Legal Updates

Commercial Law – Construction of Contract – Bonus Scheme – Agreement by E-Mail

The case of Kahn v Dunlop Haywards (DHL) Ltd [2007] involved a contract construction case where the claimant entered into a service agreement with the defendant company (property consultancy activities). The claimant in this case was a popular and respected gentleman in the London property world.

He entered into a service agreement with the defendant to refer clients to the defendant. The defendant operated a bonus scheme. In this bonus scheme employees were meant to receive bonuses calculated on the basis of a departmental split. The claimant was successful in referring a number of clients to the defendant.

Due to speculation that the claimant was going to cease business with the defendant, the defendant wanted to provide him with substantial improvements to his bonus scheme. Accordingly, negotiations in respect of a bonus package ensued between the claimant and the defendant.

During these negotiations, the parties discussed the claimant's bonus period and the manner in which bonuses for business generation and referrals would be calculated. A few hours after the meeting had taken place, the claimant sent an e-mail to the defendant. In that e-mail he particularised his new bonus package.

The defendant responded to that message by stating that it was delighted to confirm that the basis of the claimant's overall remuneration package as set out in his e-mail had been fully accepted.

However, subsequent to this, bonuses allegedly due to the claimant were not paid to him, and he therefore brought proceedings for payments on that basis.

The claimant argued that he was entitled to bonuses in respect of work he had undertaken. He also stated that the payments were due to him on the basis of the agreements which were made at the meeting and then confirmed in the e-mail.

The defendant submitted that the claimant's interpretation of the relevant agreement was incorrect and that on its proper interpretation the claimant was entitled to little payment, if anything at all.

The court held that the acceptance of the e-mail had constituted the moment when either the oral agreement was confirmed or when the claimant's written offer had been accepted.

In such circumstances, what had been of principal concern was the interpretation of the e-mail. The court felt that on a true construction the claimant's interpretation of the agreement, which was reflected in the acceptance of his e-mail, had been correct.

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© RT COOPERS, 2008. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.

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