Hopkin v Financial Security Assurance (UK) Ltd

In construing a commercial employment agreement, the court must read its words in the context reasonably available to the parties, including documents expressly incorporated or referred to. Distinct scheme terms retain their contractual significance unless the agreement clearly indicates otherwise. An undertaking that bonuses and share awards will be paid, subject to specified employment conditions, does not convert an award of performance shares into an immediate vested right where the agreement separately provides for vesting over defined performance cycles. A construction conflicting with the documented structure of the remuneration scheme should not be adopted.

Mr Hopkin appealed from Simon J’s order of 14 May 2010 dismissing his claim under CPR Part 8. He sought a declaration that he was entitled to the unconditional vesting of 3,000 performance shares awarded in February 2008 and 2,000 shares which his employment agreement said would be awarded in January 2009.

The agreement referred to FSA’s Equity Participation Plan. It stated that performance shares would vest over two sequential three-year performance cycles and that cash bonuses and share awards would be paid subject only to Mr Hopkin not being dismissed for gross misconduct or voluntarily giving notice before the relevant dates. The central issue was whether that wording gave him an immediate, indefeasible right to vesting, or merely secured the awards subject to the Plan’s vesting provisions.

1. Appeal dismissed. Mr Hopkin was not entitled to the declaration sought. The Court of Appeal agreed with Simon J’s construction of the engagement letter.
2. Commercial contractual meaning was determined by asking what the document conveyed to a reasonable person with the background knowledge reasonably available to the parties. The court could consider the factual and documentary context, but not previous negotiations or subjective intentions. The approach summarised from Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 was accepted.
3. The engagement letter distinguished between the award of performance shares and their later vesting. Paragraph 4 expressly stated that vesting occurred over two sequential three-year performance cycles. The pro-forma awards and the Equity Participation Plan made clear that no vested rights arose at the time of award and that vesting depended on the Plan’s terms.
4. Paragraph 5 did not alter that structure. The words providing that cash bonuses and awards would be paid referred to both categories, but “paid” could not mean that performance shares vested immediately. The conditions operated at the dates when the cash bonus became payable and the performance shares were to be awarded. If either condition then existed, the relevant bonus would not become payable or the share award would not be made.
5. The court noted that “paid” is context-dependent, as explained in Charter Reinsurance Co Ltd v Fagan [1997] AC 313. It was unnecessary to decide whether ambiguity would engage the contra proferentem rule.
6. The Equity Participation Plan continued to govern vesting. No useful declaration could be made about the January 2009 awards.

• Court of Appeal (Civil Division): appeal from the order of Simon J dated 14 May 2010 dismissed.
• High Court, Chancery Division: Simon J dismissed the claim, holding that the employment contract did not confer entitlement to unconditional vesting of the performance shares.