Hills v Niksun Inc

A contractual discretion to allocate commission is governed by the contractual scheme creating it. Detailed provisions may constrain the discretion even where other clauses use absolute or sole discretion language. The decision-maker must act rationally and consider relevant matters. The claimant bears the legal burden, but once grounds for unreasonableness are shown, the evidential burden shifts to the decision-maker. If the employer provides no evidence of its decision-making process, the court need not assume that the decision was rational and may determine the issue on the evidence. In identifying the contractual Point of Influence, the court may consider the actual deal as completed, historical contributions and assurances given to the employee.

Mark Hills, a regional sales manager employed by Niksun Inc, claimed unpaid commission arising from a Credit Suisse security-software sale. Niksun allocated 48% of the available APAC commission to the UK office. The Winchester County Court found that the contractual Point of Influence was the UK and that two-thirds of the commission should have been allocated to the UK, awarding Mr Hills £6,701.75.

Niksun appealed, contending that the contractual documents gave it a broad discretion, that the Point of Influence was the USA, and that the judge had impermissibly substituted his own view for Niksun’s decision. The central issues were the scope of the contractual discretion, the evidential burden in challenging its exercise, and the proper identification of the Point of Influence.

Appeal dismissed. The Court of Appeal upheld the finding that the UK was the contractual Point of Influence and that two-thirds of the available commission should have been allocated to the UK.

1. Scope of discretion. The Contract, Sales Compensation Letter and Sales Compensation Plan created a detailed contractual process for earning and allocating commission. Niksun therefore had a discretion, but it was constrained by that contractual matrix. The references to absolute or sole discretion did not create a broad and untrammelled discretion of the kind associated with banker’s bonus cases. The court distinguished Keen v Commerzbank AG [2006] EWCA Civ 1536 on that basis.
2. Rationality and burden. Mr Hills retained the legal burden of proof. Once he showed grounds for thinking that Niksun’s decision was unreasonable, the evidential burden shifted to Niksun to show that the decision was reasonable. This approach was consistent in practice with Braganza v BP Shipping Ltd [2015] UKSC 17. Niksun did not call the decision-maker or provide evidence explaining what had been taken into account. The judge was therefore not required to assume that the decision was rational and was entitled to determine the issue on the evidence.
3. Point of Influence. The contractual definition permitted consideration of the actual global deal as completed, including the negotiation of its terms, while not excluding historical United States input. On the evidence, the only reasonable conclusion was that the UK was the Point of Influence.
4. Commission allocation. The assurance that the UK would be looked after, understood as an assurance that it would receive the lion’s share, was a legitimate factor in assessing the reasonableness of the decision. Niksun’s own interests were relevant but did not override that assurance. The provision stating that disputes in commissions would be decided by management concerned subsequent disputes, not the original decision-making process. Once the UK was identified as the Point of Influence, 48% could not stand; the award of two-thirds was open on the evidence. The approach was also consistent with the relevance of employer-created expectations discussed in Brogden v Investec Bank plc [2014] EWHC 2785.

• Court of Appeal (Civil Division): Niksun’s appeal was dismissed. The court upheld the County Court’s conclusions on the Point of Influence and the two-thirds commission allocation: [2016] EWCA Civ 115.
• Winchester County Court (Mr Recorder Harrap): found that Mr Hills had been underpaid commission by £6,701.75 and that two-thirds of the available APAC commission should have been allocated to the UK.