In the recent decision of Kingston v ACC Bank  IEHC 173 (High Court) O’Malley J, the High Court was asked to consider the issue of specific performance of pension entitlements in a severance agreement entered into between the parties on 2009 as a result of the plaintiff’s position being made redundant.
The severance agreement entered into between the parties contained a number of standard provisions. Clause 3.1 provided that the defendant agreed to pay the plaintiff the gross sum of €280,000 to include statutory redundancy plus a termination bonus of €125,000. Clause 3.4 provided that the plaintiff agreed to waive his entitlement to a tax free pension lump sum for the defendant’s defined benefit pension scheme and his attaching AVC policy. Clause 9.5 headed “Severance Options” provided as follows:
If employees of the Bank (who are defined benefit pension scheme members) are offered early pension or other benefits by way of individual or bank wide agreement over and above those which are offered to [the plaintiff] prior to his deferred pension commencing at age 60, and [sic] it is agreed that, those benefits will accrue to [the plaintiff]. For clarity, early pension means pension payable to any employee up to and including age 56. In those circumstances [the plaintiffs} pension will become payable from the date [the plaintiff] attains the relevant age. Relevant age being the age at which any other employee of the bank who is a defined benefit pension scheme member, is entitled to receive pension benefit up to and including age 56. The ACCBank HR records…and the records of any other pension administrators who may be appointed will be noted accordingly and the Bank will undertake to advise [the plaintiff] of any such offers as outlined above…
Clause 10 headed “Entire Understanding” provided that “This Agreement contains the whole agreement between the parties hereto relating to the transactions provided for in this agreement and supersedes all previous agreements (if any) between such parties in respect of such matters and each of the parties to this Agreement acknowledges that in agreeing to enter into this Agreement it has not relied on any representations or warranties except those contained in this Agreement”.
Clause 11 recorded that the plaintiff acknowledged having taken legal advice on and understood the effect and implications of the agreement and every part thereof.
The plaintiff’s redundancy was part of a wider cost-cutting exercise by the bank, which involved negotiations with the trade unions representing the wider workforce. These negotiations did not succeed at local level and ultimately the issue was referred to the Labour Court. On the 6th August, 2009, one month after the plaintiff had concluded his agreement with the bank, the Labour Court issued its recommendation. Part of the recommendation, under the heading “The Severance Package” read as follows:
• Employees leaving the Bank under the terms of the restructuring scheme (other than by way of voluntary early retirement) should be paid eight weeks pay for each completed year of service (inclusive of statutory terms). This should be subject to a maximum of 156 weeks pay.
• Staff aged 55 years or more should have the option of an immediate non discounted pension plus a lump sum calculated on the basis of four weeks pay for every completed year of service (inclusive of statutory terms), uncapped.
• In either case the total amount of lump sum should not exceed the total potential earnings of the employee up to age 65.
The defendant’s head of Human Resources wrote to the plaintiff on the 11th September, 2009 to inform him of the developments in relation to the Labour Court recommendation. The defendant subsequently allowed the plaintiff to choose between the options set out in the Labour Court recommendation – either eight weeks pay per year plus the T2016 payment or a non-discounted pension at age 55 plus four weeks pay per year.
The plaintiff argued that he was entitled to an early pension in the event that any other employee was offered one at any point before his 60th birthday and that this entitlement does not depend on the terms upon which the offer was made to such other employee. The plaintiff further argued that the defendant was attempting to rewrite the agreement by reference to the Labour Court recommendation. The plaintiff also contended that the defendant was the dominant party in drafting the agreement and that if there was any ambiguity it should be construed contra proferentem. It was further argued that construction of the clause as permitting a variation or claw-back of any portion of the lump sum would not meet the business efficacy or officious bystander tests.
The defendant argued that the point of the clause was to allow the plaintiff to take advantage of any offer of an early pension made to other employees and that the plaintiff was now seeking a benefit in excess of that offered to anyone else.
The defendant also denied the applicability of the contra proferentem rule as argued for by the plaintiff, since the drafting of this particular clause came from him.
Principles governing the construction of the agreement
Justice O’Malley referred to the judgment of Geoghegan J. in the case of Analog Devices B.V. v Zurich Insurance Company  1 IR 274. where he cited the “modern principles” as set out by Lord Hoffman in I.C.S. v West Bromwich B.S.  1 W.L.R. 896 as follows:
1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
2) The background was famously referred to by Lord Wilberforce as the “matrix of fact” but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be next mentioned, it includes absolutely anything that would have affected the way in which the language of the document would have been understood by a reasonable man.
3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.
4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammar; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must for whatever reason, have used the wrong words or syntax; see Mannai Ltd. v. Eagle Star Ass. Co. Ltd. [1997} A.C. 749.
5) The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the commonsense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in AntaiosCompania S.A. v. Salen A.B.  A.C. 191,201.
‘If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense’.”
The High Court noted “that a party may not seek to set up a contra proferentem argument based on the allegedly dominant position of the other party if he in fact drafted, or was largely responsible for, the provision in question”. With regard to the content of the pre-agreement emails, the court noted that that appeared to have been the case here.
Justice O’Malley stated that she was “satisfied that the most salient fact is that the defendant was seeking the departure of a third of its workforce and was engaged in negotiations to that end. The plaintiff was aware of this and wished to ensure that he did not agree to something that would leave him at a comparative disadvantage when those negotiations were concluded. The point of the clause, therefore, is to ensure that if, at any time before he reaches the age of 60 (which would otherwise be the age at which he becomes entitled to a pension) an offer of an early pension is made to anyone else he will be given the same offer.
Justice O’Malley noted that the operation of the clause was triggered by the offer of an early pension to employees aged 55 and over, since they were, as described in the clause, employees of the bank who were members of the scheme and who were “offered early pension by way of a bank wide agreement”.
The High Court noted that the plaintiff cannot get an earlier pension than that offered to others nor can he expect a better offer than anyone else that is not provided for and Justice O’Malley concluded that
“I do not consider that this interpretation falls foul of the officious bystander or business efficacy tests. In my view it fulfils the purpose for which the clause was inserted – it ensures that the plaintiff is not left at a disadvantage compared to other employees. There is nothing to suggest that it was intended that he could or should gain a benefit not offered to them. The plaintiff claims that this amounts to a “claw-back” of his lump sum but that is not necessarily so. If the plaintiff accepted the offer his choice would more properly be characterised as the forgoing of part of the lump sum in return for early pension. That is what was offered to the other employees”.