Findlay v Cantor Index Ltd & Ors

I start with a short summary of the facts and the circumstances giving rise to the present issues. Cantor Index Ltd are the First Defendants (“D1”). This company trades in this country in the field of spread betting. It is wholly owned by Cantor Index Holdings LP, the Second Defendants (“D2”). The Third Defendants (“D3”), formerly traded as Cantor Fitzgerald International; it is now BGC International. It is a further company within what is in effect a group. All three companies have directors in common: Mr. Lee Amaitis and Mr. Howard Lutnick are directors of all three companies.

From the 9^th March 2000 the Claimant, Mr. Lewis Findlay, was employed by D1 as managing director. By 2003 a dispute had arisen between him and his employers as to the calculation of his bonus payment. Solicitors became involved. On the 27^th October 2003, following intensive negotiation and drafting, fresh agreements were entered into such as served to resolve the dispute and to provide a fresh contractual structure:

In due course it will be necessary to give careful consideration to parts of the latter two agreements and the relationship between such. Suffice it presently to note the following:

In the event the Claimant purported to terminate his employment on the 30^th January 2006. He contends that such termination came about as constructive dismissal – a contention in strong dispute.

As at the 30^th January 2006 there had been no listing or trade sale such as was contemplated by the Incentive Agreement. Further, there has been none such to date.

By way of a Claim Form and Particulars of Claim these proceedings started on the 13^th March 2006. As against D1 the Claimant claimed damages for breach of the Employment Contract, that is, for constructive dismissal. As against D2 and D3 the claim was

It is to be observed that by way of the pleading it was contended that the Employment Contract included two implied terms:

“a.

(D1) would not act in a manner which was calculated or likely to destroy the relationship of trust and confidence which existed between the Claimant and (D1); and

b.

(D1) would reasonably and promptly address any grievance raised by the Claimant in good faith.”

I interpose: the implication of such terms was subsequently admitted.

On the 14^th May 2006 an Amended Particulars of Claim was served in draft; consent to amending was forthcoming on the 30^th May 2006. The amendments served to focus on the Incentive Agreement and its relationship with the Employment Contract. An agreed summary prepared for the Case Management Conference of the 31^st January 2007 included the following: “ … the Claimant alleges that the Defendants caused or permitted the unlawful repudiation by D1 of the Claimant’s contract of employment, thereby unjustly and unreasonably denying the Claimant the opportunity to receive an equity participation or cash consideration upon a sale or flotation of D1 or any associated company. The Claimant also seeks alternative remedies against D2 and D3 on the basis of an alleged breach of the allegedly implied terms of the Incentive Agreement set out in paragraph 47(a) of the Amended Particulars of Claim and/or for allegedly inducing D1 to breach the contract of employment.”

By way of an Application Notice of the 5^th February 2007 the Defendants sought partial summary judgment pursuant to CPR 24.2, essentially with respect to the contentions added to the claim by way of the amendments of May 2006. This application had been before the Court in draft at the Case Management Conference and the resultant order included a stipulation that the hearing of the application should be before a High Court Judge.

In the result the matter came before me on the 16^th February 2007. The ensuing events were forensically unusual. During the morning Mr. Hochhauser QC, for the Defendants, made his oral submissions. Upon Mr. Mill QC for the Claimant commencing his response it appeared that in part he was relying upon certain contentions made by his client by way of a witness statement of the 13^th February 2007, which contentions were not reflected in the Amended Particulars of Claim. In such circumstances he sought – and was granted – an adjournment to permit reconsideration of his client’s position. The adjourned hearing was on 22^nd February 2007. For such, Mr. Mill QC produced a draft Re-Amended Particulars of Claim and sought leave to have it served. This second day’s hearing was in the result occupied by submissions from Mr. Mill QC seeking to justify such of the original amendments as remained together with those now sought to be introduced by way of re-amendment. In response Mr. Hochhauser QC maintained his pursuit of a Part 24 partial summary judgment by attacking those amendments as were retained and by opposing such re-amendments as served to supplement such. In the event I reserved this, my judgment.

The Defendants' Application Notice is necessarily founded upon CPR 24.2. “The Court may give summary judgment against a claimant … on a particular issue if it considers that … the claimant has no real prospect of succeeding on the … issue … and there is no other compelling reason why the issue should be disposed of at trial.” In so far as the Defendants now seek to have the May 2006 amendments struck out reliance upon 24.2 continues and at various points amendment and proposed re-amendment are so intermingled as to bring the same provision inevitably to bear upon the new application to re-amend. As it happens, there is authority for the proposition that the test governing permission to amend is that embodied in Part 24: Flexitallic Group Inc v. T & N Ltd, 19^th December 2001 as cited in the White Book, 17.3.6. In essence, I should refuse to permit an amendment or re-amendment if it is clear that the proposed pleading has no prospect of success. Understandably, Mr. Mill QC as a proponent of the amendments was concerned that I should heed such authoritative guidance as there is on this exercise of discretion and drew particular attention to the speech of Lord Hope in Three Rivers D.C. v. Bank of England (2001) 2 All ER 513 at 542. There, there is discussion as to the ambit of the Part 24 discretion and Lord Woolf in Swain v. Hillman (2001) 1 All ER 91 is cited with approval: “Useful though the power is under Part 24, it is important that it is kept to its proper role. It is not meant to dispense with the need for a trial where there are issues which should be investigated at trial … the proper disposal of an issue under Part 24 does not involved the Judge conducting a mini-trial, that is not the object of the provisions; it is to enable cases where there is no prospect of success either way, to be disposed of summarily.”

I propose to tackle the issues in sequential order so as to make successive specific rulings. First, however, two introductory observations can usefully be made.

First, the Order arising out of the Case Management Conference provided for the trial of the action to take place in July. It will almost certainly be before another Judge – I will then be on circuit. Inevitably Mr. Mill QC urges me to be cautious at this, an interlocutory stage. Leaving aside the statements respectively prepared for my hearing, I have not had the benefit of evidence, lay or expert. It will be on receipt of such that the key issues will emerge and I should not inhibit the granting of relief apposite to such by making what in effect will be premature decisions as to materiality and weight of issues. Mr. Hochhauser QC responds with a request for judicial boldness: by ruthlessly weeding out the unsustainable, I would be confining the ambit of the trial (and its preparation) to such limited part of the Claimant’s case as is properly arguable, thereby making potential savings in terms of costs and Court time. At this stage, I acknowledge the arguments and the resultant tension in terms of judicial policy. As I hope will be apparent, I have had these respective submissions much to mind when making the rulings.

Second, it is helpful now to identify certain factors that serve to fuel the immediate dispute. The primary issue between the parties is one of mixed fact and law: was the Claimant constructively dismissed? In the event it is not that issue that founds the present dispute, it is the next succeeding issue: postulating the breach of the Employment Contract, what factors bear upon the quantum of damages. On one view (which will no doubt be vigorously advanced at trial) any computation must be factually and legally tightly circumscribed:

I turn to my task. There is an initial practical problem: the forensic history leading to the present draft is such that paragraph numbers have been altered, inserted or deleted. Every effort has obviously been made to achieve accuracy but the end result is at various points potentially confusing, as emerged in the course of submissions. I will of course do my best to provide paragraph identification that clearly suffices for present purposes.

Paragraph 4. By way of the May 2006 amendments it was contended that the Employment Contract included two implied terms additional to those set out in paragraph 7 above. The joint effect was to prevent D1 from “unjustly or unreasonably” depriving the Claimant of opportunity to benefit under the Incentive Agreement, or impairing such. The implication thus contended for was strongly attacked by Mr. Hochhauser QC in the course of his submissions: essentially it could not possibly survive the ‘officious bystander’ test. Mr. Mill QC now acknowledges some force in this argument and for that and other tactical reasons seeks to delete such terms, that is to delete sub-paragraphs (c) and (d). Obviously, there is no opposition and I give leave for the amendment.

Paragraph 35 (old style). Again, there is an application to amend by way of deletion. This time, the application does not acknowledge force in Mr. Hochhauser’s QC submissions – it has a tactical foundation in that its content is now to be advanced, if permitted, by way of new paragraph 36.4. There is no opposition to the deletion; I give leave for the amendment.

Paragraph 36.2 (new style). This paragraph comes under a heading “Lost salary and benefits for the remaining period of the Claimant’s Contract of Employment” and reads (with the proposed amendment underlined):

“The earliest date upon which the First Defendant could lawfully terminate the Claimant’s contract of employment was 31^st December 2006. Prior to his date the Claimant was contractually entitled to an annual salary of £250,000.00. Furthermore he was contractually entitled to bonuses for both the 2005 and 2006 calendar years calculated in accordance with the terms of the contract. Furthermore, the Claimant was at all material times a partner of Cantor Fitzgerald LP under the terms of the Cantor Fitzgerald Partnership Agreement (Private Placement Memorandum) dated 18^th February 2003 and would, but for his constructive dismissal, have remained a partner thereof until (at earliest) 31^st December 2006. Accordingly, the Claimant has lost the benefits to which he would have been entitled thereunder in respect of the period from 30^th January 2006 until that date. Further details will be provided upon disclosure and/or the obtaining of expert evidence.”

The amendment as now sought did not surface until the latest draft pleading. Mr. Mill QC would contend that its significance is self explanatory. Given the facts as in the draft pleading, the Claimant is entitled to raise the matter as bearing upon the computation of the damages for breach of the Contract of Employment. True, he must concede there are potential issues as to reconciliation between this alleged head of loss and the express terms as to a Settlement Payment and further, as to remoteness of damage but these are, he urges, for the trial Judge to rule upon in the light of the evidence. Again, whereas the point had seemingly been overlooked earlier (it does not feature in the Claimant’s witness statement) it should be factually beyond real dispute. Although not strictly relevant to a claim against D1, Clause 3(j)(vi) specifically acknowledges the potential to entitlement under this partnership agreement.

Mr Hochhauser QC opposes the amendment. Drawing strong attention to its late emergence he submits that this head of claim should properly be directed to the partnership in question, a party separate from the current Defendants.

I rule in favour of the proposed amendment. Granted that it is late but I cannot think that it is so late as significantly to affect preparation for July’s trial. It seems to be common ground that the Claimant was apartner pursuant to this Partnership Agreement and I take it to be readily demonstrated (if not agreed) that his loss of employment occasioned an inevitable concomitant termination of partnership status and rights. Once it is found that the loss of employment amounted to constructive dismissal then any inquiry with respect to damages must at least include some consideration of this apparent ‘knock on’ effect – with what result I cannot of course speculate. With respect to Mr. Hochhauser QC, there is no inherent challenge in law to this amendment suitable for Part 24 adjudication. True, the Partnership is not a party to this action and has thus not been sued but I cannot regard this as fatally undermining the amendment. It is not easy to discern a cause of action against the Partnership if it did no more than react to termination of employment with D1, whereas a ‘knock on’ loss of partnership clearly falls to be considered by the trial Judge with respect to the claim against D1 even if arguments arising out of Clause 3(j) may serve to nullify its effect – as to which I have emphatically no current views.

Paragraph 36.4. This in its entirely is a sub-paragraph first appearing in the latest draft pleading. It is necessary to cite it in its totality:

“Lost Benefits under the Incentive Agreement

The Claimant is entitled to damages by reason of the fact that his constructive dismissal delayed a relevant Listing or Trade Sale for the Purposes of the Incentive Agreement beyond 31^st December 2006 (such relevant transaction being as described in paragraphs 39 and following below). Further details of the amount of this loss will be provided after disclosure and/or the receipt of expert evidence. Alternatively, the Claimant claims damages for the loss of the chance that a triggering event under the Incentive Agreement would have taken place during the relevant period (i.e. prior to 31^st December 2006) if he had not been constructively dismissed by the First Defendant. Without prejudice to the generality of the foregoing, the Claimant will rely upon the following facts and matters in support of those allegations:

(a)

From at least November 2005 the Defendants were taking urgent and detailed steps towards the sale or flotation of the business and/or a division of the business of the Cantor Group. Without limiting this allegation, the Claimant relies on the fact that by November/December 2005 the Union Bank of Switzerland (“UBS”) had reached an advanced stage of evaluating and valuing the Cantor CFD business with a view to the sale of such business in the near future. The Claimant believes that the other business or some of them would be sold shortly thereafter. Supplemental information will be provided by the Claimant after disclosure by the Defendants and/or third party disclosure.

b.

Further and in any event, the Claimant was repeatedly orally promised by Howard Lutnick and Lee Amaitis acting on behalf of the Defendants or one or more of them, from 2003 that the Cantor Index business or businesses would be sold and/or listed as soon as possible.

c.

The Claimant, Howard Lutnick, Lee Amaitis and the First to Third Defendants were all of the view from and after 2003 that a Listing or Trade Sale of the First Defendant would occur by 31^st December 2006.”

Mr. Mill QC contends that this amendment should be permitted so as to allow for fact finding and a consequent ruling at trial. He emphasises that the draft faithfully reflects the Claimant’s strong personal belief that a readily foreseeable consequence of his dismissal would be a delay in securing a listing for D1, alternatively a trade sale. Without a managing director in place the exercise would become very difficult, as he believes. Thus so soon as he was dismissed the pursuit of a listing or a trade sale became delayed to the point at which he could not benefit under the Incentive Agreement and thus lost a substantial benefit appropriately to be reflected in damages. As with paragraph 36.2 the issue as proposed to be raised is essentially one of fact with argument to await fact finding.

Mr. Hochhauser QC strongly submits that no such pleading should be permitted. The points that he makes are as follows:

I turn to my judgment. By way of preface I should record that the imbalance in terms of space utilised to recite the respective submissions does not in itself reflect against the Claimant. Mr. Mill’s QC essential submission, namely that there is an arguable issue meriting disposal at trial rather than summarily is of necessity short but its brevity does not distract from its weight – as is apparent with respect to my ruling on paragraph 36.2. However this time I am entirely satisfied that the proposed pleading is so defective that a summary decision refusing leave for it is justified. As to this, I accept and adopt the submissions of Mr. Hochhauser QC, adding that it is instructive and germane to test the proposed pleading as a formulation of prospective recoverable loss, that is as a formulation fit to be tested by reference to the principles stemming from Hadley v. Baxendale (1854) 9 Exch 341, typically illuminated by Lord Reid in The Heron II (1969) 1 AC 350, 385: “The crucial question is whether, on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation.” With this as the approach, the content of 36.4 plainly falls totally outwith D1’s reasonable contemplation as at the 27^th October 2003. I refuse the application to re-amend.

Paragraphs 41 and 42 (old style). Deletion is sought and is not opposed. I give leave.

Paragraph 41 (new style). The premise is as pleaded in 36.4. Given my ruling, this paragraph cannot be sustained and will have to be deleted.

Paragraph 42 (new style). Some issue has arisen over “and in any event” now “and”. I confess that I have never understood it. The amendment is allowed.

Paragraph 43. By way of the draft pleading this comes under the heading of claims against D2 and D3 and reads:

“a.

The Incentive Agreement contained an implied term that neither the Second nor the Third Defendant would cause the Claimant unjustly or unreasonably to be deprived of the reward under the Incentive Agreement. The Claimant will contend that such implied term obliged the Second and Third Defendants not to take any steps to delay or otherwise prevent any Listing or Trade Sale from taking place in circumstances where:

(1)

That Listing or Trade Sale would otherwise have taken effect in the normal course of business; and

(2)

A material cause of the taking of any such steps was the existence of the Claimant’s entitlements under the Incentive Agreement and/or his claim for the loss thereof (as set out above).

b.

Paragraph 36.4 is repeated. The Defendants have denied the contention made by the Claimant that the prospects of a Listing or Trade Sale prior to 31^st December 2006 were significantly diminished by the constructive dismissal of the Claimant. In those circumstances, the Claimant will contend that the Second and Third Defendant must have taken steps to delay or otherwise prevent such an event occurring. The Claimant will further contend that it is to be inferred that a material cause of the taking of such steps were the matters identified in subparagraph (a)(ii) above. In the premises, the Claimant will contend that the Second and Third Defendants acted in breach of the said implied term of the Incentive Agreement.

c.

Further or in the alternative the Second and/or Third Defendants wrongfully induced the First Defendant to breach one or more of the terms of the Employment Contract as pleaded at paragraph 4 above.”

On behalf of the Claimant, Mr. Mill QC advanced a case for sustaining the pleading as currently drafted by way of the following submissions. First, he draws attention to his client’s witness statement at paragraph 7.4: “ … had it been suggested in the course of the negotiations … that the terms should be interpreted so that D1 could constructively dismiss me and then delay the listing or the sale beyond 31st December 2006 so as to seek to deprive me of entitlements under the Incentive Agreement, I have no doubt (but) that all parties would certainly have accepted that this was not intended … and would all have agreed to the addition of an appropriate express term to confirm this.” That being the case that his client will attest to at trial the re-amended Paragraph 43 provides the forensic structure and should be permitted. It would be quite wrong for me now to rule summarily that such a case is unarguable. The proposed pleading raises issues that can only be addressed at trial. Again the submission is essentially short; again, its brevity does not detract from its force.

Mr. Hochhauser QC responds head on: this is a ‘paradigm case’ for the exercise of the summary jurisdiction that he seeks. Paragraph 43 turns upon the proposition that an amendment asserting inclusion within the Incentive Agreement of an implied term has a prospect of success. He submits that it has no such prospect: The submissions are:

Turning to the proposed Paragraph 43(b), the submission is that its terms are so convoluted and tendentious as to be patently devoid of merit. Finally, 43(c) is plainly unsustainable as amounting to a bare assertion with no apparent factual premise.

As to my judgment, it is that I should adopt and uphold the submissions of Mr. Hochhauser QC. I am entirely satisfied that this Paragraph can in no way be sustained as having any prospect of success so that summary disposal is justified. Each submission is persuasive and the totality outweighs the concerns properly raised by Mr. Mill QC.

Paragraphs 44 and 45 (new style). My rulings have deprived these paragraphs of any factual premise and accordingly I refuse the proposed amendments.

The Prayer. I await further submissions.

There is a danger that the foregoing rulings will do nothing to promote clarity in the Particulars of Claim. I would ask the respective junior counsel to join in producing a viable document for use at trial. One answer might be the production of a draft devoid of any indicia of amendment or re-amendment with an appropriately marked pleading available as and when any issue might arise appertaining to amendment or re-amendment. That said, I leave matters to their discretion.

As to an Order sufficient to give effect to my judgment, that similarly can be a joint product. If all its terms can be agreed, I will hand down my judgment without further attendance before me. Obviously if agreement be incomplete there will have to be a further hearing to be organised through my Clerk. In any event all typographical errors should be communicated to my Clerk before the 9^th March 2007.

A word of praise; a word of concern. As to praise I record my appreciation and professional admiration with respect to the respective submissions. As to concern, that is engendered by obviously soaring expenditure in costs apparent from the material put before me. Vigorous advancement of a client’s interests does not connote incurring high costs bills without regard for that which is at stake, nor for that which is professionally necessary or desirable. Mr. Hochhauser’s QC submissions included the contention that rulings in his favour such as those he has secured would result in a significant saving on costs. He ought to be right; I can only hope that he proves to be right. It would not surprise me to learn that this case is now in effect about costs – who pays what and to whom – such outweighing that which is at stake between the parties on the merits. I hope that I am wrong.