Erinaceous could be forced to pay up to £500,000 to a former employee after the High Court ruled it illegally withheld his bonuses.

The beleaguered company was being sued by David Kahn, a former managing director at Erinaceous subsidiary Dunlop Haywards, after it refused to pay him his ‘special bonus’.

Mr Justice Foskett ruled the company tried to back out of paying Kahn his entitlement at the same time as it was reeling from an alleged fraud scandal in one of the departments Kahn was supplying with business.

In March 2006 Kahn claimed bonuses of nearly £500,000 at the same time as the company was rocked by a fraud scandal involving Ian McGarry, former head of the firm’s City valuations office.

Special bonus
Erinaceous had negotiated a special bonus scheme with Kahn amid fears the respected employee, who brought in hundreds of thousands of pounds of business through his ‘substantial client base’, would leave the firm along with his long-time colleague Lloyd Simon.

This bonus meant Kahn received 50% of all fees from he clients he bought into the company over £150,000 would go directly to him.

Dunlop Haywards accused Kahn of deliberately lying about the bonus scheme, and said he was entitled to barely any bonus at all.

But Mr Justice Foskett ruled the special bonus had been agreed because Kahn ‘could pull the shots in the negotiations.’

He said Erinaceous may have agreed the special bonus, which was confirmed via emails in March 2005, without realising the financial implications that they would receive very little profit on large amount sof business brought in by Kahn.

These implications were combined with the impact of Ian McGarry, head of the company’s City valuations office, being arrested in relation to fraud allegations. McGarry is currently under investigation by the Serious Fraud Office and is being sued by Dunlop Haywards in relation to the alleged fraud.

‘When those implications became known against the background of the unfolding events in the valuations department a way had to be found of delaying, and then of denying, the claimant the large bonus to which, on his version of the agreement, he was entitled,’ said the judge in 23-page judgement. ‘Since provision had not been made in the accounts for such a large bonus one can understand why the defendant’s found the position a difficult one.’

David Kahn said he was delighted with the outcome of the hearing and could now move on with his life.

Erinaceous declined to comment but it is understood that they will seek grounds to appeal the decision.

The amount to be paid by Dunlop Haywards will be decided at a later hearing.