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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Pugh v Cantor Fitzgerald International  EWCA Civ 307 (7 March 2001)
Cite as:  CPLR 271,  EWCA Civ 307,  CP Rep 74
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
(Mrs Justice Smith)
Strand, London, WC2A 2LL
Wednesday 7th March 2001
B e f o r e :
MR JUSTICE EVANS LOMBE
|- and -
|CANTOR FITZGERALD INTERNATIONAL
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mr Damian Brown (instructed by Messrs Olswang for the Respondent)
Crown Copyright ©
LORD JUSTICE WARD:
"On 7th October 1998 the defendant unlawfully terminated the contract with effect from 15th October 1998 in that the defendant terminated the contract before the expiry of the notice period."
i) "The defendant had a real prospect of successfully defending the claim in accordance with Rule 13.3(1)(a) of the Civil Procedure Rules; and
ii) The claimant's judgment under Part 12 of the C.P.R. was wrongly entered because the conditions in Rule 12.3(1) of the C.P.R. were not satisfied (pursuant to Rule 13.2(a) of the C.P.R.)."
The defendant relied on the evidence of its solicitor Mr Aherne (which is not in the bundle before us) and of Mr Falkner, its General Counsel to which I shall refer later, and, in respect of which for present purposes, it is sufficient to state that it went almost entirely to the second ground relating to alleged improper service of the proceedings with which we have not been troubled.
"3.1 Would disclose any approaches from competition to his departmental manager;
3.2 Would not seek to solicit, procure or otherwise persuade other members of his team to work for a competitor;
3.3 Would not seek to induce a breach of contract, or collateral agreements, of other members of his team."
Paragraph 4 pleaded an express term contained in paragraph 11 of the contract that the claimant would "well and faithfully" serve the defendant. Paragraph 16 of the contract contained another express term that the claimant would not divulge any "secret, confidential or other similar information".
What constituted the breaches must also be carefully examined. The allegations were:-
"6.1 In or around October 1996 the claimant was approached by a competitor of the defendant Liberty Eurasia Ltd. ("Liberty") to commence employment with Liberty and to persuade members of his Dutch Government Bond Desk and members of the German Government Bond Desk to join Liberty.
6.2 The claimant informed Liberty of the senior brokers employed by the defendant to speak to regarding recruitment by Liberty of the members of the German Government Bond Desk and proceeded to arrange for members of his Dutch Government Bond Desk to meet with the managing director of Liberty ... in or about November 1996. The claimant together with members of his Desk, Mr R. Alder, Mr N. Dyte, Mr D. Griffiths and Mr E. Vanderdonk met with Mr Taylor who discussed their employment with Liberty.
6.3 Further the claimant also persuaded an employee of the defendant, Mr P. Norton, a member of the defendant's Italian Government Bond Desk (but who had previously worked on the Dutch Government Bond Desk) to contact Mr Taylor of Liberty about his being employed by Liberty.
6.4 Further the claimant gained knowledge from Mr Taylor of Liberty that Liberty intended to recruit all the members of the defendant's German Government Bond Desk and Belgian Government Bond Desk (all of whom left the defendant in January 1997 without notice to work for Liberty). The claimant did not disclose his knowledge of any of the approaches by Liberty to employees of the defendant to his department manager or any other manager of the defendant.
6.5 The defendant first learnt of the claimant's involvement in these activities in November 1998."
It was then alleged that "by reason of all of those matters the claimant was guilty of gross misconduct disentitling him to any damages." For convenience I shall call this "the liability issue". No admission was made as to the loss and damage pleaded.
"Clearly the defendant is attempting to construct a further reason for its defence which should not be allowed."
He concluded that:-
"... in the absence of any meritorious defence ... the judgment in default should be allowed to stand. The defendant will of course have the opportunity of defending the issue of quantum in this matter."
"9. I believe the defendant has discovered matters which constitute ... a valid defence ...
11. With respect, Mr Mahal's contention that this defence is a sham is wholly incorrect. The matters set out in the draft defence demonstrate a valid and sustainable defence to the claimant's case."
"Unfortunately, there is no note of his judgment and counsel have been unable to tell me how the Master expressed himself save that he said that the defence had no reasonable prospect of success."
It is indeed unfortunate because the outcome of this appeal may well depend upon what the Master found and what the effect of his findings are.
"1.1.1 The defendant was entitled to terminate the claimant's contract of employment ...; or
1.1.2 The losses do not flow from the defendant's breach because of the claimant's repudiatory breach of the terms of the contract."
The defendant's case was then stated. This pleaded the same terms of the contract well and faithfully to serve under paragraph 11 and not to divulge secret or confidential information under paragraph 16. It added a further express term namely:-
"During the course of your employment ... you will not ... solicit for your own benefit or the benefit of any person or organisation other than the (defendant) the employment or other services of any individual personally known to you who was employed by the (defendant)."
Then the schedule pleaded implied terms to disclose any approaches from competitors and not to seek to induce a breach of contract, which echoed the defence and further, but in slightly different terms to the defence, that the claimant would "do no act which would harm the defendant's business (which would include soliciting the defendant's employees)".
It was the defendant's case that on breach of any of those terms the defendant would be entitled to terminate the contract summarily or alternatively that the claimant would be disentitled to any damages. The breaches alleged in the schedule repeated those in the defence namely that the claimant was approached by Liberty and that the claimant arranged a meeting between Liberty and other employees of the defendant including Messrs Norton and Vanderdonk. It was suggested, again in terms slightly different to the defence, that "the claimant solicited these individuals to leave employment with the defendant to join Liberty".
"Under the terms of the agreement for Limited Partnership of Cantor Fitzgerald, LP ... (the "Partnership Agreement") between the claimant and Cantor Fitzgerald Ltd. Partnership, the claimant has received payments equal to $320,196 (less applicable taxes) (the "Base Amount"). Under the terms of section 11 of the Partnership Agreement, subject to the claimant satisfying a pre-condition that he has not engaged in any "Competitive Activity" as defined in that section of the Partnership Agreement, the claimant would receive an Additional Amount of $161,898 and a Post-Termination Payment of $342,288 less applicable taxes in four annual instalments on the anniversaries of payment of the Base Amount in the case of the Additional Amount and on the anniversaries of the termination of the claimant's employment in the case of the Post-Termination Payment. It is the claimant's case that he is not permitted to obtain employment as a broker because by doing so he will engage in a Competitive Activity and will cease to be able to satisfy the pre-condition for entitlement to the above payment.2.1 It is the defendant's case that:-
2.1.1 The claimant's activities described in paragraph A.1 above are a "Competitive Activity" for the purposes of the Partnership Agreement and therefore the claimant, from the date of that Competitive Activity, ceased to be able to satisfy the condition precedent for the payment of any Additional Amount or Post-Termination Payment. The claimant's entitlement to the additional amount or the Post-Termination Payment under the Partnership Agreement would not, therefore, have been any less had the claimant immediately taken employment with a competitor of the defendant following the termination of his employment as he no longer had any entitlement to such payments over and above his base amount. The claimant should, as a senior, experienced and talented broker, have mitigated his loss and obtained employment at a rate comparable, if not in excess of, that which he was paid by the defendant within a reasonable period ..." (The emphasis is added by me the more easily to identify the only part of paragraph 2.1 which Master Leslie permitted to survive a strike-out).
"For the purposes of this agreement, a partner shall be construed to have engaged in competitive activity if such partner, while a partner or during the restricted period (i) directly or indirectly, or by action in concert with others, solicits, induces or influences or attempts to solicit, induce or influence any other partner, employee or consultant of the partnership, or any affiliated entity, to terminate their employment or other business arrangements with the partnership, or any affiliated entity, or to engage in any competing activity as hereinafter defined, or hires, employs, engages, including as a consultant or partner, or otherwise enters into a competing business with any such person."
"I decline to do so under Rule 13.3(1), exercising my power and discretion and giving a direction for an assessment of damages." (I have added the emphasis).
"was a fact and matter raised in the defence which I declined. Equally, the point raised with regard to mitigation of loss ... is a repeat of the defence as set aside by the judgment last year. I shall strike these out as they are seen to be matters already adjudicated upon."
"I am moreover persuaded that, when I originally looked at the defence and rejected it under Rule 13.3, I came to the conclusion that the defendant had no prospect of succeeding and if I thought this were not the case, I would have set the judgment aside. That judgment is binding on these parties."
"Now, under CPR, if the master concludes that the defendant has no real prospect of success, no question of discretion arises unless, of course, he finds there is some other reason to set the judgment aside.
26. In order to reach the conclusion that there is no real prospect of success, the master will have had to give some consideration to the merits of the claim and the proposed defence and will have required some evidence for the purpose. In my judgment, where a refusal to set aside a default judgment under CPR Part 13 includes a statement by the court that the defendant has no real prospect of successfully defending the claim, the decision made is not discretionary, but substantively determines the issues necessarily involved in that decision. Thus, the core of the proposed defence is determined, at least for the purpose of the action if not for all time, as between those two parties."
"that he found there had been no misconduct. He may have meant that, although I doubt it as he did not have before him material on which he could properly have made such a determination. In my view, at the very least, he must have decided that such misconduct as might be proved could not amount to such a breach of the terms of the employment contract as would amount to gross misconduct which could justify this dismissal, which was, to all intents and purposes, a summary dismissal. In my view, that is the bare essential which must have been encompassed by the master's decision of 6th December.
29. That issue having been decided by the master on 6th December and not being made the subject of appeal, the defendant cannot now raise the same issue on the assessment of damages. To do so would be inconsistent with the decision on liability. In my view this attempt to allege misconduct as disentitling the claimant to any damages is really an attempt to defend the claim by the back door."
"30. ... The defendant argues that the claimant's alleged conduct in 1996/1997 amounted to a breach not of the employment contract, but of the terms of section 11.04 of the Partnership Agreement. All that the defendant seeks to prove is that the claimant's conduct fell within the very widely drafted definition of "competitive activity" to which I have referred, with the result that he was not entitled to receive additional payments under s.11.04 following termination. The conduct alleged is the same factual allegation as was sought to be raised in the defence but, in the submission of Mr Mead (counsel for the defendant), the issue is different from that which must be taken to have been decided by the master on 6th December.
32. Mr Sendall, for the claimant, submitted that because the misconduct raised in the mitigation point is factually identical to that sought to be raised in the defence, it cannot be raised for any purpose. He relies on the broad words used in particular by Peter Gibson L.J. in the case of Lunnun ...
33. If I had interpreted the master's decision of 6th December as necessarily entailing a finding that there had been no misconduct, I would accept Mr Sendall's submission. However, as I have indicated, I do not think that the master's decision can be so understood. In my view, his ruling can only be interpreted as a finding that there was no reasonable prospect of the defendant showing that the claimant was guilty of gross misconduct such as would justify summary dismissal. In my judgment, the issue now sought to be raised on the mitigation point is different from the issue determined by the master. The issue in relation to competitive activity was not, in my view, covered by the master's decision of 6th December. Accordingly, in my view, as a matter of principle, the defendant should be allowed to run it."
(1) Does the mitigation point give rise to a different issue from the no liability and the no causation issues, it being common ground that the same facts were being relied upon to support each of them?
(2) Does the Master's finding that there was no reasonable prospect of successfully defending the claim necessarily include a conclusive finding against the defendant of all the facts alleged in the proposed defence so as to preclude the defendant relying on those facts to support a different issue?
(3) Is it an abuse of process along Henderson v Henderson lines to introduce evidence to support the new issue raised in the schedule of damages when that evidence could and should have been deployed at the time when seeking to set the judgment aside?
"That on an assessment of damages all issues are open to a defendant save to the extent that they are inconsistent with the earlier determination of the issue of liability, whether such determination takes the form of a judgment following a full hearing on the facts or a default judgment."
"the true principle is that on an assessment of damages any point which goes to quantification of the damage can be raised by the defendant, provided that it is not inconsistent with any issue settled by the judgment."
"... default judgments, though capable of giving rise to estoppels, must always be scrutinised with extreme particularity for the purpose of ascertaining the bare essence of what they must necessarily have decided and, to use the words of Lord Maugham L.C. (in New Brunswick Railway Co. v British & French Trust Corporation Ltd.  A.C. 1, 21), they can estop only for what must "necessarily and with complete precision have been thereby determined.""
"First, that the circumstances in which an interlocutory ruling can give rise to an estoppel are always problematical ...
Secondly, and more specifically, on an application to set aside a default judgment the court's consideration of the merits of potential defences is only part of the matters which it must take into account. It may be a sine qua non of the power to set aside that it should be shown that the defence has a good prospect of success. But the decision itself may be based either solely or at least in part on discretionary factors such as the example of delay.
Thirdly I would not exclude the theoretical possibility that there might be a case where the court's ruling on an ord.13, r.9 application to set aside a default judgment was so clear and so specific as regards a particular defence or potential defence, and where no special factors were present which might prevent an issue estoppel from arising as discussed in the Carl Zeiss case, which might give rise to legal or discretionary grounds for barring any further action. I find such a possibility difficult to envisage in practice simply because that is not the usual scope of an ord.13, r.9 application for the reasons which I have given.
The question is whether the test is satisfied in the present case. Was the interlocutory ruling here so clear and specific as regards a particular defence or potential defence."
"However, in my judgment, what occurs on an application under ord.13, r.9 is not a determination of issues but merely an exercise of discretion and the decision whether or not to grant a discretionary procedural remedy. It is not of the same character as ord.14 proceedings. A successful application for summary judgment under ord.14 has to establish and confirm the plaintiff's cause of action and the absence of any defence to that claim. Therefore, ord.14 does require before judgment can be entered a determination of the merits of the case and the existence of causes of action if the application for summary judgment is to be successful. In contrast, if the application for summary judgment is refused, no issue is decided at that stage. Similarly, in respect of an application under O.13, r.9 there is no determination of issues. There is simply an exercise of discretion and, therefore, it is not a decision which gives rise to res judicata properly so called."
"... the court may, on such terms as it thinks just, set aside or vary any judgment ..."
"... the court may set aside or vary a judgment entered under Part 12 if -(a) the defendant has a real prospect of successfully defending the claim; or
(b) it appears to the court that there is some other good reason why -(i) the judgment should be set aside or varied; or(ii) the defendant should be allowed to defend the claim."
a) The change in the language of the rules is not such a sufficient change in the practice to justify casting aside the cautionary words in the old authorities requiring careful scrutiny of default judgments and refusals to set them aside before entertaining an estoppel. As the notes to C.P.R.13.3 make clear:-"The phrase "real prospect of success" is a restatement of the principles laid down by the Court of Appeal in Alpine Bulk Transport Co. Inc. v Saudi Eagle Shipping Co. Inc., The Saudi Eagle  2 Lloyds Rep. 221."
b) As the Saudi Eagle made clear, the purpose of the discretionary power was to avoid injustice and enabling the court to deal with cases justly is of course the overriding objective of the new Rules.
c) A large number of factors may impinge upon the decision taken in a summary process that there is no real prospect of success. Take the very case before us. The only material supporting the defence was a draft defence and the witness statements of Mr Daniel Aherne, the defendant's solicitor, and Mr Falkner, the defendant's general counsel. Mr Aherne's statement presumably tells us so little about the merits of the defence that neither side has seen fit to include it in our papers. Mr Falkner in his statement says only this:-"I attach to this witness statement a draft defence ... settled by counsel which sets out the basis upon which C.F.I., as defendant in this matter, wishes to dispute liability. I believe, and I am advised by counsel, that the facts set out in the defence constitute a good defence to the claimant's particulars of claim."
d) There is not even an affirmation of belief in the truth of the facts set out in the defence, still less any direct evidence to support them when that evidence was available as is shown by the later witness statements of Mr Norton and Mr Vanderdonk. Set against that paucity of evidence were the unanswered points made by the claimant's solicitor Mr Mahal that:-i) The suggestion of dismissal by reason of gross misconduct was an entirely new argument which was "without merit and ... a sham".ii) The reason given for and at the time of the summary termination was the claimant's purported resignation.iii) There was no reference to gross misconduct in the Industrial Tribunal proceedings when the full facts were known and when the reasons advanced for the dismissal were nothing to do with misconduct but related to redundancy and business re-organisation.iv) Another reason which was given in June 1999, so again after the defendant was fully aware of the alleged misconduct, was that the claimant was summarily dismissed because he refused to accept revised terms of employment.
Small wonder the master had no hesitation in concluding on that evidence that there was no real prospect of success.
"I decline to (set the judgment aside) under Rule 13 3.3(1), exercising my power and discretion ..."
He did not explain how that discretion was exercised and whether or not he was influenced by the failure to address the claimant's powerful demolition of the bare assertion made by the defendant.
"All estoppels are not otiose but must be applied so as to work justice and not injustice and I think the principle of issue estoppel must be applied to the circumstances of the subsequent case with this overriding consideration in mind."
Abuse of process.
"It is in my view preferable to ask whether in all the circumstances a party's conduct is an abuse than to ask whether the conduct is an abuse and then, if it is, to ask whether the abuse is excused or justified by special circumstances. Properly applied, and whatever the legitimacy of its descent, the rule has in my view a valuable part to play in protecting the interests of justice."
MR JUSTICE EVANS LOMBE: