Cantor Fitzgerald International v Callaghan

JurisdictionEngland & Wales
CourtCourt of Appeal
JudgeLord Justice Judge,Lord Justice Tuckey,Lord Justice Nourse
Judgment Date21 Jan 1999
Judgment citation (vLex)[1999] EWCA Civ J0121-2
Docket NumberQBENF 97/0926/1

[1999] EWCA Civ J0121-2





(Mr Justice Popplewell)

Royal Courts of Justice

Strand, London WC2


Lord Justice Nourse

Lord Justice Judge


Lord Justice Tuckey

QBENF 97/0926/1

Cantor Fitzgerald International
(1) Lee Callaghan
(2) Kevin Chandler
(3) Michael Gomez
(4) Robert Shallis
(5) Sean Talbot

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.


Thursday, 21st January 1999

Lord Justice Judge

This is an appeal by the defendants from the judgment of Popplewell J on 26th March 1997 when, after a full hearing, he ordered that they should be restrained until after 1st May 1997 from:

"Doing whether by themselves or by their joint or respective servants or agents or any of them that is to say:

canvassing or soliciting any person, company, or firm, to transact, or transacting on behalf of any present or intended future competitor of the plaintiff including (without prejudice to the generality of the foregoing) Liberty EurAsia Limited, any dealing, inter-dealing, or broking business, in Belgian Government Bonds on the London Market."


Various consequential undertakings and cross-undertakings followed. The essential issue for decision in the appeal is whether the restraining injunction was properly made. If the appeal is successful all the relevant questions of damages will be remitted for decision by a Judge in the Queen's Bench Division.


Cantor Fitzgerald International (CFI) is an unlimited company, incorporated in the United Kingdom, owned 99% by a partnership vested in New York. Liberty EurAsia Limited (Liberty) is a major competitor. The five defendants were members of the seven-man team of inter-dealer brokers employed by CFI on its Belgian Government Securities Desk. At the material time they dealt in Bonds, called "OLOs", issued by the Belgian Government, with various maturity dates and rates of interest. On 8th January 1997 the defendants purported to resign from the employment of CFI by handing in a joint written notice of termination of employment. They intended to start work with Liberty.


Earlier rivalry between CFI and Liberty had led to extensive litigation between them, both in London and New York. One of the major causes of dispute arose from allegations that teams of brokers were "poached", and a mutual agreement to end the practice was entered into between CFI and Liberty on 25th April 1996. This expired on 31st December 1996. When these defendants sought to join Liberty, CFI's entire German desk (15 brokers) left simultaneously, with the same purpose.


By letter dated 30th January 1997 undertakings were sought from the defendants that they would not work for Liberty pending an inter partes application for interlocutory injunctions. The appropriate undertakings were given by their solicitors on the following day. The writ was issued on 31st January. On 7th February the undertakings offered by the defendants' solicitors were included in a consent order, and eventually, after an inter-partes hearing on 19th February 1997, Mr David Donaldson QC, sitting as a Deputy Judge of the Queen's Bench Division, gave directions for a speedy trial of the issues relating to injunctive relief. The hearing before Popplewell J began on 17th March and judgment was given on 26th March.


The essential findings which led to his order were that CFI had not repudiated the defendants' contracts of employment and that the defendants, in purporting to terminate their contracts of employment on 8th January 1997, were themselves in repudiatory breach.


For the purposes of this appeal the defendants' claim that their contracts of employment were repudiated by CFI is based on two grounds. They say that CFI wrongly failed or refused to comply with the agreed arrangements in relation, first, to the defendants' salary packages, connected in particular with assurances given to them about tax liabilities, and second, to compensation to be paid to them for accepting new "transparency" systems for the conduct of business.


The salary package


The precise nature of the salary packages has been somewhat elusive. The case proceeded without pleadings. The arguments before the judge shifted during the hearing. On this issue therefore a detailed recital of the evidence is necessary.


In late 1995 the brokers on the Belgian desk threatened to resign unless the head of their desk was removed. The reasons for their dissatisfaction need no analysis, but when ventilating their discontent, they pointed out that they had been offered a much more advantageous salary arrangement by yet another of the plaintiff's business competitors. The dispute was resolved. Through Mr Pover, their Senior Managing Director, CFI agreed to transfer the head of the desk elsewhere and improve the defendants' financial packages. Mr Pover did not seek directly to match the offer made by the competitor, but offered enhanced salaries and, a regular feature of such packages, a forgiveable loan of £100,000. It was anticipated that this payment would not attract any tax liability until it was repaid four years later, and at the rates then current, that each defendant's liability would not exceed £40,000.


On 1st December 1995 the defendants signed their new contracts of employment. These provided for a fixed salary to be paid semi-monthly in arrears, and payment of a bonus calculated in accordance with the terms set out in the contract. Condition 4(c) provides:

"In recognition of the significant contribution you are expected to make to the Company you will be entitled to a one-time loan, payable by the Company within 15 days after the signing of this contract, in the amount of £100,000 subject to the following. The interest accruing on the loan, at the rate referred to in the Taxes Act section 160, will not be payable until the end of the loan term. The loan shall be for a term of 4 years……. The loan and interest thereon shall be secured by a promissory note executed by you in favour of the Company. Subject to the foregoing, on the fourth anniversary……the loan and interest that has accrued thereon shall be forgiven and waived in its entirety by the Company and you shall be under no repayment obligation."


Cheques for £100,000, representing the loan, were drawn for each defendant, but Mr Pover became concerned that provision should be made at the outset for the long term tax liability.


Mr Falkner, the general counsel of CFI, deposed in his first affidavit that

"23. Mr Pover explained to the brokers at the time that the money was going to be distributed net of tax—effectively just as bonuses might have been distributed, had any in fact been due.….. Although the £100,000 payment would not initially attract tax it would when forgiven in four years time attract a tax liability for each of the brokers at the then current tax rates (ie £40,000 at the prevailing rates). Mr Pover pointed out to the brokers concerned that some provision would have to be made by them for this tax liability. Mr Pover was concerned that they might not make effective provision.….. Accordingly, what was agreed between the brokers and Mr Pover was that instead of receiving the gross sum of £100,000 provided for in clause 4(c) of their employment contracts as a forgiveable loan each of the brokers would receive £60,000 (ie £100,000 less income tax at the higher rate) immediately by way of a non forgiveable loan (his underlining) and that they would receive the further guaranteed bonus of £100,000 upon completing four year's employment under their new contracts. This variation to the provision in clause 4(c) of the contracts of employment was intended to provide each of the brokers with the immediate value of £60,000 and to secure that funds were available at the end of 4 years to meet any tax liability. Cheques were issued on 5th December 1996 in the sum of £60,000 replacing the initial cheques of £100,000. The replacement cheques were handed to each of the members of the team………

24. The revised payment scheme was to achieve the desired object in the following way:

(I) By making the £60,000 payment a non forgiveable loan no tax liability would arise on it in four year's time because the loan would have to be repaid in full by each of the brokers.

(ii) In order to ensure that each of the brokers had sufficient funds in four year's time to repay the £60,000 Cantor agreed to pay them at that date a guaranteed bonus of £100,000. That £100,000 would itself attract a liability for tax (as an emolument of their employment) which, at the then current rates of higher tax, would be 40%.

(iii) Thus £60,000 of the guaranteed bonus of £100,000 would go to discharge the non forgiveable loan of £60,000 and £40,000 of the guaranteed bonus sum would go to discharge the brokers' tax liability thereon.

25. Accordingly two further agreements, the loan agreement and the guaranteed bonus agreement, were entered into by each of the brokers within a few days of them having signed their new employment contracts."


In his affidavit Mr Pover deposed that the arrangement he was offering excluded any prospect of tax being payable on the £60,000 if the loan was forgiven. In his witness statement Mr Pover repeated that the "only assurance" he had offered to the defendants was that the plaintiffs, by retaining the sum of £40,000, "would account to the Inland Revenue for any such...

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