Kahn v Dunlop Haywards (DHL) Ltd

A contractual bonus arrangement is construed objectively by reference to the words used, read in their commercial and factual context. Where an accepted communication records separate and independent bonus thresholds, the court should give effect to that structure unless the result is commercially absurd. A reference to business generation or referrals may include repeat work arising from an original referral where the factual matrix shows that the arrangement was intended to reward the continuing relationship. A standard remuneration scheme is not incorporated merely because the new arrangement does not expressly exclude it. The court must identify what terms became the subject of agreement and distinguish admissible background from inadmissible negotiations and subjective intentions.

The claimant sought an account of bonuses allegedly payable under a special bonus arrangement agreed with his employer. The dispute centred on an email recording bonus terms for direct billings and for business generation or referrals. The claimant contended that referrals included repeat work generated by clients whom he had originally introduced, and that the standard 70/30 departmental allocation did not apply before calculating his bonus. The defendant accepted that a special arrangement existed but disputed both points and alleged that the claimant’s interpretation was dishonest. The central issues were the contractual effect of the email and the proper interpretation of the expressions used in it.

1. Construction and formation. The court applied the objective principles of contractual construction stated in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896. The same principles apply to oral contracts. The email was either a written offer accepted by DHL or a written confirmation of an oral agreement subject to final approval. In either event, the acceptance of the email concluded the contract.
2. Admissible context. The court considered the factual matrix, including the recognised importance of the claimant’s ability to generate and retain referred business. Previous negotiations and subjective declarations of intention remained generally inadmissible as aids to construction, although the boundary between negotiations and the factual matrix could be difficult to draw. The relevant question was which terms had become the subject of joint agreement.
3. Meaning of referrals. In context, “referrals” included both initial referrals and repeat work generated from those referrals. The arrangement was intended to provide an annual bonus for fee income from clients introduced by the claimant, without requiring fresh negotiation with the valuation department.
4. 70/30 allocation. The email did not incorporate the standard 70/30 split. The separate thresholds of £300,000 for direct billings and £150,000 for business generation or referrals were expressly independent. The worked example confirmed that the claimant’s bonus was calculated on the relevant billings, subject only to the stated deductions, rather than after applying the standard departmental allocation.
5. Disposition. The claimant’s interpretation was correct. An account was ordered, with counsel to address the procedure for the next stage.