England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE QBENF 97/0926/1

(Mr Justice Popplewell) Royal Courts of Justice

Strand, London WC2

Thursday, 21st January 1999

B e f o r e :

LORD JUSTICE NOURSE

LORD JUSTICE JUDGE and

LORD JUSTICE TUCKEY

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CANTOR FITZGERALD INTERNATIONAL

Plaintiff/Respondent

-v-

(1) LEE CALLAGHAN

(2) KEVIN CHANDLER

(3) MICHAEL GOMEZ

(4) ROBERT SHALLIS

(5) SEAN TALBOT

Defendants/Appellants

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Mr E Tabachnik QC and Miss J Tracy Foster (instructed by Messrs Magrath & Co, London W1) appeared on behalf of the Appellant Defendants.

Mr A McGregor QC and Mr N Porter (instructed by Messrs Norton Rose, London EC3) appeared on behalf of the Respondent Plaintiff.

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P R O C E E D I N G S

Crown Copyright

Thursday, 21st January 1999

LORD JUSTICE NOURSE: For the reasons given in the judgments that have been handed down, this appeal will be allowed.

Mr Tabachnik, before we go any further, Lord Justice Judge would like to propose some minor amendments to the draft of his judgment.

LORD JUSTICE JUDGE: I apologise to everybody about this. The machine seemed to hiccup. Mr Porter kindly drew my attention to what was plainly an error on page 24 of the judgment. When we put that right, there seemed to be another hiccup. If you could open page 24, the change is perfectly obvious. We have had a repeat of one passage. At about six lines down in the first paragraph, after the quotation, if you go to the end of that sentence you have a passage that reads "waive the breaches of which they". Then there is a repeat of, and please could you strike out, "that it is possible to isolate the issue of tax liability separately from the remaining problems, some dealt with in this judgment and some raised at". If you take out those words, the text then reads, "or waive the breaches of which they were complaining".

The only other changes are ones that I apologise for. I am not blaming the machine; they are mine. It should be "these" contracts on that line and, at the very bottom of that paragraph, it should be "these" contracts, and instead of "was" it should be "were".

MR TABACHNIK: My Lord, we are very much obliged for that.

Do your Lordships have a copy of the draft minute of order which I handed up?

LORD JUSTICE NOURSE: We have, thank you.

MR TABACHNIK: If you look at the first part of it, from "Upon reading the notice of appeal" etc and going to the second page, until the fourth line of the third page it is really formal. Your Lordships therefore see that the substance begins on page 3. "It is ordered (1) that this appeal be allowed upon the ground that the plaintiff/respondent was in repudiatory breach of contract in undertaking that there was no additional tax liability upon any of the defendants/appellants upon the plaintiff/respondent withholding the sum of £40,000 for the purpose of paying the defendants/appellants respective tax liabilities."

Then (2): "that the said order of the Honourable Mr Justice Popplewell be set aside."

(3): "that the case be remitted to a judge of the High Court for the assessment of the question of damages [which should be "for the assessment of the quantum of damages"] and interest thereon arising from the said repudiatory breach specified in paragraph (1) of the order herein above."

Then (4) is a question relating to costs, which I am afraid your Lordships will have to determine, because here we say that we should have the costs both of the appeal and of the trial of this action. Mr McGregor disagrees and has some submissions to address to your Lordships on it.

Point (5) reads: "that the undertakings given by the defendants/appellants and each of them in case No. 1997 C 942 be discharged forthwith.

My Lords, point (5) arises in this way. Following the decision of Mr Justice Popplewell, there was an injunction granted on 26th March which, as your Lordships will recollect, extended until 1st May 1997. On 2nd May 1997 the plaintiff sought to enforce the restrictive covenants in the contract, having accepted the repudiation of contract, as they saw it, by the defendants. It was agreed by the defendants to give certain undertakings pending the decision of the Court of Appeal in our case. We now ask that the undertakings given be discharged forthwith, and I believe that this is accepted by my learned friends. The order which was made is on page 41 of the bundle which your Lordships have.

LORD JUSTICE NOURSE: Should the minute refer to the order?

MR TABACHNIK: My Lord, I think it must refer to the order, otherwise it is really unintelligible in its present form. As I say, it is the order on page 41 of the trial bundle.

LORD JUSTICE NOURSE: Shall we say "that the undertakings given by the defendants/appellants embodied in the order made in case No. 1997 C 942 on 15th May 1997 and each of them be discharged forthwith". Will that be all right?

MR TABACHNIK: Yes, my Lord, I am most obliged, it certainly will.

There is one final matter, as point (6) of the order, and that is that the court "gives leave to the defendants/appellants to appeal the order of the High Court of Justice, Queen's Bench Division, and the costs order made therein in case No. 1997 C 889".

My Lords, could I can explain how that comes about. Following the decision of Mr Justice Popplewell, an injunction was granted giving the plaintiff the right to recover the balance of the loan of £60,000 which was paid to each defendant. We contend that, once there was a repudiation by the plaintiff, we need to consider what the consequences are of this breach. We say effectively that, the plaintiff having repudiated the contract, we are left to assess the consequences of that repudiation. The plaintiff says that in any event the £60,000 is not recoverable because we would have left the plaintiff in any event, irrespective of whether there was a repudiation by the plaintiff or not. So, my Lords, there are rival contentions with regard to that. I was therefore asking your Lordships in principle for leave to appeal against the order given on summary judgment for, in effect, £60,000 and costs.

My Lords, the point is now made by Mr McGregor that ----

LORD JUSTICE JUDGE: I am sorry, I am not following you. Was the issue which you envisaged arising under (6) canvassed and argued before Mr Justice Popplewell or any other judge?

MR TABACHNIK: Yes, my Lord, it was an application for Order 14 judgment which was first heard by Master Hodgson, I think, and then by Mr Justice French, who in each case upheld the order made, so that we had to repay the £60,000. We want now an opportunity to reclaim that money in the light of your Lordships' judgment.

LORD JUSTICE JUDGE: Is there a notice of appeal?

MR TABACHNIK: My Lord, there is not.

LORD JUSTICE NOURSE: But when and how will that appeal be heard if you get leave, and is it a necessary preliminary to the further stage in these proceedings?

MR TABACHNIK: My Lord, it is really a consequential step as a result of these proceedings where we say that really there was no obligation to repay the £60,000 on the loan. My friend says differently because he says, "In any event, you would have wanted to leave the plaintiffs anyway and there is an issue to be tried."

My Lords, the problem is that we are a little deadlocked at the moment as to the procedure for trying that, because in action No. 889 the position was that a consent order was made which effectively discontinued the proceedings on both sides. It said effectively: "The plaintiff do have leave to discontinue its claims against the defendants in this action and the defendants do have leave to discontinue their counterclaims against the plaintiff on the following terms." Then 1.1: "That the parties discontinuance of their respective claims is without prejudice generally and in particular to action No. 1997 C 232", i.e. this action. The question is whether, since the matter has been discontinued, it can be pursued by us by way of appeal or whether in fact we will need to bring a fresh action for the recovery of the £60,000, which is what Mr McGregor now suggests is the appropriate course.

LORD JUSTICE NOURSE: On that state of play, Mr Tabachnik, you could not possibly get leave to appeal as it were on the way, because there is an issue as to whether you are bound by the discontinuance or not. I do not see at the moment, if you do not mind my describing it in this way, that you can slip this into this order unless Mr McGregor agrees.

MR TABACHNIK: My Lord, Mr McGregor's view is, I think, now that we are best to bring a separate action claiming the £60,000 and he will then defend that.

LORD JUSTICE JUDGE: Is not the sensible thing for those proceedings, if you are going to pursue them, to be linked up with the assessment of damages arising from the present judgment, so that one judge hears the whole of that, and then you can see where you stand, assuming that the litigation goes forward, with applications for leave to appeal.

MR TABACHNIK: My Lord, that was my original thought, but it was then pointed out to me that in this particular case there is a very strong issue as to liability to pay the £60,000, and then, if that is resolved against Mr McGregor, of course, one is into the assessment of damages. But there is a prior point on liability which will need to be decided in that particular matter because, as your Lordships appreciate, he is saying, "We are entitled to keep the £60,000 in all the circumstances."

LORD JUSTICE NOURSE: It will need to be decided, but it will have to be decided at first instance, because that is not a point which has yet been decided at first instance. We cannot entertain an application for leave to appeal, even if we know anything about it, against a decision which has not actually been made.

MR McGREGOR: My Lord, may I respectfully intervene.

LORD JUSTICE NOURSE: If you do not agree this, Mr McGregor, we just put a line through it, do we not?

MR McGREGOR: I do want to indicate, however, that my disagreement is limited to the procedural route. I quite recognise the principle that now your Lordships have found there was a repudiatory breach his clients are entitled to make a claim for the £60,000 by way of damages in a claim for wrongful dismissal. I understand that principle and I accept it, but it must, in my respectful submission, be done by separate proceedings. We are very happy to accede on our side to the suggestion that has just fallen from Lord Justice Judge's lips that the first instance action which is brought afresh to claim that money should be consolidated for orders to be tried in conjunction with the issue of the assessment of damages which is the subject of an earlier order that your Lordships are invited to make. I am perfectly happy to accommodate my learned friend in that and to put it on record that we will accommodate him in that.

LORD JUSTICE NOURSE: Thank you very much.

Mr Tabachnik, it may be that the exchange has been helpful, but it seems clear that we have to put a line through paragraph 6 in this order.

MR TABACHNIK: I understand that, my Lord, and Mr McGregor and I, I am sure, will reach agreement as to appropriate proceedings to be brought in relation to that.

So those are the points of the order, subject to the question of costs, on which I know my learned friend wishes to address your Lordships.

LORD JUSTICE NOURSE: Thank you very much.

Mr McGregor, you are happy with all of this except paragraph 4, which we do not know what is going to go into yet, and paragraph 6, are you?

MR McGREGOR: My Lord, yes.

I have in fact two applications to make, one of which is in respect of leave to appeal from your Lordships' judgment. Very briefly, we contend that the matters raised in this case relating to fundamental breach of employment contracts raise an important issue of law which is germane to all employment contracts in this country, and that is whether a notion of a deliberate breach by refusal to pay remuneration or part of a remuneration package is automatically a repudiatory breach. We seek leave to raise that matter with their Lordships.

LORD JUSTICE NOURSE: Assuming it was a point which arose in a case where there was a real necessity for there to be further litigation between the parties, you might have something to be said for your application. But as Lord Justice Judge queried at a very early stage in the argument, what is this case all about now?

MR McGREGOR: There are proceedings in New York as between Liberty and Cantor Fitzgerald which have been brought in relation to breach of an agreement which was entered into, inter alios, between those two companies prohibiting either of them from, to use a general term, poaching each other's employees, where such poaching was done in inducement of a breach of contract. That litigation is being hotly contested in New York and this is an issue which is very pertinent to it. There would be no breach of that agreement, in another words, as I understand the way the American litigation lies at present, if, as your Lordships have found, my clients were themselves in repudiatory breach of contract. Liberty would then not have been poaching and in breach by inducing breach of contract.

There are two limbs to the claim. One concerns this desk of inter-dealer brokers, the Belgium Polo desk; the other concerns a German desk of some 14, I think, brokers who were similarly poached at around the same time. So it is not a matter of whether this is a sterile, academic debate as between the parties. It is a matter which in my respectful submission impacts upon the general law of employment. In my Lord, Lord Justice Judge's judgment, he has sought to make a distinction - and I think this is the first time it has been done - between cases where there is a mere failure or delay in payment and cases where there is a deliberate refusal. It is our contention that no such distinction, if I may so with the greatest respect, can be made in contract law generally or specifically in employment law, following the decision of the House of Lords in the Suisse and Bromley (?) case.

There is a second part to Lord Justice Judge's judgment in which he holds that he doubts whether de minimis applies at all to cases of deliberate refusal to pay. That of course is a very important element in the case for us because we are seeking to contend that, even were there a breach, it would not be fundamental or repudiatory because of the quantum of the loss arising from it.

We also wish to raise various matters relating to collateral warranties in employment contracts and we wish to raise as an issue of law with their Lordships that it is the case in any collateral warranty of this nature that a breach, even a fundamental breach of that warranty, whatever its impact may be on the collateral arrangements, cannot constitute a fundamental breach of the underlying employment contract. We say that is a germane approach in the employment field too. Your Lordships will be aware that there was only one case where collateral warranties had been found in the employment context, which was a Northern Ireland decision, and so that is an area which is also relevant.

My Lords, I have put my submissions, I hope, as shortly as I possibly can. Unless your Lordships would like me to develop the points, in which case I can hand up specimen grounds of appeal, I hope that I have accurately summarised it.

LORD JUSTICE NOURSE: I think you have, Mr McGregor. What do you say about costs?

MR McGREGOR: So far as costs in this court are concerned, I appreciate that I lost what the event was, and my only concern lies with the matter that was abandoned immediately after skeleton arguments were exchanged. A huge tranche, as your Lordships will observe, of the notice of appeal was concerned with two bonuses which it is alleged, I think, Mr Shallis and Mr Chandler were entitled to from a preceding year's financial year's work. As I submitted, that was abandoned as late as exchange of skeletons, and we contend that the costs occasioned by raising and pursuing that ground of appeal as far as it went should be our costs, to be paid by the appellants. That is the point I raise in relation to the costs of the appeal.

LORD JUSTICE NOURSE: It is a strong thing to order a successful party to pay a proportion of the losing party's costs. You might have a case for saying that they should be docked part of their costs because they abandoned that part of their appeal.

MR McGREGOR: Your Lordship is applying principle 3 in Elgindata, as I understand it.

LORD JUSTICE NOURSE: Am I?

MR McGREGOR: It was your Lordship's decision, and I believe it is principle No. 3 which your Lordship is applying.

LORD JUSTICE NOURSE: I think the principle is clear.

MR McGREGOR: I certainly would not press the point beyond your Lordship's present indication. I would only ask that allowance be made in respect of that abandonment.

LORD JUSTICE NOURSE: What would be the appropriate allowance?

MR McGREGOR: We would contend, since there were three grounds of appeal, that that should be one third - one third of the costs should be disallowed. I am sorry it is such a rough and ready assessment.

LORD JUSTICE NOURSE: No, it has to be.

MR McGREGOR: But inevitably it comes down to that kind of rough and ready assessment in this kind of contention.

LORD JUSTICE NOURSE: What about below?

MR McGREGOR: So far as the costs below are concerned, again in reverting to the Elgindata principles that your Lordship enunciated, we contend that there was a whole raft of issues that were raised by the defendants, only one of which ultimately had the necessary merits. Your lordships have seen, because we supplied them to you after the arguments had closed in this case, the skeletons arguments in the court below. If your Lordships recollect, in the skeleton argument that was submitted by the plaintiff, we contended in paragraph 11 of it that what the defendants were doing was quite deliberately taking a scattergun approach and seeking to raise any issue that might conceivably give rise to a claim for a breach of contract or a repudiatory breach. So we made our position absolutely clear that that is what they were doing.

We contend also that some of the issues that were raised in order to implement the scattergun approach were issues that were raised wholly unreasonably. The defendants contended that Mr Pover had deliberately misled them when negotiating the contracts (that is the £60,000 loan contracts) because Mr Pover at that time was well aware that total transparency was going to be introduced by my client and did not inform them of it and led them into signing new contracts which would be disadvantageous to them if total transparency were introduced. They therefore accused us of deceit, and that fed into a further argument in relation to the relief we were seeking, injunctive relief, that the plaintiff did not come to court with clean hands. That allegation was abandoned only during the course of the hearing, but the total transparency issue also had a number of other branches. They contended that it was a breach and repudiatory breach of contract in itself to introduce total transparency. That was an issue upon which the defendants had sought and obtained very extensive discovery, including discovery of the proceedings going on in the United States between my clients and Reuters at that stage, and we say that wasted an enormous amount of costs and an enormous amount of time.

I ask your Lordships to view the case as it proceeded in front of the trial judge, with the benefit of hindsight of course, as being a case where, if the defendants had conducted their litigation properly and reasonably, they would have raised at best two issues, the two issues which your Lordships have had to consider in this appeal, and that could have focused the whole case, narrowed the evidence and narrowed very considerably the disputes which occupied the court for a total of six days. On that basis, whether on the basis that the costs should be disallowed or on Elgindata principle No. 4 that by reason of the unreasonable conduct of the defendants we ought actually to recover some proportion of our costs for those proceedings - on either of those bases - we contend that the ordinary principle in Order 62, rule 3 that costs follow the event - the trial below, if we lose on appeal - should not be applied in this case.

My Lords, my primary submission would be that the plaintiff should recover 50% of the costs and that accordingly the two costs could be set off, the plaintiff's costs and the defendants' costs one against the other in respect of the trial below, or alternatively that there should be a disallowance of 50% of the defendants' costs of the trial, again on a very rough and ready basis.

LORD JUSTICE NOURSE: Thank you very much.

Mr Tabachnik, will you respond as quickly as you can on the questions of costs, leaving leave to appeal on one side at the moment.

MR TABACHNIK: Yes, certainly, my Lord.

In our submission costs should follow the event. In this court the case began, as your Lordships will remember, at two o'clock and finished at three o'clock the next day. Only two points were argued and on the first of these we have won the appeal. The second point of course we have lost, but your Lordships have not suggested that the point was an unreasonable or improper one to have taken, and my friend's application in relation to this is really a third point in relation to the 1995 bonus, which was abandoned. So far as that is concerned, it was abandoned because effectively there was a dispute of fact between the plaintiffs and the defendants and it was resolved in favour of the defendants at the trial court. I took the view in those circumstances that it was not a proper appealable point and so abandoned it. It certainly would not represent a third of the costs that were actually incurred. It represents only a paper pleading which was, as I say, not pursued in relation to this court. We say therefore that we should have all our costs in this court.

So far as the High Court is concerned, we relied upon six points. Two of those were extremely brief. The first was the failure to account for the interest on the £40,000. That was very briefly put in argument and very briefly dealt with in the judgment, as your Lordships have seen. So that point took virtually no time at all. Secondly, there was an allegation of breach of the implied duty of trust and confidence. As your Lordships know, that was effectively again a matter of very brief comment and it really stems from the first point made by the defendants that there was a repudiation of their contracts.

There were two other short points that were dealt with with individual witnesses: a point first of all in relation to the 1995 bonus where, as I say, the question was conflicting factual accounts by Mr Tovee and the defendants and the point was resolved in favour of Mr Tovee. That really concluded the point and there was in fact no point in pursuing the appeal. The other point related to an isolated claim which Mr Chandler had in respect of the repayment of phantom units - the redemption of phantom units. That again took a very short part of the evidence and again was resolved on the facts against him.

Most of the hearing undoubtedly turned on the two points that your Lordships have heard about on appeal and clearly therefore they dominated the proceedings below. I should just say that the proceedings below involved a day of opening the case on the Monday. It then involved the Tuesday, the Wednesday, the Thursday and part of the Friday to complete the evidence. There was then in fact Mr Field's speech made on the Friday in closing, and then on the Monday Mr McGregor's reply. So effectively we are talking about three and a half day's of evidence, most of which, as I say, was devoted either to the point upon which we have succeeded here or to the other point on which we have failed, plus, as a part of that point, an allegation which the judge rejected that we were simply coasting along in 1996 and not really trying to cope with the fact of total transparency - something, as I say, which he totally rejected.

So, my Lords, again we say that in those circumstances we should have the costs and that the normal rule should prevail.

LORD JUSTICE NOURSE: Do you want to add anything in reply?

MR McGREGOR: My Lords, I do not think it is of assistance to debate the precise number of hours. Suffice it to say that we contend that a vast amount of the evidence that was deployed was not deployed towards the two issues that your Lordships have had to decide but to issues which were raised on the scattergun basis.

(Their Lordships conferred)

LORD JUSTICE NOURSE: We direct that the defendants shall have all their costs of the appeal but only 50% of their costs below. We refuse leave to appeal.

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