Ridgway v JP Morgan Chase Bank National Association [2007] EWHC 1325 (QB) (08 June 2007)

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Cite as: [2007] EWHC 1325 (QB)

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		Neutral Citation Number: [2007] EWHC 1325 (QB)
		Case No: HQ06X01345

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

08/06/2007

B e f o r e :

THE HONOURABLE MR JUSTICE FORBES
____________________

Between:

	Daniel Toby William Ridgway	Claimant
	- and -
	JP Morgan Chase Bank National Association	Defendant

____________________

Andrew Stafford QC (instructed by Kemp Little LLP) for the Claimant
Andrew Hochhauser QC and Andrew Tabachnik (instructed by Linklaters LLP) for the Defendant
Hearing dates: 1st, 2nd, 5th, 6th, 7th and 9th March 2007
____________________

HTML VERSION OF JUDGMENT
____________________

Mr Justice Forbes :

Introduction and factual background. The Claimant in these proceedings, Daniel Ridgway ("Mr Ridgway"), joined JP Morgan as a management trainee in December 1996 straight from university, having just come down from Oxford with a "first" in Maths. On commencement of his employment, Mr Ridgway was assigned to the "plain-vanilla" interest rate options trading desk ("the Options Desk"). The interest rate options in question were known as "plain vanilla" because they were more straightforward than other more "exotic" types. Mr Ridgway soon became a very successful trader. On 18^th June 1998, he was appointed an Associate and, in February 1999, he was promoted to the "No. 2" position on the Options Desk.

In about December 2000, Mr Ridgway was made a Vice President and, in April 2002, he was appointed Head of the Options Desk upon the departure of Luke Halestrap, who had been the Head of Desk until then. As well as receiving these various promotions, Mr Ridgway was regularly awarded significant annual bonuses in the form of cash and various kinds of "deferred compensation", namely stock options ("stock options") and restricted stock units ("RSUs"). The deferred compensation was designed both to reward Mr Ridgway for his performance and to encourage him to stay with the bank and perform well in the future. As is a common arrangement in the City, the stock options and RSUs were subject to terms pursuant to which they would be lost upon termination of employment, save in certain specified circumstances (see below).

At the end of 2000, the JP Morgan group merged with another bank, The Chase Manhattan Corporation. The Defendant in these proceedings, JP Morgan Chase Bank National Association ("the Bank"), results from that merger.

At the time of the merger rumours began to circulate that a new rule was to be introduced into the Bank's deferred compensation schemes, namely "the Rule of 45" (also referred to as the "Age of 45 Rule"). It is clear from the attachment to an email dated 2^nd February 2001, sent by senior management to all "Investment Bank Officers", that the rumours were well founded. The attachment was entitled "Investment Bank 2001 Compensation Program" and, in broad terms, the document set out the approach and conditions that were to be applied to bonus awards. It can be seen that the Rule of 45 formed part of the section headed "Restricted Stock", as follows:

"Those who leave voluntarily to work for a noncompetitor or leave the business will continue to have their shares vest over the original terms of the award, provided they meet the following conditions:

? The sum of age and service with JP Morgan (including cumulative service with predecessor organisations) equals or exceeds 45 years.

? Have at least 5 years of continuous service."

The rumours caused Mr Ridgway serious concern because he felt that if the Rule of 45 were to be introduced it would have a disproportionate impact on someone of his age and service. He therefore raised his concerns with Luke Halestrap ("Mr Halestrap") who was his line manager at the time. Mr Halestrap felt unable to deal with Mr Ridgway's concerns. However, shortly afterwards, Mr Ridgway had a meeting with Mr Robert Standing ("Mr Standing"), who was then the Bank's Head of Sales and Trading for the European Rates Division, the division within which Mr Ridgway worked as a trader. This particular meeting took place in April 2001 ("the April 2001 meeting"). According to Mr Ridgway, Mr Standing gave him an assurance during the meeting to the effect that if Mr Ridgway were to leave the Bank "on good terms" the Rule of 45 would not apply. The Bank strongly disputes that any such assurance was given to Mr Ridgway. In any event, it is said that Mr Standing did not have authority to give any such assurance and that its terms were too uncertain to be enforceable.

In early 2003, Mr Ridgway decided that he wanted "some time out". He felt that he had been working hard for a number of years "in a high pressure position and wanted a break". Later in this judgment I will go into somewhat more detail about the various meetings and discussions that Mr Ridgway had as a result. At this stage it is sufficient to state that the outcome of those discussions was that, on 15^th April 2003, Mr Ridgway went on a year's sabbatical pursuant to terms agreed with the Bank and recorded in a letter dated 10^th April 2003 ("the sabbatical letter"). The sabbatical letter contained express terms to the following effect (inter alia): (i) that Mr Ridgway would continue to be eligible to be considered for a discretionary bonus in respect of his contribution to the Bank during the performance year (i.e. 1^st January to 31^st December of the year in question); (ii) that there was no guarantee that Mr Ridgway would be able to return to his former job or that a suitable alternative job would be available for him at the expiry of the sabbatical; and (iii) that the Bank would make every effort to find a suitable alternative job for Mr Ridgway upon his return.

In the event, in about December 2003, the Bank decided that Mr Ridgway should be awarded a "nil bonus" for the performance year 2003. The Bank's decision to that effect was announced in the usual way (together with all other bonus awards) in January 2004. It is to be noted that Mr Ridgway took no steps to query or challenge the decision to award him a "nil bonus" for 2003 until his solicitors' letter before action dated 1^st December 2004 (see below).

After Mr Ridgway returned from his sabbatical, his former job was no longer available and the various discussions that took place during the course of the next few weeks with regard to providing him with a suitable alternative proved to be unfruitful. The culmination was that, by its letter dated 4^th June 2004 (the full terms of which are quoted in paragraph 93 below), the Bank took the position that its offer to employ Mr Ridgway as a proprietary trader was a suitable alternative (having regard to the particular terms of the offer) and that, if Mr Ridgway failed to accept it and return to work, the Bank would treat such conduct as a fundamental breach of contract on his part and determine Mr Ridgway's employment. However, the Bank's letter concluded with a final paragraph that was couched in more conciliatory terms, as follows:

"I hope that you will seriously consider the offer of suitable alternative employment that has been made to you, and I am available to discuss this with you further should you wish. I look forward to hearing from you within seven days, by 11 June 2004, as to whether you intend to return to work at JP Morgan."

Mr Ridgway's response was to give notice by letter dated 11^th June 2004 ("the resignation letter": quoted in full in paragraph 95 below) terminating his employment with the Bank at the end of July 2004. It was Mr Ridgway's view that he was being forced by the Bank to take a job that was unsuitable and that consequently he had no option but to resign: i.e. that, in effect, he had been constructively dismissed.

The General Nature of the Claims. Broadly stated, Mr Ridgway makes the following claims in these proceedings: (1) a claim for damages for breach of contract in relation to his deferred compensation (i.e. both Stock Options and RSUs) that the Bank has treated as forfeit upon and as a result of the termination of Mr Ridgway's contract of employment ("The Deferred Compensation Claim") and (2) a claim for damages for breach of contract in respect of the Bank's decision to award him a nil bonus for the performance year 2003 ("The Nil Bonus Claim").

Background facts relating to the Deferred Compensation Claim. Most banks pay at least part of an employee's bonus in the form of stock/share options or other forms of deferred compensation. As I have already indicated, this case is concerned with two forms of deferred compensation, namely stock options and restricted stock units (RSUs).

Typically, a stock/share option cannot be exercised until a period of time has elapsed since it was granted. Once the stock/share option has vested, the employee may exercise the option and buy the shares in respect of which the option was granted. The price that the employee must pay to exercise the stock/share option is usually fixed as the share price at the time that the option was granted. If the shares have increased in value in the time between the grant and the vesting of the option, the employee will make a profit. However, because the share price might be lower at the time of vesting, the terms of a stock/share option will usually permit the employee a period of time within which to exercise the option, thus providing an opportunity for the share price to recover.

RSUs are another form of deferred compensation, in which stock in the bank is granted to the employee, but under terms that mean that the stock cannot be sold until a specified period of time has elapsed: i.e. the stock is granted under terms that provide that it will vest and can thus be sold at some point in the future.

As I have already indicated, deferred compensation has the following obvious attractions from the employer's point of view: (i) it strengthens the tie between employee and employer – the employee has an interest in remaining until the stock/share option and/or stock has vested and the employee will thus be less receptive to overtures from competitors; and (ii) the employee will be more likely to give of his best during the period between grant and vesting, in the hope that his efforts will help to improve the financial performance of the employer and, hence, the share price.

Of course, an employee holding unvested stock/share options/RSUs may nevertheless decide to move to a competing bank which has made him/her an attractive offer. Most deferred compensation schemes address this issue by providing (for example) that any unvested stock/share options/RSUs will be forfeited if the employee leaves the bank's employment before they have vested.

I now turn to give a more detailed account of the deferred compensation with which this case is concerned, namely the stock options and RSUs that Mr Ridgway was granted as part of his bonus awards for performance years 2001 and 2002, as follows:

(1) On 17^th January 2002, the Bank gave Mr Ridgway a bonus award for performance year 2001 that included 43,963 stock options. These stock options were to vest on 17^th January 2003 and could be exercised between 17^th January 2003 and 17^th January 2012 ("the Stock Options").

(2) On 12^th February 2003, the Bank gave Mr Ridgway a bonus award for performance year 2002. The terms of the award entitled Mr Ridgway to choose the mix of the deferred compensation part of the bonus. Mr Ridgway chose to take his deferred compensation in the form of 30,407 RSUs. These particular RSUs were to vest in two stages, as follows: 15,203 were to vest on 25^th January 2005 and the remaining 15,204 were to vest on 25^th January 2006.

It is important to note that Mr Ridgway was granted the stock options and RSUs in question on different contractual terms and conditions, to which I now turn.

The terms relating to the Stock Options.

So far as material, the terms and conditions relating to the award of the stock options can be summarised as follows (see condition 3 paragraphs (b) and (d) of the "Terms and Conditions for Non-qualified Stock Options Awarded Under the J.P. Morgan Chase & Co. 1996 Long-Term Incentive Plan": "The Options Agreement"):

(1) In the event that Mr Ridgway's employment came to an end, any outstanding options would be forfeited immediately, subject to certain specified exceptions: see the opening words of condition 3 ("the stock option general rule").

(2) One of the relevant exceptions to the stock option general rule was that if an "involuntary" termination of the job occurred as a result of "job elimination" (as determined by the Director of Human Resources "in his sole discretion") then all outstanding options would become exercisable for a period of two years from the date of termination: see condition 3(b) ("the stock option job elimination term").

(3) A further relevant exception to the stock option general rule was that, if Mr Ridgway were to terminate his employment "voluntarily", any options that were exercisable immediately before his employment came to an end would not be forfeit, but would remain exercisable for a period of two years from the date of termination (but not beyond their expiration date), provided that Mr Ridgway executed an agreement having "such terms and conditions as J.P. Morgan Chase shall specify, including but not limited to a general release of J.P. Morgan Chase and its Subsidiaries and an agreement that during the period that the Options remain outstanding not to perform services for a competitor in any capacity": see condition 3(d) ("the stock option special exercisability term").

The terms relating to the RSUs.

So far as material, the terms relating to the award of the RSUs were to the following effect (see condition 2 paragraphs (b) and (d) of the "Terms and Conditions for Restricted Stock Units Awarded Under the J.P. Morgan Chase & Co. 1996 Long-Term Incentive Plan United Kingdom": "the RSU Agreement"):

(1) In the event that Mr Ridgway's employment came to an end, any unvested RSUs would be forfeited immediately, subject to certain specified exceptions: see the opening words of condition 2 ("the RSU general rule").

(2) One of the relevant exceptions to the RSU general rule was that, if an "involuntary" termination of the job occurred as the result of "job elimination" (as determined by the Director of Human Resources "in his sole discretion") then any unvested RSUs would vest at the date of termination. However, this entitlement was subject to Mr Ridgway executing a release "in such terms as J.P. Morgan may specify": see condition 2(b) ("the RSU job elimination term").

(3) A further relevant exception to the RSU general rule was that, if Mr Ridgway were to terminate his employment "voluntarily", then his unvested RSUs would continue to vest on the same terms and conditions as if he had remained actively employed with the Bank, provided that (i) Mr Ridgway satisfied certain criteria and (ii) he executed an agreement "specified by J.P. Morgan Chase, including but not limited to a general release of J.P. Morgan Chase and an agreement that during any remaining vesting period [he] will not perform services for a competitor in any capacity: see condition 2(b) ("the RSU special vesting term"). The specified criteria that Mr Ridgway was required to satisfy for the purposes of the RSU special vesting term were as follows:

(a) At the date of termination, Mr Ridgway had completed at least five years' continuous service with the Bank.

(b) At the date of termination, the sum of Mr Ridgway's age and cumulative service amounted to at least 45 (i.e. the "Rule of 45").

(c) Mr Ridgway did not perform services for a competitor during the vesting period.

The differences between the Stock Option terms and RSU terms.

The following appear to be the relevant differences between the terms and conditions relating to the deferred compensation schemes with which this case is concerned:

(1) The stock option job elimination term differs from its equivalent in the RSU scheme in that: (a) the stock option job elimination term renders all outstanding options exercisable immediately and imposes a limited period of time within which they must be exercised (i.e. within two years following the termination of employment) and (b) there is no requirement for any release agreement. In contrast, the RSU job elimination term is conditional upon the "timely" execution of a release agreement and provides for the immediate vesting of all unvested RSUs, which can then be sold at any time.

(2) The stock option special exercisability term applies only to options that are exercisable immediately prior to the termination of employment and imposes a limited period of time within which they can be exercised (i.e. two years from the termination of employment). Although the stock option special exercisability term is conditional upon the execution of an appropriate release agreement, it is not subject to the "Rule of 45" (or any similar rule). In contrast, the effect of the RSU special vesting term is to neutralise the RSU general rule; i.e. where the term is operative, there is no forfeiture of unvested RSUs and they continue to vest on the same terms and conditions as if Mr Ridgway continued to be employed by the Bank. However, the RSU special vesting term is not only conditional upon the execution of an appropriate release agreement but it is also subject to Mr Ridgway satisfying the specified criteria – in particular, the Rule of 45.

Background facts relating to the Nil Bonus Claim. Stated broadly, the general system operated by the Bank when awarding bonuses (formally known as Incentive Compensation or IC, for short) was as follows. A bonus pool for the relevant performance year would be allocated to a particular group of employees. Each employee eligible for consideration would provide a self-assessment and there would be a comprehensive review in which peers, managers and those junior to the individual would comment on his performance over the year in question. In addition, meetings might be held at which the senior management in charge of the particular bonus pool would receive and discuss relevant information. The individual's performance could include not only the profits made by that individual during that performance year, but also any management roles he had undertaken and any other exceptional circumstances. Providing a suitable incentive for future performance and continued employment with the Bank was also a relevant consideration. Recommendations would then be made at the end of the process, to be endorsed or amended by more senior management.

The Bank would award only a certain proportion of the bonus award in cash and bands would be set for each performance year. Within these bands, the Bank would divide an overall bonus award between cash and deferred compensation.

The relevant contractual provisions upon which Mr Ridgway relied on this aspect of the case are contained in the sabbatical letter, the material terms of which were as follows:

"During your sabbatical you will continue to be employed by J.P. Morgan Securities Limited and be bound by the terms and conditions of your contract of employment and by the Firm's rules and policies.

During this period your pay and benefits will be handled as follows:-

Salary, pension and other benefits

You will not receive salary or any other cash allowances.

…

Bonus

Bonus awards are entirely discretionary and paid:

to recognise and reward an individual who makes a significant contribution to his/her business unit and the Firm; and

to provide an incentive to an individual to maintain and improve his/her overall performance and remain in the employment of the Firm.

The Firm will also take into account Firm-wide and business unit performance in determining whether an individual may be eligible to be paid any bonus. Provided that you remain employed at the time of announcement of bonus awards you will continue to be eligible to be considered for a discretionary bonus award. Any award made will reflect your contribution to the Firm in the performance year and will therefore not include reward for any period that you have been on sabbatical. …"

Accordingly, having regard to the particular terms of the sabbatical letter, it was common ground: (i) that Mr Ridgway was contractually entitled to be considered for a (discretionary) bonus award in respect of his contribution to the Bank in performance year 2003 (i.e. for the period 1^st January to 14^th April 2003), (ii) that the Bank had a discretion as to whether to award Mr Ridgway any such bonus and (iii) that the Bank was legally obliged not to act perversely or irrationally in the exercise of its discretion. It is convenient at this stage of my judgment to stress that the task of proving irrationality or perversity in the exercise of the Bank's discretion to award a bonus is a daunting one. As Mummery L.J. observed in Commerzbank AG ~v~ Keen (2007) IRLR 132 ("Commerzbank") at paragraph 59:

"First and foremost, the bank has a very wide contractual discretion. Mr Keen has to show that the discretion has been exercised irrationally. … The burden of establishing that no rational bank in the City would have paid him a bonus of less than his line manager recommended is a very high one. It would require an overwhelming case to persuade the court to find that the level of a discretionary bonus payment was irrational or perverse in an area where so much must depend on the discretionary judgment of the bank in fluctuating market and labour conditions."

The Issues. The parties agreed that the Deferred Compensation Claim gave rise to the following issues:

1. Did Mr Ridgway's employment "involuntarily terminate as a result of job elimination" within the meaning of clause 3(b) of the Option Agreement and Clause 2(b) of the RSU Agreement?

2. Did Mr Ridgway's employment come to an end voluntarily within the meaning of clause 3(d) of the Option Agreement and clause 2(d) of the RSU Agreement?

3. Was the Bank entitled to insist upon incorporating a term within a release agreement requiring Mr Ridgway to forfeit his RSU stock in order to be permitted to retain his options?

4. Was Mr Ridgway constructively dismissed by reason of a breach of the implied term of trust and confidence? If so, were his options and RSUs forfeit?

5. In the context of the claim relating to RSUs

a. Did Mr Standing give an oral assurance to Mr Ridgway that the Rule of 45 would not apply to him if he were to leave on "good terms"?

b. Did Mr Ridgway reasonably rely upon it?

c. Is the representation too uncertain to be enforceable?

d. Was Mr Standing acting within the scope of his ostensible authority in making the alleged representation?

e. Did Mr Ridgway leave his employment on "good terms" within the meaning of the representation?

As for the Nil Bonus Claim and the question of Quantum, the parties agreed that the relevant issues were as follows:

(1) Was the Bank's decision to award Mr Ridgway a nil bonus in 2003 irrational and perverse?

(2) In relation to quantum, the main issues … are

a Did Mr Ridgway fail to mitigate his losses in relation to his Options claim during the period 11^th June 2004 and 30^thJuly 2004?

b. What is the currency of his claim?

c. What is the quantum of a non-irrational, non-perverse award?

I should make it clear that the factual matters that I have included in the foregoing introductory paragraphs form part of my findings of fact in this case. However, I now turn to give a more detailed account of the facts as I find them to be, having regard to the evidence that I have heard and read and in the light of the detailed oral and written submissions made by Mr Stafford QC on behalf of Mr Ridgway and Mr Hochhauser QC on behalf of the Bank, to all of which I have given very careful consideration.

The Facts. At the time the JP Morgan Group merged with Chase Manhattan, Luke Halestrap ("Mr Halestrap") was the Head of Interest Rate Option Trading. After the merger, Mr Halestrap retained that position and also became Head of Euro Swap Trading. Mr Halestrap was Mr Ridgway's line manager from 1997 until he left the Bank in April 2002 in order to start his own hedge fund. However, before he left the Bank, Mr Halestrap was able to negotiate an agreement to the effect that, provided he left on acceptable terms, his earned compensation (i.e. the bonuses that he had been awarded) would not be adversely affected.

Mr Standing's alleged assurance. It is to be noted that Mr Halestrap negotiated this particular agreement with Mr Bill Winters, who was senior to Mr Standing in the Bank's overall management structure (he was Mr Standing's line manager and the joint Global Head of Credit and Rates with Mr Don Wilson). Furthermore, the agreement was recorded in a letter dated 12^th February 2001 co-signed by Mr Winters and Mr Don Wilson and a copy retained in Mr Halestrap's personnel file at the Bank. It was common ground that Mr Winters and Mr Wilson had the necessary authority to negotiate and agree such an arrangement on behalf of the Bank, in contrast with the position pertaining to Mr Standing (as to which, see below). So far as material, the letter was in the following terms:

"We confirm that for the calendar year 2001, you will receive total compensation of no less than £ less income tax and other deductions which the Company is required by law to make.

You will be paid additional compensation, consistent with the approach taken over the past two years at JPM, for the EVA of your trading books. More specifically, if you maintain JPM's position as a leading market maker for client transactions in the books for which you are responsible, you will receive additional compensation based on the trading returns you generate, taking into account the capital you use.

If you leave JP Morgan on acceptable terms as determined by management (i.e. give ample notice, manage the transition well, agree to abide by non-solicitation and confidentiality terms, and your new employer is not a direct competitor), we will make you economically whole on earned compensation.

…

A copy of this memo will be retained in your personnel file."

As I have already stated, shortly after Mr Ridgway expressed his concern to Mr Halestrap about the effect of the introduction of a Rule of 45, a meeting took place between Mr Ridgway and Mr Standing in April 2001 ("the April 2001 meeting"). According to Mr Ridgway, the meeting had been arranged for him to discuss his concerns with Mr Standing. To the extent that he could recall it, Mr Standing's perception of the reasons for the meeting was different. Prior to the merger, Mr Standing had been employed by Chase Manhattan and the April 2001 meeting was Mr Ridgway's first formal meeting with Mr Standing. So far as Mr Standing was concerned, the meeting formed part of an informal process whereby he was getting to know all those for whom he had recently taken over management responsibility.

Mr Ridgway's account of the April 2001 meeting was as follows (see paragraphs 11.3 to 11.6 of his first witness statement):

"11.3 The meeting took place during the late afternoon/early evening … and we spent the first five minutes or so introducing ourselves … we spent 10-15 minutes discussing the books for which I was responsible and certain positions which I had taken recently.

11.4 I then said that I wanted to understand how I would be treated in the light of the rumour regarding the Age of 45 Rule. I mentioned that I was very young and had only worked for 4 years, which in turn meant that the new rule was a material concern for me.

11.5 He told me that the newly-merged entity would have a much more reasonable approach with regard to imposing the Age of 45 Rule than the hard line of (H)eritage-Chase. He said that if I left on good terms then the Age of 45 Rule would not apply. I pressed him on exactly what he meant by "good terms". He went on to explain that I would not be regarded as having left on good terms if, for example, I took an unduly risky position, lost say $20 million and then decided to leave the Bank, or if, for example, I left to go to work for a competitor. If I left on such terms I should not expect to receive any outstanding stock and options. However, if I left on good terms then all outstanding stock and options would vest to me (i.e. the Age of 45 Rule would not be applied).

11.6 We discussed the matter for approximately 10 minutes, and I was quite reassured that I would receive my stock regardless of whether or not I satisfied the Age of 45 Rule, provided I left on "good terms". There was no question in my mind that Rob did not have sufficient authority to make such a commitment."

I should say at once that I have no doubt that Mr Standing was an honest and accurate witness who did his best to recall what had been said at a short and, so far as Mr Standing was concerned, unremarkable meeting that had taken place nearly six years ago. Unsurprisingly, Mr Standing was unable to recall the precise terms of what was said and discussed at the April 2001 meeting. However, he was emphatic in stating that he would not have given Mr Ridgway the alleged assurance: see, for example, paragraphs 14 and 16 of his first witness statement (the truth of which I accept), where he said this:

"14. … I know for certain that I would not have agreed to waive or modify the application of any global term relating to a deferred compensation plan operated by the Defendant, whether the "Rule of 45" or any other term, and whether for [Mr Ridgway] or for anyone else. I worked for the Defendant for over 20 years and in all my years of management I have had numerous conversations with employees in relation to incentive compensation (both with respect to cash bonuses and deferred bonus awards such as share options). I know I would never make any promise, representation or undertaking to anyone that I would not be able to back up or follow through with.

…

16. … I would never have made a promise to [Mr Ridgway] (or anyone else) that a term of a global deferred compensation plan could be waived or disapplied or in any way set aside. This is for the simple reason that I did not have the authority to do so. It would have been a breach of my duties to the Defendant to do so."

For the reasons that follow, I have come to the firm conclusion that Mr Standing did not give any assurance to Mr Ridgway to the effect claimed during the course of the April 2001 meeting or at all.

Although, as I have already indicated, Mr Standing was a senior member of the Bank's management, I accept his evidence that, contrary to Mr Ridgway's apparent understanding of the position, Mr Standing did not have the necessary authority to vary or waive any of the Bank's rules with regard to deferred compensation. As already indicated, Mr Standing was well aware that he had no such authority and I am satisfied that he never held himself out as having any such authority.

As Mr Hochhauser observed, Mr Standing's appreciation of the limits of his own authority is a crucial aspect of this issue in the case. There is no ready or sensible explanation as to why Mr Standing should have given the alleged assurance to Mr Ridgway, rather than directing him to the people with the requisite authority (i.e. Bill Winters, Don Wilson and/or Human Resources) and (if he considered it appropriate) recommending that the necessary exemption be given. I am satisfied that if Mr Standing had, at any stage during the meeting, gained the impression or understanding that Mr Ridgway was seeking an assurance that the Rule of 45 would not apply to him if he left on good terms, he would have given his invariable response, namely that it was not an issue that he was able to deal with but was a matter for decision by more senior management (i.e. at the Bank's head office in New York: see paragraphs 36 and 37 below and paragraphs 12 and 13 of his supplemental witness statement).

Having considered the matter carefully, I entirely accept the truth of Mr Standing's evidence in re-examination, when he said this (Trans. Day 4, pages 131 to 132):

Q. Could I take you to the April 2001 conversation? At the time that you had this conversation, did you have authority to give any waivers of age limitation rules to people under your supervision?

A. No.

Q. If an employee in Mr Ridgway's position had made such a request to you, what would your reaction have been?

A. I would have said, "No, and it is outside my remit".

Q. Why would you have said that?

A. Because matters like deferrals are bank policy.

Q. To your knowledge, have you personally ever given a waiver to any individual that you managed directly or indirectly?

A. No, nothing like that without consultation with New York, HR and approval.

Q. And has any individual under your supervision ever received such a waiver, to your knowledge?

A. No.

Q. Has anybody other than Mr Ridgway ever asked you for such a waiver?

A. No one has asked me formally.

Q. And insofar as they have asked you informally, what was your reaction?

A. When I say "informally", someone might have said, "I do not think we should have the rule of 45", and I would have said, "Tough", as a conversation in an open environment.

Q. Have you ever departed from that stance?

A. No.

Q. Ever?

A. Never."

Mr Standing made it clear that, over the years, he had had many conversations with traders about their bonuses and about their deferred compensation. He accepted that he was sometimes asked whether a particular trader would be able to leave with all his/her stock (i.e. whether the bank would waive any rules that otherwise might mean that the stock would be forfeited). I accept his evidence that his answer was invariably the same, namely as follows (see paragraphs 12 and 13 of his supplemental witness statement):

"12. … Whilst I cannot now recall the exact terms of every single conversation I had along these lines, I can clearly recall that my answer was invariably the same: the Bank might allow a trader to leave and retain his stock that would otherwise be forfeited, but it was not my decision (I did not make the rules), and the trader would have to take it up either with someone more senior (such as Bill Winters or Don Wilson) or with H(uman) R(esources).

13. I can say without any hesitation that I have never told a trader during these conversations that I would waive a stock-related rule, or that I would be able to get the Bank to do so (either using the word "waive" or any synonym). I was well aware that I had no authority to make such a promise, and there is no reason why I would have done so in the circumstances. Had I done so I have no doubt that the conversation would have remained firmly in my mind as it would have been an extraordinary conversation for me to have had."

In my judgment, if Mr Standing had given Mr Ridgway the assurance that Mr Ridgway claims that he did, Mr Standing would have remembered it because it would have been completely out of character for him to do such a thing. Not only would it have constituted a clear breach of his duty to the Bank but, as Mr Standing said (see paragraphs 12 and 17 of his supplemental witness statement), if a trader for whom Mr Standing had management responsibility did seek an exemption from forfeiture or waiver in respect of deferred stock, Mr Standing's invariable practice was to refer him/her to Bill Winters/Don Wilson and/or to Human Resources. It is worth noting that, in such circumstances, Mr Standing did expect that he would be asked, as part of the overall process, to express a view or make a recommendation and I accept his evidence that there never was a stage when he would have made a positive recommendation in Mr Ridgway's case if the Bank had sought his views with regard to a possible exemption/waiver. In my view, this strongly supports the suggestion that Mr Standing did not give the alleged assurance during the April 2001 meeting. I accept Mr Hochhauser's submission that Mr Standing came across as a person for whom "The rules, in my view, were the rules, and there were never any exceptional circumstances relating to [Mr Ridgway] that would have caused me to consider that such an exemption was justified."

Furthermore, I am satisfied that, although Mr Standing was clearly a senior member of management in the Bank's European operations, his position did not, ipso facto, bestow apparent authority on him to vary or waive the Bank's "global" rules relating to deferred compensation. Any such variation or waiver could only be effected at Mr Winters' level of management, as was done in Mr Halestrap's case.

Accordingly, whatever Mr Ridgway may have sought to achieve during his meeting with Mr Standing in April 2001, I am satisfied that he did not receive the assurance that he claims to have received. If Mr Ridgway's account is correct, Mr Standing gave him this important assurance (notwithstanding Mr Standing's lack of authority to do so) during the course of their short first "one-to-one" meeting in April 2001. I cannot and do not accept that to be the case. As Mr Ridgway accepted in evidence, there was no reason for him to be given any special treatment (Trans. Day 2, page 22). I prefer Mr Standing's evidence that, to the extent that he may have discussed the matter with Mr Ridgway during the April 2001 meeting at all, he would have given Mr Ridgway the answer that he gave to all traders who raised the subject with him: see paragraph 16 of his supplemental witness statement, which is in the following terms:

"16 … I should add that, although I cannot recall the dates or the detail of every specific conversation I may have had with [Mr Ridgway] in 2001 and in 2002, I think it likely that at some stage (probably in late 2001 or early 2002, although it may have been in April 2001) I had a conversation with him on a one-to-one basis (that is, other than as part of a general discussion on the trading floor) during which he asked me whether, if he left, he could take his deferred stock. As best as I recall, the question was not specifically framed in terms of the Rule of 45. I have absolutely no doubt that I gave [Mr Ridgway] the same answer to this question that I gave the other traders (which I have outlined above). I do not recall ever giving [Mr Ridgway] (or anyone else) any different response and I can see no logical reason why I would have done so."

Although Mr Ridgway did have a brief discussion with Mr Halestrap shortly after the April 2001 meeting, I agree with Mr Hochhauser's submission that Mr Halestrap's evidence about that discussion is of little or no assistance with regard to this particular issue. Mr Halestrap was not present during the meeting itself and, therefore, did not hear what was said. Furthermore, as Mr Hochhauser pointed out, Mr Halestrap's oral evidence that Mr Ridgway "said that he had been given comfort that under the right circumstances if he left (he) would get to keep his stock" was markedly less definite and specific than paragraph 2.3 of his witness statement, thus seriously calling into question the reliability and accuracy of either version. Furthermore, as Mr Hochhauser observed, Mr Halestrap was at pains to emphasise, during his oral evidence, how brief and lacking in detail the conversation with Mr Ridgway had been.

I have therefore reached the firm conclusion that Mr Standing said nothing during the course of the April 2001 meeting that can be said to have amounted to any exemption from or waiver of the Rule of 45 (or any other of the conditions relating to deferred compensation, for that matter). There was no sensible reason for Mr Standing to have given any such assurance to Mr Ridgway and I am quite satisfied that he did not. I reject Mr Stafford's submissions to the contrary effect. In my judgment, that is the reason there is no and never was any written record or note of any such assurance (in marked contrast with the position relating to Mr Halestrap when he left, see paragraph 29 above). In my view, there is considerable force in Mr Hochhauser's observation that the absence of any written record or note of the alleged assurance is a striking feature of the case and I agree with his submission that Mr Ridgway's explanation for not having made or obtained one (i.e. his own naivety at the time) really does not bear scrutiny. As Mr Hochhauser pointed out, Mr Ridgway had been recently promoted to Vice President, had made $22 million for the Bank in the year 2000 and had just been paid a bonus of over $1.5 million. I agree that it is not credible that Mr Ridgway was so naïve about commercial matters that he would have failed to commit a clear assurance of this importance to writing or to secure it in writing from Mr Standing if such an assurance had been forthcoming. I accept Mr Hochhauser's submission that the clear inference is that, at the time, Mr Ridgway was well aware that if he asked for any written confirmation of such an "assurance", he would have been told that no such exemption had been or would or could be given by Mr Standing. It is also worth noting that, although Mr Ridgway did claim, during the course of discussions that he had with Mr Standing and Mr Bacon in February 2003 (see paragraph 47 below), that he had been given some form of assurance about his RSUs by Mr Standing in April 2001, Mr Ridgway did not raise that particular issue in any form during the course of the discussions and correspondence that he had with Mr Bacon, Mr Davie and HR in February to May 2004 about his return to work. I am satisfied that, after February 2003, Mr Ridgway did not raise the issue of the alleged assurance by Mr Standing again until his resignation letter of 11^th June 2004.

To the extent, therefore, that Mr Ridgway did seek any personal exemption from the Rule of 45 at the April 2001 meeting, I am satisfied that Mr Standing gave his "invariable" response (see paragraph 12 of his supplemental witness statement, quoted in paragraph 36 above). I am content to deal with Mr Ridgway's account of what was said at the meeting on the basis that he simply misunderstood, misconstrued or has misremembered what Mr Standing said at the time. As Mr Hochhauser observed, Mr Ridgway may well have heard what he wanted to hear and, as a result, has treated "might" as "would".

It therefore follows that my firm conclusion on Issue 5a of the Deferred Compensation Claim (see paragraph 25 above) is that Mr Standing did not give an oral assurance to Mr Ridgway that the Rule of 45 would not apply to him if he were to leave on "good terms". In those circumstances, it is not necessary to go on and consider Issues 5b to 5e.

The Sabbatical. As I have already stated, Mr Halestrap left the Bank in April 2002 and Mr Ridgway became Head of the Options Desk with certain managerial responsibilities for the other members of the desk. By February 2003, Mr Ridgway had decided that he wanted a break from work and so he went to see and speak to Mr Standing. According to Mr Ridgway, he made it clear to Mr Standing that he wished to leave the Bank on good terms, that he would remain as long as necessary to ensure that there was a smooth transition, that he "was not tendering (his) resignation during the meeting and that (he) wanted to receive clarification regarding (his) restricted stock entitlement before (he) did so": see paragraph 15.2 of his witness statement. It is important to note that, by February 2003, Mr Ridgway wanted to leave the Bank, but was anxious to ensure that he retained his RSUs. In my view, it is unlikely that Mr Ridgway ever really subsequently changed his mind about leaving the Bank, despite going on his year's sabbatical.

According to Mr Ridgway, Mr Standing's reaction was to become very upset and to say immediately that he did not believe that Mr Ridgway would receive his outstanding stock units. Mr Ridgway described what then happened in the following terms (see paragraph 15.5 of his witness statement):

"I told him that I had received a specific reassurance and I expected the Bank to honour it. I had already made it clear that I wanted to leave on good terms and would work to ensure a smooth transition. The exchange became increasingly heated. I could not understand why he would not honour his commitment. He told me to go home. I made it clear that I was not resigning until such time as my entitlements had been clarified and that I wanted to continue working and to leave on good terms."

I accept that it may be the case that, during the course of the February 2003 meeting with Mr Standing, Mr Ridgway claimed to have been given some form of assurance by Mr Standing concerning his RSUs during their April 2001 meeting. It appears that Mr Ridgway made a similar assertion to Ashley Bacon ("Mr Bacon"), who was Mr Ridgway's line manager at the time and Co-Head with Michael Davie ("Mr Davie") of the Bank's Rate Markets Trading for Europe, in the course of a conversation that they had during mid-February 2003. I accept the truth and accuracy of Mr Bacon's account of that conversation (see paragraph 10 of his witness statement), as follows:

"Shortly after the announcement of bonus awards in early 2003 (Mr Ridgway) came to speak to me about his future at the (Bank). … I believe it must have been in or around mid-February 2003. (Mr Ridgway) told me that he did not want to continue working for the (Bank) and thought that he might be exempt from the rules of the stock option and restricted stock plans he participated in which otherwise would result in him forfeiting his awards. (Mr Ridgway) told me that he was of the understanding that he was entitled to leave the Defendant on "favourable terms", on the basis of a conversation he claimed to have had with Rob Standing. (Mr Ridgway) told me that he believed that Rob Standing had previously told him (in a conversation around the time of the merger between JPMorgan and Chase) that the "Rule of 45" would not apply to him if he were to leave the (Bank's) employment on "good terms"."

It was also Mr Bacon's belief that, shortly after the conversation with Mr Ridgway, he discussed the matter with Mr Standing and that Mr Standing denied having made any such "comments" to Mr Ridgway in the first place.

However, in my view, it is worth noting that, during these February 2003 conversations, Mr Ridgway claims to have sought "clarification" from Mr Standing with regard to his RSUs and to Mr Bacon he expressed the view that he "might" be entitled to an exemption from the rules on the basis of what he "believed" Mr Standing had told him in April 2001. In my judgment, to the extent that Mr Ridgway may have claimed, during the course of his February 2003 meeting with Mr Standing, that Mr Standing had given him some form of assurance with regard to his RSUs at their earlier meeting, he did not suggest that Mr Standing had given a clear and unequivocal assurance to the effect alleged. I accept Mr Standing's evidence that it was not until he had a telephone conversation with Mr Ridgway in March or April 2004 that he became aware that Mr Ridgway was claiming that he had been given a clear and unequivocal assurance by Mr Standing: see paragraph 18 of his first witness statement.

Having regard to the foregoing and to my already expressed conclusions with regard to Mr Standing's honesty and whether he ever gave the assurance in question, I have come to the conclusion that I prefer Mr Standing's account of the February 2003 meeting, as follows (see paragraphs 18 to 20 of his supplemental statement):

"18. … I agree that we had this conversation (in February 2003, during which we discussed (Mr Ridgway's) RSUs), but I do not accept that (Mr Ridgway's) version of it is accurate or complete.

19. At the meeting in February 2003, we discussed (Mr Ridgway's) plans for the future and in the course of doing so, (Mr Ridgway) told me that he was unhappy with the prospect of leaving the Bank and losing his RSUs.

20. (Mr Ridgway) told me that, so far as he was concerned, he had "earned" his deferred compensation and that it was unfair that he should not be able to leave and take his stock with him, particularly as (in his view) his performance had been so good. It was the same argument about stock/deferred compensation that I had had many times over with many different traders. I gave (Mr Ridgway) the same response that I always gave traders who tried to argue about this with me – essentially that "rules are rules" and that it was not within my power to do anything about it."

I also accept Mr Standing's evidence that the only reason that he became agitated during the meeting was because he believed from what Mr Ridgway said that he was impliedly threatening to lose the Bank money if he did not get his way: see paragraphs 22 and 23 of Mr Standing's supplemental witness statement.

A week or two after the February 2003 meeting with Mr Standing, Mr Ridgway had a meeting and discussion with Mr Winters, who made it clear that the Bank would not comply with the assurance that Mr Ridgway claimed he had been given by Mr Standing. Mr Winters suggested that Mr Ridgway should take a sabbatical for 3 to 6 months, but Mr Ridgway did not regard that as sufficiently long. During this period, Mr Ridgway had a number of other conversations with Mr Standing, Mr Bacon and Mr Davie. However, it is not necessary to go into any further detail, beyond that contained in paragraph 19.2 of Mr Ridgway's witness statement, as follows:

"Following much coming and going, (Mr Bacon) offered me the opportunity to take a twelve-month sabbatical. The advantage of this was that my restricted stock units granted on 17 January 2002 … would vest in the meantime and accordingly I would not lose these entitlements. (The stock bonus granted on 18 January 2001 … would also vest in the meantime although this was not subject to the Age of 45 Rule and so was not at risk). It was, therefore, in effect a holding position and the dispute over the assurance made by (Mr Standing) remained unresolved."

So it was that, on 15^th April 2003, Mr Ridgway commenced his year's sabbatical on the terms set out in the sabbatical letter dated 10^th April 2003: see paragraph 6 above. Fairly quickly after Mr Ridgway's departure on sabbatical, Mr Bacon began to treat Richard Jackson ("Mr Jackson") as the "de facto" Head of the Options Desk, following a relatively short period (i.e. until August 2003) during which time Mr Ridgway's management responsibilities were shared by Mr Jackson and Martin Winnick ("Mr Winnick") as "de facto" joint heads of the desk.

Richard Jackson as Head of Desk. In consequence, from August 2003 onwards "for all intents and purposes (Mr Jackson) was performing the management responsibilities that (Mr Bacon) would have expected a Desk Head to perform" and Mr Bacon treated him accordingly: see paragraph 24 of Mr Bacon's witness statement. Thus it was Mr Jackson (and not Mr Bacon) who would mentor and coach the junior traders and they would report to him accordingly. The various organisational diagrams prepared in April 2003, December 2003 and January 2004 (as well as the diagram produced by Mr Bacon showing staff movements for the Options Desk during 2002 to 2006: "the 2002-06 staff movements diagram": B88A) are all consistent with this being the case.

Mr Jackson was subsequently formally confirmed as Head of the Options Desk (after the end of Mr Ridgway's sabbatical), the role that he had, in effect, been performing for some time beforehand. Mr Jackson's appointment as Head of Desk did not follow a formal process, did not involve any increase in base salary and was not effected or confirmed by any formal letter of appointment because, as Mr Bacon observed during the course of his oral evidence (see Trans. Day 3 pm, pages 82 to 83), "it is not that big a deal to go from being treated as the head of the desk to actually being anointed as such". However, I am satisfied that the position as Head of Desk was a very real one, not merely an empty title, and I accept Mr Bacon's evidence to that effect, as follows (see paragraph 47 of his witness statement:

"There was clearly always a role for an Options Desk Head and indeed this role continues to exist today. The organisational structure of Rate Markets Trading is based on a number of Desks allocated by product, each of which has a Head. The members of each Desk report to the Desk Head and the Desk Head, in turn reports to me and (Michael Davie). This structure was in place in respect of the Options Desk before (Mr Ridgway) went on sabbatical and remains in place today."

In my view, there is no doubt that Mr Jackson proved to be a very successful Head of Desk whilst Mr Ridgway was away on sabbatical and, as the time for Mr Ridgway's return grew closer, Mr Bacon and Mr Davie came to the understandable and reasonable conclusion that it would not be appropriate to displace Mr Jackson in order to reinstate Mr Ridgway as Head of Desk upon his return. As Mr Bacon observed (see paragraphs 43 to 45 of his witness statement, the truth of which I accept):

"43. Importantly, during the period that (Mr Jackson) had been acting as Desk Head the Desk had been improving in terms of financial performance. The overall Desk profit had almost doubled in 2003 in comparison to 2002. In 2003 the overall Desk profit at year end (including the loss made by (Mr Ridgway)) was $83,040,143 of which $57,936,891 was generated by Richard Jackson (acting as Desk Head for the majority of 2003). In 2002 the Desk profit at year end was $44,929,979 of which $22,502,805 was generated by (Mr Ridgway) (who was Desk Head in 2002).

44. In addition both (Mr Davie) and I thought that (Mr Jackson) was doing a better job than (Mr Ridgway) had as Desk Head in relation to the non trading management elements of the job. Although neither (Mr Davie) nor I spelt out (Mr Ridgway's) shortcomings in this area to him at the time, we felt that relative to each other (Mr Jackson) had established a better track record as a manager during 2003 than (Mr Ridgway) had in 2002.

45. It was also our view at the time that, had we tried to bring (Mr Ridgway) back in as head of the Desk, (Mr Jackson) would have left because he would have become disgruntled at being effectively demoted to re-insert (Mr Ridgway) in the top position. I recall speaking with (Mr Jackson) at around this time, and (Mr Jackson) expressed concerns for his position should (Mr Ridgway) return to head the Desk."

Job Elimination. I accept Mr Hochhauser's submission that it is clear that at no material time was it proposed to downsize the Options Desk, nor was its workload reduced. It is apparent from the 2002-06 staff movements diagram (B88A) that the number of traders on the Options Desk was, as Mr Hochhauser observed, a "moveable feast" at the relevant time, although it hovered at around 4 or 5. I also accept Mr Hochhauser's submission that it is clear that the Head of Desk role had not been eliminated in the ordinary and natural meaning of that expression and that this is why Mr Jackson was finally formally appointed to that position after Mr Ridgway's resignation.

Furthermore, upon his return from sabbatical, Mr Ridgway appears to have been perfectly well aware that his old Head of Desk position had not been eliminated (in the ordinary sense of that expression) nor did he put forward any suggestion to that effect. As Mr Hochhauser observed, throughout the discussions that took place at the end of his sabbatical, Mr Ridgway continued to express the desire to have his old job back and he did not seek to put forward any argument that an involuntary termination of his employment had occurred as the result of "job elimination".

Mr Stafford submitted that the expression "involuntary termination" covers not only a situation where the Bank expressly dismisses an employee because his job has been eliminated, but also one where the job has been eliminated but the Bank tries to force the employee to accept a position which is not a suitable alternative job. Stated shortly, it was Mr Stafford's submission that a constructive dismissal in the context of job elimination is still an involuntary termination. As a general proposition, I accept that submission to be correct. Accordingly, if Mr Ridgway's job was eliminated by the time of his return from sabbatical, I am satisfied that this would mean that there was an involuntary termination of his employment by reason of job elimination within the meaning of clause 3(b) of the Option Agreement and clause 2(b) of the RSU Agreement, notwithstanding the offer of an alternative position in the Bank that was not a suitable alternative (thus giving rise to the claim that Mr Ridgway was constructively dismissed: see paragraph 9 above). I therefore turn first to consider whether Mr Ridgway's job was eliminated and I will deal with the separate issue of constructive dismissal at a later stage of this judgment.

As I have already stated, I am satisfied that Mr Ridgway's job as Head of the Options desk was not eliminated in the ordinary sense of that expression (see paragraph 57 above). However, Mr Stafford referred to one of the Bank's internal documents dealing with sabbaticals entitled "the HR Guidance for Sabbatical requests" ("the HR Guidance"), which provides as follows (inter alia):

"What payment will the employee receive if they are made redundant?

Because it is the employee who has initiated the request for the sabbatical, the Firm has decided as a matter of policy that any Company redundancy payment will not apply to someone unplaced on returning from sabbatical. They should receive a Statutory Redundancy Payment if they have over two years of service. The redundancy will be a job elimination for the purposes of stock decisions."

Mr Stafford pointed out that the HR Guidance plainly distinguishes between the contractual and statutory position with regard to redundancy entitlement and stressed that an employer is not permitted to contract out of the statutory rights (see section 203 of the Employment Rights Act 1996). He submitted that, by the express terms of the HR Guidance, if an employee of the Bank is redundant (within the statutory meaning of that expression) following his return from sabbatical, then that will amount to a job elimination for the purposes of stock decisions.

Mr Stafford referred to section 139(1) of the Employment Rights Act 1996 in which a statutory redundancy is defined as including "… the fact that the requirements of that business … for employees to carry out work of a particular kind … have ceased or diminished …". It was Mr Stafford's submission that, upon his return from sabbatical, Mr Ridgway was redundant within the statutory meaning of that expression because, by the time of his return, the Options Desk had been reorganised in such a way that it was clear that the Bank's requirements for employees to carry out the work of the kind in question (i.e. the work of the Options Desk) had diminished. Mr Stafford therefore submitted that the circumstances relating to Mr Ridgway did amount to a job elimination, because he was statutorily redundant upon his return from sabbatical and the terms of the HR Guidance expressly state that this constitutes job elimination for the purposes of stock decisions (i.e. for the purposes of clause 3(b) of the Option Agreement and clause 2(b) of the RSU Agreement).

For his part, Mr Hochhauser pointed out that Mr Ridgway was unaware of the existence of the HR Guidance. He stressed that it was "guidance rather than policy" and therefore not contractual in nature, as explained by Mr Rupert Terry ("Mr Terry"), the Bank's Head of Compensation and Benefits (see Trans. Day 4 pages 145 and 169). In any event, it was Mr Hochhauser's submission that, properly understood, the paragraph in the HR Guidance upon which Mr Stafford relied does not actually widen the circumstances in which "job elimination" will exist. Mr Hochhauser submitted that the premise of the paragraph is that the employee is "unplaced" upon return from sabbatical (i.e. on account of job elimination/redundancy), as confirmed by Mr Terry who explained that "if the role has been made redundant then it would be dealt with as job elimination" (see Trans. Day 4, page 147). I agree with those submissions.

I also agree with Mr Hochhauser that, strictly speaking, the question to be asked is not whether there has been a statutory redundancy as defined by section 139 of the Employment Rights Act 1996, but whether there has been an "involuntary termination as a result of job elimination as determined by the Director of Human Resources in his sole discretion": see clause 3(b) of the Option Agreement and clause 2(b) of the RSU Agreement. I accept Mr Hochhauser's submission that, properly construed, this provision is intended to relate to the complete disappearance of a role/job formerly carried on by the employee in question. As explained by Mr Terry (see paragraphs 17.8 and 17.11 of his witness statement):

"17.8 … In the context of the Bank's stock plans, a "job elimination" is considered to occur only in a situation where an employee is dismissed expressly by the Bank, as a result of his or her position being eliminated.

…

17.11 There are situations sometimes where an individual's role is made redundant during their period of sabbatical leave and when they are due to return to work no suitable alternative can be found. In those circumstances the termination is likely to be classed as a "job elimination" for the purpose of deferred compensation, as the individual's old role has been removed and will no longer be filled by anyone. This is provided for in the internal HR Guidance on Sabbatical Requests … However, the circumstances of (Mr Ridgway's) termination did not fall within this guideline."

However, even if it is appropriate to have regard to the statutory definition of redundancy when considering the issue of job elimination, as submitted by Mr Stafford, I am entirely satisfied that the circumstances in which Mr Ridgway found himself on his return from sabbatical did not amount to statutory redundancy. Having regard to all the evidence, I have come to the firm conclusion that the Bank's requirements for employees to carry out the work of the Options Desk had not diminished. The number of people on the desk remained much the same in the period immediately following Mr Ridgway's departure in April 2003 with, if anything, a trend towards an increase in numbers from about February 2004 onwards (see B88A) and the role of Head of Desk in terms of carrying out a managerial function still existed. Furthermore, as I have already stated, there was no proposal to downsize the Options Desk and there was no decrease in the workload.

Accordingly, for those reasons, I have come to the firm conclusion that Mr Ridgway's employment did not "involuntarily terminate as a result of job elimination", within the meaning of clause 3(b) of the Option Agreement and Clause 2(b) of the RSU Agreement and that, therefore, the answer to Issue 1 of the Deferred Compensation Claim (see paragraph 25 above) is "No".

The 2003 "Nil Bonus". As I have already indicated (see paragraph 7 above), in about December 2003, the Bank decided that Mr Ridgway should receive no Incentive Compensation (IC) for the performance year 2003, i.e. a "nil bonus" for that particular year. That decision was taken on the joint recommendation of Mr Bacon and Mr Davie and I accept their evidence as to how they went about making their decision. Their joint recommendation was made following a series of meetings between them in which (by reference to the relevant spreadsheets) they worked through each of the names on the list, discussing each individual trader's circumstances and arriving at an appropriate recommended award for him or her. Mr Ridgway is listed on the spreadsheets in question and I am satisfied that Mr Bacon and Mr Davie expressly considered what they believed to be the material factors relating to Mr Ridgway, before deciding to recommend a "nil" award for 2003 in his case.

In the course of his evidence, Mr Bacon gave a detailed account of the process involved in making the bonus recommendations and the manner in which consideration was given to Mr Ridgway's particular circumstances for performance year 2003: see paragraphs 27 to 39 of his first witness statement (the truth and accuracy of which I accept). What Mr Bacon said was this (inter alia):

"27 (Mr Davie) and I (acting jointly) both took the decision to recommend that (Mr Ridgway) be awarded a nil IC [bonus] for 2003. Our recommendation was ratified by Tom Hoppe who approved our bonus recommendations for the members of the Rates Market Trading team.

28 …

29 The timing and "mechanics" of the bonus recommendation process vary slightly depending on line of business, reflecting the different roles of employees across the Bank. In some business lines the key performance indicator is how well an individual performs against their peers, as determined in the appraisal process. For traders the key performance indicator is the revenue they individually generate in total during an entire performance year. As such, final bonus recommendations for traders cannot be made until the trading year has ended, although a tentative view may be taken earlier than that based on performance to date.

30 Therefore, when (Mr Davie) and I discuss the traders who report to us in the context of making a recommendation as to a suitable IC award, we consider first and foremost the level of profit they have individually generated in the previous year. In addition, when assessing a Desk Head's performance, (Mr Davie) and I will also take into account the total profit made by the Desk for which they are responsible in the relevant performance year as well as how well they have carried out their non-trading managerial responsibilities … We may, if appropriate, increase a Desk Head's initial IC recommendation by an amount to reflect how well the Desk as a whole had performed if we consider that the Desk Head had given up a significant amount of time trading on his or her own account to actively manage the Desk. Hence, the extent to which we may attribute any IC award for a Desk Head to the total Desk performance depends on our assessment of the level of input the Desk Head actually had on the performance of the other members of the Desk during the year. …

31. …

32 Turning to the "mechanics" of the IC process, typically (Mr Davie) and I would prepare a detailed spreadsheet containing the names, historical data (e.g. past remuneration and past trading profit and loss figures) and current financial data (i.e. profit and loss for the performance year to date) in respect of everyone within Rate Markets Trading. This is what we did for the relevant year, including in respect of (Mr Ridgway). During a series of meetings we then worked through each of the names on the list one at a time discussing each trader's circumstances individually and allocating an interim bonus award which would then be recorded in the latest version of the spreadsheet. I cannot now recollect the specific content of the discussions (Mr Davie) and I had about (Mr Ridgway) at the time, as we considered many different people. However, I am absolutely certain that we did consider (Mr Davie) as part of the bonus recommendation process because of the methodology described above (in particular, the fact that we sat down and methodically worked down the complete list of traders, considering every singly individual whose name appeared on the list). …

33. …

The Claimant's IC

34. I recall that (Mr Ridgway) only worked for about three months of the 2003 financial year as he went on sabbatical from mid April 2003 onwards. As the interim and final bonus spreadsheets demonstrate, (Mr Davie) and I looked at (Mr Ridgway's) trading and profit and losses for the period he had traded during 2003. (Mr Ridgway) was clearly making a loss when he went on sabbatical and this was the most important consideration we had in mind at the time. (Mr Ridgway) was the only person on the Options Desk to have made an overall loss during the 2003 trading year (around $2.3m).

35. As I have already touched upon, (Mr Davie's) and my view of (Mr Ridgway) was that he did not actively manage his team and that his "add-on" contribution was very limited. I also do not recollect that (Mr Ridgway) was involved to a significant extent in any other management processes, such as recruitment. Therefore, in my mind (and in Mr Davie's mind) there were no other "special" factors in 2003 that we felt deserved recognition beyond (Mr Ridgway's) own financial performance. This is not to say that (Mr Ridgway) would not have provided any advice or assistance to more junior traders at all during the three months that he was at work, but to say that (Mr Davie) and I did not feel that (Mr Ridgway) contributed enough to justify any uplift to his proposed IC award.

36 …

37 …

38 Taking (Mr Ridgway's profit and loss figures into account coupled with our assessment of (Mr Ridgway's) non-trading contribution to the management and supervision of the other members of the Desk, even reviewing the decision with the benefit of hindsight I am not surprised that (Mr Davie) and I did not recommend an IC award for (Mr Ridgway) in respect of his work performance in 2003. In the circumstances I think the decision we reached was a fair one. I acknowledge that we did not formally go through an appraisal process with (Mr Ridgway) in respect of 2003, but I cannot see how this would have made the slightest difference. His $2.3 million trading loss was clear, and I have fully set out above the conclusions of Michael Davie and myself as to the other matters that fell to be considered.

39 (Mr Ridgway) did check in every now and again with (Mr Davie) or I during his sabbatical, and he would therefore have known by the end of January 2004 (when bonus awards in respect of 2003 were announced and paid) that he had not been awarded a bonus for 2003. (Mr Ridgway) did not get in touch with either (Mr Davie) or I to complain about this, nor did he ever mention that he thought it was unfair during our discussions about his expected return to work. …"

In his evidence (the truth and accuracy of which I also accept), Mr Davie confirmed Mr Bacon's account of the IC (bonus) process and the consideration given to Mr Ridgway's circumstances that led to the joint decision to recommend a "nil bonus" in his case: see paragraphs 30 to 42 of his witness statement.

As I have already indicated (see paragraph 24 above), it was common ground that Mr Ridgway was contractually entitled to be considered for a discretionary bonus award for 2003 and that the Bank was obliged not to act perversely or irrationally in the exercise of its discretion to award him such a bonus (see Commerzbank, supra). Accordingly, on the issue of liability, the only question in relation to the "Nil Bonus" Claim is whether the Bank's decision to award Mr Ridgway a "nil bonus" was irrational and perverse (see paragraph 26 above).

The central thrust of Mr Stafford's submissions on this aspect of the case was that the process adopted by the Bank in relation to Mr Ridgway (i.e. by Mr Bacon and Mr Davie) was wholly lacking in fairness, in particular because no or insufficient consideration had been given to Mr Ridgway's previous (and satisfactory) performance reviews for 2001 and 2002, no self-appraisal had been carried out and there had not been a comprehensive ("360 degree") performance review/appraisal for 2003 before the relevant decision was taken in Mr Ridgway's case. Mr Stafford suggested that when they came to decide on Mr Ridgway's bonus for 2003, Mr Bacon and Mr Davie did not have and therefore did not consider the 2001 and 2002 reviews, the sabbatical letter or any performance review for 2003. He submitted that, in truth, Mr Bacon and Mr Davie did not go through any process in relation to their consideration of Mr Ridgway's 2003 bonus beyond dealing with the matter on the basis that Mr Ridgway had been on sabbatical for much of that year and thus should not receive any bonus. Mr Stafford therefore submitted that the decision to award Mr Ridgway a "nil bonus" was arrived at on such a flawed basis as to render it irrational and perverse.

I reject the suggestion that Mr Bacon and Mr Davie recommended a "nil award" in Mr Ridgway's case simply because he had been on sabbatical for much of 2003. In my judgment, it is clear from their evidence that there were three main factors that led to the joint decision that Mr Bacon and Mr Davie reached, as follows. First, as Mr Bacon explained, the key performance indicator for a trader such as Mr Ridgway was the income individually generated during the performance year in question and Mr Ridgway had actually made a trading loss in 2003. Second, both Mr Bacon and Mr Davie considered that Mr Ridgway had not made a meaningful contribution to the $25 million Desk profit that had been generated by the other traders in the period to April 2003 (despite Mr Ridgway's own losses). Third, there were no "special factors" relating to Mr Ridgway that deserved recognition, such as spending a notable amount of time on other activities (e.g. recruitment), thus detracting from trading time. Having regard to all the evidence, I am satisfied that these were conclusions to which Mr Bacon and Mr Davie were entitled to come.

I accept Mr Hochhauser's submission that it is clear from the terms of the sabbatical letter that the Bank was not contractually obliged to carry out a full formal appraisal process on Mr Ridgway in respect of performance year 2003. Such an obligation could have been inserted into the sabbatical letter, but was not. No doubt this was because it was envisaged that Mr Ridgway would be away at the time the bonus decisions came to be made. As Mr Bacon explained: "For somebody who had just spent a small part of the year there I did not view it as compulsory" (Trans. Day 4 pages 12 and 14). In my view, in all the circumstances of the case, it was not unreasonable for the Bank to proceed to make the 2003 bonus decision in relation to Mr Ridgway without carrying out the full formal appraisal process in his case for that year: see also the points made by Mr Hochhauser in paragraphs 50 to 52 of his written closing submissions, the force of which I accept. I also accept that it is noteworthy that Mr Ridgway himself did not question the fairness, rationality or reasonableness of the decision either at the time it was communicated to him in early 2004 nor during the significant period of dealings between the parties that took place at the end of his sabbatical (as to which, see below). Furthermore, Mr Ridgway expressed no concern at the prospect of waiving such a claim if he were to sign the Release Agreement that would have enabled him to retain his Options (see below). In fact, as Mr Hochhauser pointed out, the "nil bonus" issue was not raised at all until Mr Ridgway's solicitor's letter before action dated 1^st December 2004. As Mr Hochhauser observed, Mr Ridgway's conduct in this respect was tantamount to a recognition that "… at the time … he had not materially contributed (either financially or otherwise) to the Options Desk" during 2003: see paragraph 39 of Mr Bacon's first witness statement.

As Mummery LJ pointed out in Commerzbank (supra), it requires an "overwhelming case" to persuade the court that the level of a discretionary bonus payment is irrational or perverse. Having given the matter careful consideration, I am quite satisfied that this is not such a case. In my judgment, the decision reached by Mr Bacon and Mr Davie to recommend, in Mr Ridgway's case, a "nil bonus" for performance year 2003 was a decision that they were entitled to reach for the reasons that they gave. The decision was neither irrational nor perverse and I reject Mr Stafford's submissions to the contrary effect. Accordingly, for those reasons the "Nil Bonus" claim must fail.

The Alternative Job/Constructive Dismissal. In early February 2004, as Mr Ridgway's sabbatical was coming to an end, he had a brief meeting with Mr Davie over a cup of coffee (one of a number of brief meetings/conversations with Mr Davie that took place around this time). It is possible that Mr Bacon was also present, but nothing turns on that. There was an informal discussion concerning Mr Ridgway's return to work. Mr Ridgway mentioned that he was interested in going back to university to study mathematics and said that if he came back to the Bank he wanted to return to his old job as head of the Options Desk. He also indicated that he wanted to trade the "long end Euro book" on his return. Previously Mr Ridgway had only traded the "sterling book" and, at the time, the "long end Euro book" was being traded by Mr Jackson). Mr Davie was concerned at the likely impact on Mr Jackson if the Bank acceded to Mr Ridgway's wishes and indicated that what he had in mind for Mr Ridgway was a proprietary trading role, a role that Mr Ridgway did not consider suitable, although this suggestion was not considered in any detail.

I should say at once that I am completely satisfied that the Bank did not want to "drive" Mr Ridgway out. Both Mr Bacon and Mr Davie emphasised Mr Ridgway's obvious talent for trading and the contribution that he could make if in the proper frame of mind following his sabbatical. As Mr Bacon put it: "… we wanted him back somewhere because he is a very valuable employee" (Trans. Day 4, page 53). Similarly, Mr Davie's view was that "I have always thought that (Mr Ridgway) is a very good trader, and would be a great asset for the bank if we could get him back on the right terms" (Trans. Day 5, page 80). Furthermore, the only reason that the Bank had granted Mr Ridgway a year's sabbatical in April 2003 was that it was hoped that his frame of mind would improve as a result of the time off and that he would return to work suitably refreshed and reinvigorated. As Mr Bacon said (see paragraph 69 of his first witness statement):

"The key consideration for me at the time I was thinking about (Mr Ridgway's) sabbatical was that I was keen to keep him on board. If my co-head (Mr Davie) and I had not wanted (Mr Ridgway) to stay with (the Bank), and had I not had high hopes that he would come back after his sabbatical in some capacity, I would not have recommended that the sabbatical be approved. I viewed (Mr Ridgway) as being a very promising producer (although I felt he had not taken naturally to the role of managing the Options Desk). I hoped the break from trading would give (Mr Ridgway) time to clear his head and regain enthusiasm for trading."

Having regard to all the evidence, I have no doubt that the Bank genuinely wished to retain Mr Ridgway's services upon his return from sabbatical and was anxious to provide him with a suitable alternative job. I have no hesitation in rejecting Mr Stafford's submissions to the contrary effect.

However, as it seems to me, Mr Ridgway was nowhere near as enthusiastic about returning to work for the Bank as the Bank was in retaining his services and I have considerable doubt as to whether he was ever really serious about returning. As I have already indicated (see paragraph 45 above), I consider that it is unlikely that Mr Ridgway ever really changed his mind about wishing to leave the Bank. However, just as in February 2003, he was understandably anxious to retain his RSUs if he could. In my view, it was that concern that largely governed Mr Ridgway's actions over the next few months. So it was that, on 14^th February 2004, whilst engaged in the initial stages of discussing his return to the Bank, Mr Ridgway applied for a post-graduate course in mathematics at Cambridge University and, in late March, was offered a place, with a deadline for acceptance of 10^th May 2004. In the event, whilst the discussions about his return to the Bank were still proceeding, Mr Ridgway accepted the offered place on 3^rd May 2004 and, in due course, took it up.

The next meeting of significance took place on 13^th April 2004. On this occasion, it was Mr Davie who met Mr Ridgway, because Mr Bacon was away at the time. After Mr Bacon returned to work in the week commencing 20^th April 2004, he took over as the main contact with Mr Ridgway for the purposes of discussing his return to work. So far as concerns the meeting of 13^th April, I accept the truth and accuracy of the account given by Mr Davie in paragraphs 19 to 22 of his first witness statement, the material terms of which are as follows:

"19 … I met (Mr Ridgway) for lunch on 13^th April 2004. … Our conversation on 13 April was our first "formal" discussion as to what the situation might be on his return. I explained that during the previous year, Richard Jackson had stepped up to the desk head role (although he had not yet been officially appointed to the role). I told (Mr Ridgway) that we (Mr Bacon and I) didn't think it was in the interests of the business to now rearrange the Options Desk to allow him to slot back in as head in place of Richard.

20 I didn't go into detail with (Mr Ridgway) regarding the full reasons for (Mr Bacon's) and my decision in this regard as I did not think it was necessary or appropriate to tell (Mr Ridgway) that we thought that (Mr Jackson) was doing a better job of the day to day running of the Options Desk. … I explained that under the terms on which the Bank had agreed to his sabbatical it was not obliged to give him his old role back. The Bank's duty was to consider whether there were any suitable alternative roles that it could offer him. In these circumstances, the Bank would consider whether there were any suitable alternative roles available.

21 (Mr Ridgway) was adamant that there could be no suitable alternative anywhere else within the Bank. In his view the only suitable role for him was his old role (plus trading the long end Euro book), and that he would not even consider doing anything else.

22 I told (Mr Ridgway) that if we were to allow him to do this, it would be necessary to reshuffle both Richard Jackson and (probably) Charles Bristow … I recall asking (Mr Ridgway) what he thought should be done with (Mr Jackson), if he returned as Desk Head. (Mr Ridgway) said something like he "didn't care" as it was "not [his] problem".

The main possible alternative job that was suggested by Mr Davie during the 13th April meeting was that Mr Ridgway should take on a proprietary trading role. However, Mr Davie did not get the chance to develop that suggestion with Mr Ridgway, who immediately made it very apparent that he was not prepared to discuss the matter. As Mr Davie said: "In an extremely sort of quick and comprehensive way, he shut the door very firmly and quickly on that, as I recall. It was not a two-way discussion, there was no supplementary questioning, and there was no – there were no sort of take-aways" (see Trans. Day 5, page 39).

Immediately after their meeting on 13^th April, Mr Davie sent an email to Mr Ridgway, the material terms of which were as follows:

"… My take-away from our conversation was that you are little changed from the thinking you've evidenced the last couple of times we've met – namely that you'd either return to JPM in much the same capacity as previously, or you'd likely leave us, probably to study Maths back at university. Today I think we clarified that the job you'd like would have you running the interest rate options desk, and most likely trading the long end EUR options book, with consequent staff re-shuffling. We touched on a proprietary role which didn't particularly appeal, though I think we need to come up with a more comprehensive description of how this might work before you make up your mind.

Although your sabbatical officially ends on 15^th April, we agreed that it doesn't make much sense for you to come in before we're clear on what you're going to do. To this end, I really need to discuss with Ashley who's out until next Tuesday, so I suggest you stay at home for another week …"

Later the same day, after having sent a draft response to his lawyers for approval and comments, Mr Ridgway sent the following email in reply:

"… There were a couple of small points that I wanted to pick up on further to your e-mail. Firstly I feel that my thinking has changed in that while before I was undecided about which path I should follow, I am now clear that I should like to return to JPMorgan Chase as Head of the Interest Rate Options desk, my previous role. As you correctly note, I should like to assume responsibility for market-making and managing the longer-dated EUR options, which would result in some staff reshuffling. I feel that the proprietary trading role that you mentioned would be inappropriate for two reasons – firstly it would clearly be a step down in responsibility, and secondly my primary focus over the past seven years with the bank has been as a risk manager of option books and market-maker to clients of the bank and the street. It is in this respect that I feel I am really able to add value and therefore I do not want to make the move to proprietary trading where the emphasis is very different. …"

On the following day (i.e. 14^th April), Mr Davie replied in the following terms:

"Thanks for the clarification, and amplification of your thinking, Ashley is due back in the office next Tuesday 20^th so we'll likely need a day or so to discuss before coming back to you, so let's leave it that we'll be in touch from next Wed 21^st. I've mentioned this to Celia who confirms that it's fine for us to effectively extend your sabbatical for another week.

Enjoy another spring week and we'll be in touch from next Wed."

The relevant Human Resources (HR) business partner at the Bank at that time was Celia Connolly ("Ms Connolly"). Immediately after he had sent Mr Ridgway the email referred to in the preceding paragraph, Mr Davie emailed Ms Connolly in the following terms:

"So now at least we know where we stand with Dan. As I mentioned, he seems to genuinely want to return, but what he's now asking for is quite a challenge for us, given how we've filled the gap since his departure, and his less-than-exemplary history, particularly of managing the group. Cutting to the quick, my guess is that we will not be prepared to accede to his demands, but will likely come up with something as much along these lines as we can, but significantly short of his hopes and previous role. The purpose of this note, is to ask you to confirm how this leaves things with Dan. What are we obligated to come up with in terms of jobs, and does his previous role have any bearing on what we're required to do? If I were to be cynical, I would postulate that he might be asking for such a large role, possibly knowing that we're unlikely/unable to give it to him, in which case he'd expect us to make him redundant. My understanding is that the terms returning from sabbatical are significantly different from otherwise, and hence we're under no obligation to come up with anything so significant. Perhaps you can call me to discuss."

Later the same day (i.e. 14^th April 2004), Mr Davie sent another email to Ms Connolly, the material terms of which are as follows:

"Just to recap our conversation, we do not expect to be able to offer Dan his old job back and definitely not a management position – obviously to be finally confirmed with Ashley next week. In anticipation of this, it seems that we might be faced with making him redundant. Pls can you clarify the position re. both the JPM redundancy payout … and the ruling on his restricted stock? My belief is that Bill Winters et al were of the impression that if there was no suitable position, he'd forfeit and have to leave. If this is not the case, we presumably need to think more carefully about granting sabbaticals in future."

Mr Stafford placed considerable emphasis upon the terms of these two emails sent by Mr Davie to Ms Connolly on 14^th April. Mr Stafford suggested that the first of the emails contained an express acknowledgment that the Bank was likely to come up with an alternative job for Mr Ridgway that was " … significantly short of his hopes and previous role." Mr Stafford went on to submit that the second email amounted to an acknowledgment that the Bank might be faced with making Mr Ridgway redundant and that, whatever alternative job he and Mr Bacon "might cobble together, it was certain to be a lesser role than his previous job had been" and one that was "definitely not a management position": see paragraphs 51 and 53 of Mr Stafford's written skeleton opening.

However, I agree with Mr Hochhauser's submission that Mr Stafford has sought to read too much into Mr Davie's two emails of 14^th April. As Mr Davie explained in the course of his evidence (Trans. Day 5, pages 79-80), he only spent a few minutes in composing the emails in question. They were not carefully drafted documents and I accept Mr Hochhauser's argument that it is not a particularly helpful exercise to construe their terms as if they were a statute. In any event, I have no doubt that Mr Davie was a witness of truth and I accept the explanations that he gave for the comments in question. With regard to the first email, Mr Davie said this (see paragraph 15 of his second witness statement, confirmed in his oral evidence at Trans. Day 5, page 54):

"What I meant by this comment was that whatever (Mr Bacon) and I came up with as a suitable alternative role would probably not live up to (Mr Ridgway's) hopes because it was not going to be his previous role. …"

As for the second email, Mr Davie explained that the comment, in context, was a response to Mr Ridgway's email of 13^th April and specifically to Mr Ridgway's statement that he "should like to assume responsibility for market-making and managing the longer-dated EUR options which would result in some staff reshuffling" (see paragraph 15 of Mr Davie's second witness statement, confirmed in his oral evidence at Trans. Day 5, page 60). I accept Mr Davie's evidence that he did not intend by the comment in question to preclude any discussion of management roles, roles which he and Mr Bacon did in fact go on to consider and to discuss with Mr Ridgway. As Mr Bacon said: "We very much wanted him to return to the bank, and a management position would be the only one that would work; we knew that" (see Trans. Day 4, page 55).

Following his meeting with Mr Ridgway on 13^th April, Mr Davie was clearly prepared to believe that Mr Ridgway seemed genuine in his apparent desire to return to the Bank. In my view, Mr Davie was somewhat generous in that belief. As I have already indicated, for my part I have considerable doubt about how serious Mr Ridgway really was. In any event, having regard to all the evidence that I have heard and read, I have come to the firm conclusion that, by the date of the 13^th April meeting (if not before), to the extent that Mr Ridgway was still seriously prepared to consider returning to work for the Bank, he was only prepared to do so on the basis that he should be allowed to resume his former job as Head of the Options Desk, preferably with the additional responsibility of managing the "long end EUR options book". I am also satisfied that, following the 13^th April meeting (if not before), Mr Ridgway knew perfectly well that there was no prospect of the Options Desk being reshuffled in order to allow him to return to work on those terms. Accordingly, as it seems to me, the further discussions that took place concerning his return to work were, from Mr Ridgway's point of view, effectively academic because, as he made abundantly clear (particularly to Mr Bacon – see below), however serious he might have been with regard to a return to work for the Bank, in reality he was simply not prepared to consider or agree to any alternative job that the Bank might suggest or offer – and so it proved to be. As Mr Bacon fairly observed in the course of his evidence: "The reason, I think, that we view him as closing down the options quickly is because it took him so little time to reach his conclusion. It is not like he said: let me go away and think about it" (see Trans. Day 4, page 68).

On 23^rd April 2004, Mr Bacon met Mr Ridgway in order to discuss his return to work with the Bank. In advance of the meeting, Mr Bacon and Mr Davie had talked about the kinds of roles that Mr Ridgway could be offered as an alternative to his old role and I accept Mr Bacon's account of those discussions, as follows (see paragraphs 49 to 51 of his first witness statement):

"49 When considering the type of role we could offer (Mr Ridgway) as an alternative, (Mr Davie) and I were heavily influenced by what (Mr Ridgway) had told (Mr Davie) that he would consider doing (i.e. only return to his old role) during their informal conversations. We also took into account a number of factors that we were advised by HR were relevant when considering whether a role was a suitable alternative (namely, roles (Mr Ridgway) could undertake with his skill-set, where he would have an equivalent level of seniority, and where the earning potential of the role and prospects of future advancement were broadly equivalent).

50. As such, we looked at a number of potential roles that were as close to Daniel's old role as possible in terms of content. We considered in detail the following possible roles, which we discussed with (Mr Ridgway):

(a) a new proprietary trading role based in London;

(b) the same role as that which (Mr Ridgway) had previously held (i.e. Head of an Options Desk) but in a different location (either Tokyo or New York); and

(c) the same position (i.e. desk head – in this case, Head of a Swaps Desk) but based in London (which we considered to be a close match to his old role as this product was the closest to options in terms of the mix of client contact and position taking involved).

51. To a great extent, our consideration of alternative roles was driven by what (Mr Ridgway) wanted. He made it very clear to us that so far as he was concerned he would only consider a return to his old role – hence, we focussed on trying to find something as close as possible to that role in the hope that (Mr Ridgway) would accept it. Despite the fact that we felt that each of the roles we discussed with (Mr Ridgway) were very close matches to his old role, and certainly suitable alternative employment, (Mr Ridgway) dismissed them very quickly. His attitude seemed to be that if he could not return to his old role (which he knew had been filled) then he should be made redundant due to "job elimination."

I am entirely satisfied that Mr Bacon was a truthful witness and I accept his account of his meeting with Mr Ridgway on 23^rd April 2004, together with his comments as to the suitability of the three possible alternative positions: see paragraphs 51 to 54 of his first witness statement. However, for the purposes of this judgment it suffices to quote the fair and accurate note of the meeting that Mr Bacon sent to Ms Connolly on the same day, as follows:

"Celia – notes on the discussion I had today on Dan's return from sabbatical:

I told him that the individuals we have today on the options desk had progressed substantially in the last year and that we have successfully added Charles Bristow.

Also that RJ was now a very strong candidate to be fully made up to desk head – pretty much the role he plays today in reality – and that this is what we may well do.

I explained that desk performance had improved and is still on an improving path.

Therefore it would not be optimal for us to displace RJ in order to reinstate DR in exactly the same position he left. He said he understood when he left that this situation would be quite possible.

I told him we would most probably want to offer him a role proprietary trading in a variety of products (certainly including options using his old systems and analytics) with the same reporting line as before (MD and I) and with sufficient limits to make it possible to get paid as previously.

I also said that we could consider (if he was interested) a role as a desk head running one of the swaps bays, or as a desk head running options in NY or Tokyo as other alternatives.

He said he would not be interested in other (similar) products, or in other locations and that we need not pursue them.

He said he would much prefer precisely his old role back and, if he got it, would look to take the largest market-making book within the group (EUR as opposed to his previous MM responsibility for GBP). I said this might displace CB as well as RJ if RJ had to move to CB's book and accept that he would not be desk head any time soon.

He feels this preference so strongly that he believes no suitable alternatives could exist – i.e. we need to offer this, or agree that we cannot offer any "suitable alternative"."

Having met and discussed the matter with Mr Ridgway on 23^rd April, Mr Bacon wrote to Mr Ridgway on 30^th April 2004 in the following terms:

"Further to our recent meeting, I thought it would be useful to clarify the situation regarding your return to work following your sabbatical. As stated in your sabbatical letter of 10 April 2003:

"When your sabbatical expires, JPMorgan cannot guarantee that your old job, or a suitable alternative job will be available to you. However we will make every effort to find suitable alternative employment on your return"

Following a number of telephone conversations and email correspondence we met on 23 April 2004 to discuss your return to work. We outlined to you that the role as Desk Head on the Options Desk, which you previously held, is no longer available as during your period of absence others have progressed and have taken on these responsibilities. In line with the terms of your sabbatical we therefore discussed suitable alternative jobs that may be available for you. Specifically we detailed a proprietary trading role, which had the same status, reporting line and potential for IC earnings as your previous role. We believe that this role constitutes a "suitable alternative job". During this meeting we also stated that we would consider other roles, examples being a Desk Head for a Swap Bay or a Desk Head running Options in either New York or Tokyo as other potential "suitable alternative jobs". However, you did not wish to progress these discussions further as you expressed a strong belief that no suitable alternatives to your old role could exist.

The situation is that your old role is not available and as indicated in your sabbatical letter JPMorgan did not guarantee that you could return to work to your old job. Therefore we would ask you to reconsider the proprietary trading role that we outlined as a suitable alternative job. Alternatively should you wish to discuss any of the other potential options that we mentioned please let us know. We would appreciate your response on this by close of business on Friday 7^th May 2004.

You have been reinstated on the payroll, effective 15^th April 2004, although as mutually agreed you do not need to attend the office until the situation regarding a suitable alternative job has been resolved."

On 7^th May 2004, Mr Ridgway replied to Mr Bacon's letter as follows:

"Thank you for your letter of 30 April 2004 in which you outlined JPMorgan's position with regard to possible roles I could fulfil after my year's sabbatical. Specifically you asked me to consider a proprietary trading role which, as I have already explained, I feel is inappropriate for the following reasons.

Firstly I do not feel that the status or degree of responsibility of the role is equivalent. Previously I was the head of one of the top market-making desks on the floor in what is essentially a franchise business, with four traders working for me. In the role you are offering I would be working alone and very much on the sidelines of the thrust of the floor. It would also clearly be a step down from the management track that I was on before, as you acknowledged in our meeting. Secondly I feel that the task and emphasis of being a proprietary trader as opposed to a market-maker is very different, again something that you acknowledged in our meeting. I strongly feel that my value-added is as an option market-maker, and risk-manager and risk-taker with market-maker access. In light of these points, I do not feel that my expected IC earnings in the new role would be as high as in my previous role.

I also think that we agreed that the other roles mentioned would not be suitable – I do not want to move to New York or Tokyo as my girlfriend, friends and family are all in the UK, and I strongly believe that my expertise and value-added are in options rather than swaps, evidenced by the fact that I did not put my name forward for the Euro swap book when it became available.

You have made it clear to me that my old role is no longer available and I do not feel that the alternative you have offered is "suitable". In light of this, and with great regret, I am considering having to resign my position with JPMorgan.

As I am sure that you are aware, I have a considerable amount of Restricted Stock Units and Stock Options in JPMorgan Chase which have either not yet vested or which I have not yet exercised. Before I am able to resign I need to fully understand the bank's formal position with regard to the RSUs and the Stock Options. I have had initial correspondence with Caroline Jones on this matter and she has said that she needs to look into things further and will get back to me shortly. She also indicated that she may speak to yourself or Celia about this.

Once I have received a formal communication with regard to my outstanding Restricted Stock Units and Stock Options, I shall get back to you at the earliest possible opportunity."

Meanwhile, Mr Ridgway's enquiries about the Bank's position with regard to his RSUs and Stock Options had resulted in him being provided with the required information in an email from Caroline Jones of HR on 5^th May 2004, as follows:

"As previously discussed, upon voluntary termination of your employment you would forfeit any unvested RSUs and the options which were granted to you in January 2001. However, if you do not commence employment with a competitor (which seems unlikely from our discussion) and sign the appropriate release form you have the right to retain the options granted to you in January 2002.

For your use, I attach a generic version of the release agreement used for this purpose. It does not make any mention of your specific award. …"

By the beginning of June 2004, Mr Ridgway was still on the Bank's payroll (on a zero salary), but remaining at home pending resolution of the position with regard to his return to work. Understandably, Mr Bacon felt that the situation could not continue indefinitely, particularly since he had formed the opinion (correctly, in my view) that the Bank had now identified a number of alternative roles that were suitable alternative jobs for Mr Ridgway. Accordingly, on 4^th June 2004, Mr Bacon wrote the following letter to Mr Ridgway:

"I write further to your email to me on 7 May 2004 in relation to your return to work at JPMorgan. As set out in my letter to you dated 30^th April 2004, the role that you performed prior to taking a sabbatical last April has been distributed amongst the remaining team members because it had to be performed in your absence.

We have now offered you an alternative role, which we believe is suitable, as a proprietary trader. Your reporting line will be unchanged and your potential to earn incentive compensation on a discretionary basis in carrying out this role is also unchanged. In addition, you would be on the same basic salary structure and terms and conditions as you were prior to your departure on sabbatical. I consider the role to be a suitable alternative to your previous position.

I addition, we have discussed the option of sourcing other roles for you in New York or Tokyo, which you have said you do not wish to pursue, as you do not wish to relocate due to your personal commitments in the UK.

At the end of your sabbatical, you were reinstated onto the payroll whilst we conducted the search for alternative positions for you. This search has been ongoing for some time and we have discussed several roles for you.

We appreciate that we did not require your attendance at work during our search for alternative positions. However, given that we have now found a position which we consider to be suitable, if you choose not to accept we will have no option but to treat this non-attendance as a fundamental breach of your contract of employment and will accept the breach, thus ending the employment relationship between you and JPMorgan. In accordance with the terms and conditions of the stock incentive plans, any unvested Restricted Stock Units and any unexercised stock options you currently hold will be cancelled upon the date of termination. However, if you sign a release agreement upon the termination of your employment and do not subsequently commence employment with a competitor, you may retain the options granted to you in January 2002 (43,963 options) for a further two year period. Any options remaining unexercised upon the second anniversary of the date of termination will lapse.

I hope that you will seriously consider the offer of suitable alternative employment that has been made to you, and I am available to discuss this further should you wish. I look forward to hearing from you within seven days, by 11 June 2004, as to whether you intend to return to work at JPMorgan."

I have come to the firm conclusion that the role as proprietary trader that the Bank (through Mr Bacon) offered to Mr Ridgway was a suitable alternative job for the following briefly stated reasons. As both Mr Davie and Mr Bacon explained, Mr Ridgway already had considerable proprietary trading experience and expertise (see paragraph 52.1.4 of Mr Bacon's first witness statement and paragraphs 8 to 13 of Mr Davie's second witness statement). Proprietary trading had already formed a significant proportion of Mr Ridgway's work before his sabbatical and Mr Davie and Mr Bacon were right to consider the difference in work content that would result from the new position to be immaterial. During the course of their discussions on 23^rd April 2004, Mr Bacon had stressed that the proprietary trading role could be a great opportunity as there was potential for Mr Ridgway to hire a team and build up his role. Mr Bacon also made it clear that Mr Ridgway's reporting line, his salary structure, terms and conditions and his potential to earn incentive compensation would be unchanged. I accept Mr Bacon's evidence (see paragraphs 52.1.1 to 52.1.13 of his first witness statement) that the proposed proprietary trading role did not involve any "step down" in responsibility and/or status for Mr Ridgway and that it was, in all respects, a suitable alternative job. Furthermore, I also accept Mr Bacon's evidence that the other possible positions would also have been suitable alternatives for the reasons given in paragraphs 52.2.1 to 52.3.5. However, these other possibilities were never progressed beyond the stage of suggestion because of Mr Ridgway's unreasonable refusal even to consider them. Finally, I should make it clear that I accept and adopt, without repeating, Mr Hochhauser's submissions on this aspect of the matter, as set out in paragraphs 23 to 28 of his written closing submissions. I reject Mr Stafford's submissions to the contrary effect.

It follows that I have reached the firm conclusion that the Bank did not act in breach of the implied term of trust and confidence. The Bank was not forcing Mr Ridgway to take an alternative job that was not suitable and Mr Ridgway did not have any proper basis for treating himself as having been constructively dismissed by the Bank. The answer to the first part of Issue 4 of the Deferred Compensation Claim (see paragraph 25 above) is therefore "No" and the second part does not arise. However, despite Mr Bacon's offer to discuss the matter with him further, Mr Ridgway chose to write his resignation letter dated 11^th June 2004, in the following terms:

"Further to your letter of 4^th June 2004 in relation to my return to work at JPMorgan, I am writing now to give notice that I wish to terminate my employment with the bank. According to my contract, I understand that my notice period should be one week for each complete year of service, and therefore that the termination date for my employment should be seven weeks from today on Friday 30^th July 2004. Please inform me as soon as possible if you do not agree that this should be the termination date.

As detailed in your letter of 30^th April 2004, it was mutually agreed that I should not attend the office until the situation regarding a suitable role had been resolved. In your letter of 4^th June 2004 you make it clear that you now feel the issue to be resolved, with my response requested by today, and therefore I am obliged to return to the office on Monday 14^th June to work my notice period in order to avoid breach of contract. However, given that I have not attended the office for the past 14 months, it may be that you will not require me to attend the office for the remaining seven weeks of my employment. Please let me know your position with regard to this as soon as possible as otherwise I shall come into the office on Monday morning.

I currently have outstanding the following Restricted Stock Units and Stock Options awarded as part of bonus payments earned during my employment with the bank:

(i) 30,407 Restricted Stock Units (RSUs) awarded on 12^th February 2003 with 15,203 due to vest on 25^th Jan 2005 and 15,204 due to vest on 25^th Jan 2006

(ii) 17,791 Stock Options … awarded on 18^th Jan 2001 all currently exercisable

(iii) 43,963 Stock Options … awarded on 17^th Jan 2002, all currently exercisable

In your letter of 4^th June you outline how the bank would treat my outstanding RSUs and options upon termination of my employment, namely that I would lose everything except for the options detailed in (iii), which I would be able to retain for a further two year period if I sign a release agreement. Specifically, I would lose the RSUs listed in (i) as my age + number of years service with the bank does not equal or exceed 45 (the "Age of 45Rule").

As you are well aware, there has been considerable discussion over the past two months as to the availability of suitable employment for me on return from sabbatical. In my view, as neither my old job nor a suitable alternative were available, I should have been made redundant in which case, in accordance with the terms and conditions of the stock incentive plans, any unvested RSUs would vest as of the date of termination of employment and I would be able to retain all outstanding Options for two years from the date of termination of employment.

Regardless of this argument, I feel that I should be able to retain the RSUs listed in (i) above for the following reason. … [There then follows the allegation of the assurance given by Mr Standing] …

I have read a draft copy of the release agreement which the bank would require me to sign in order to retain the options listed in (iii) above for a further two years. As I have no intention of going to work for a competitor in any capacity, I would be happy to sign the release agreement if you agree that I should be allowed to retain my RSUs. If you do not agree to this, due to the strength of my conviction that I should be allowed to keep my RSUs, I shall be taking legal advice and intend to mount a legal challenge against your decision. …"

In the light of my previously expressed conclusions with regard to the issues relating to "job elimination" and "suitable alternative job/constructive dismissal", I am satisfied that Mr Ridgway's notice of termination of his employment resulted in his employment coming to an end voluntarily within the meaning of clause 3(d) of the Option Agreement and clause 2(d) of the RSU Agreement. The answer to Issue 2 of the Deferred Compensation Claim (see paragraph 25 above) is therefore "Yes". Furthermore, I accept Mr Hochhauser's submissions that, for the reasons given in paragraphs 13 and 14 of his opening skeleton argument and paragraphs 13 and 14 of his closing skeleton argument, the Bank was entitled, in any event, to incorporate in the Release Agreement proposed for the purposes of clause 3(d) of the Option Agreement a provision that Mr Ridgway give up his claim on the RSUs in order to be permitted to retain the relevant Options. My answer to Issue 3 of the Deferred Compensation Claim is therefore "Yes". Accordingly, it follows from my answers to Issues 1, 2, 3, 4 (first part) and 5(a) of the Deferred Compensation Claim (paragraph 25 above) – see, respectively, paragraphs 65, 96, 95 and 44 of this judgment – that the Deferred Compensation also fails (see paragraph 73 with regard to the Nil Bonus Claim).

Conclusion. For the foregoing reasons, I have come to the firm conclusion that both the Deferred Compensation Claim and the "Nil Bonus" Claim fail. Accordingly, both claims and this action must be and are hereby dismissed.

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	England and Wales High Court (Queen's Bench Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Queen's Bench Division) Decisions >> Ridgway v JP Morgan Chase Bank National Association [2007] EWHC 1325 (QB) (08 June 2007) URL: http://www.bailii.org/ew/cases/EWHC/QB/2007/1325.html Cite as: [2007] EWHC 1325 (QB)