Legal firm hit with £2 damages after Newcastle Airport bonus row

Eversheds is forced to pay out just £2 to Newcastle Airport which should bring to an end its seven-year fight over bonuses paid to two former executives

An aerial view of Newcastle International Airport
An aerial view of Newcastle International Airport

A seven-year battle over a multi-million pound airport bonus - which has itself racked up massive legal bills - has ended with a Tyneside legal firm ordered to pay damages of just £2.

The payment to Newcastle Airport should bring to an end its lengthy battle over bonuses paid to two former executives, though a hearing to decide who pays huge legal bills is yet to be held.

The Court of Appeal yesterday ordered the city’s Eversheds law firm to make the token payment.

A judge ruled Eversheds should have sent a summary note when it came to advising the airport board of a controversial £8m bonus package which the then chief executive John Parkin effectively put together for himself and a colleague.

But judges have again agreed that the blame for the bonus payouts ultimately lies with a non-executive director of the airport who did not read complicated documents.

Newcastle Airport, which is majority owned by seven North East councils, still faces a potentially huge legal bill, speculated at several millions of pounds, as a result of the court action. Although, the airport is insured for legal costs.

The Court of Appeal decision reversed part of an earlier legal loss for the airport, saying that Eversheds should have provided an explanatory memorandum to Rosemary Radcliffe, chairman of the remuneration committee.

Tony Hall John Parkin, former chief executive at Newcastle International Airport
John Parkin, former chief executive at Newcastle International Airport
 

Damages of just £2 were awarded, though, because there was no evidence to suggest Ms Radcliffe, an eminent economist, would ever have read the extra legal advice, and most likely would still have signed off on bonuses.

The Court of Appeal said evidence of Ms Radcliffe’s work on the pay board “almost defies belief”, saying the woman who was meant to be safeguarding the airport’s interests was massively out of her depth.

Airport lawyers insisted it was Eversheds’ duty to produce suitable contracts for the board to approve, and to make clear of any bonus implications.

While the appeal judges agreed the firm failed to provide a note setting this all out for Ms Radcliffe, there was evidence to suggest that the remuneration chairman was “no ordinary professional woman.”

They cited evidence given at the initial High Court trial which made clear that “on very many occasions Ms Radcliffe said that she did not bother to open, let alone read, attachments.”

For this reason, the court of appeal said, it was “unlikely that Ms Radcliffe would have read an Eversheds document she had not requested, and that anyway, even if she had, she would have misread the parts dealing with the refinancing bonus.”

The Court of Appeal did not reverse the previous decision that Eversheds was entitled to take instructions from the directors who had authority, and its judgement does not mean that paying the huge bonuses was an Eversheds failing. The blame there still rests with the carelessness of the remuneration committee.

Newcastle Airport ended up at the epicentre of an almighty row after new contracts signed with Mr Parkin and Lars Friis in 2006 entitled them to bonuses totalling £8m on achieving a £337m re-financing deal for the airport.

Airport bosses reacted with shock when they realised the size of the bonuses and took legal action against Mr Parkin and the estate of Mr Friis, who died of cancer later the same year. That case was settled confidentially in October 2008.

The airport company, NIAL, accused Eversheds of acting negligently in taking instructions from Mr Parkin and Mr Friis when it should have known that the pair were “bargaining for themselves” and their interest was in obtaining the most generous contract terms possible.

Newcastle Airport suffered a stinging defeat at the High Court last year when a judge ruled that Eversheds had acted honestly and in good faith and had had no reason to doubt that Mr Parkin and Mr Friis were properly authorised to give instructions on the company’s behalf.

Ruling on the company’s appeal, Lord Justice Rimer accepted Eversheds’ case that the executives did have authority to negotiate their own bonuses.

However, the judge, sitting with Lords Justice Moore-Bick and Underhill, said the law firm had been under a duty to provide Ms Radcliffe with a memo explaining, “in user-friendly language”, what the changes to the executives’ contracts meant in practice.

A separate hearing is to be held regarding legal costs. Eversheds had previously started legal action against Mr Parkin, though this was halted during the course of the airport case and a decision has not yet being made on what will happen next.

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