Le Breton v Petrpodel Resources Ltd

A discretionary bonus does not require agreement between employer and employee before it becomes payable. The employer must determine the amount and communicate its decision. Once declared, the bonus is irrevocable. Contractual entitlement to a resource-allocation payment depends on the proper construction of the agreement and, here, accrued on shipment rather than allocation. Where an agreed salary increase is deferred because the intended employing company lacks funding, the increase may continue to accrue. Liability may remain with the company operating and funding the business.

The claimant, an experienced oil-industry employee, brought three contractual claims against his former employer: a 2006 discretionary bonus, resource-allocation payments for oil cargoes, and an increase in salary for managing an exploration and production business. The employer disputed the bonus declaration, argued that the resource-allocation entitlement arose only on shipment after the scheme had ended, and contended that the salary increase depended on the capitalisation of a proposed subsidiary. The High Court determined the parties’ agreements, the effect of subsequent payment deferral, and the sums due.

1. Bonus. Clause 5 of the service agreement made payment discretionary, but did not make agreement over the amount a precondition to payment. The employer was required to exercise its discretion by determining what it would pay and informing the employee. The letter of 27 June 2008 informed the claimant that he would receive $200,000 for 2006 and therefore declared the bonus. Credit had to be given for the $81,884.78 advance. The claimant recovered $118,115.22. The observation that a bonus, once declared, is irrevocable accorded with Farrell Matthews v Hansen UKEAT/0078/04/MAA, paras 38–40.
2. Resource allocation. The letter of 28 February 2005 was construed objectively in its commercial context. The scheme rewarded the operations team’s work in processing allocations into physical cargoes and sales. Entitlement accrued on shipment, not on allocation, although payment became due after the bill of lading quantity was known. The claim therefore succeeded for the New Century cargo, which shipped during the scheme, but failed for the later Nordic Ruth and Mare Pacific shipments. A secondary claim concerning the Four Moons cargo succeeded, producing a total award of $44,568.46.
3. Salary. The claimant became entitled to an additional $8,333.33 per month from 1 January 2007 for managing the upstream business. His agreement in or about March 2007 deferred payment because of Petrodel’s cash-flow difficulties; it did not extinguish or defer accrual of the increase. If the proposed subsidiary was not capitalised, Petrodel was liable while it operated and funded the business. The claimant recovered $150,000.
4. Judgment was entered for the claimant for the three sums. Interest was awarded at the US Prime Rate, running from the dates specified in the judgment.