieu of notice to the employee. The employee...
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