Lavarack v Woods of Colchester Ltd

Mr Lavarack is a very able man of business. He is now only 51, but he has achieved pneomenal success. In 1954 he was employed by Woods of Colchester as their European represent tative. His headquarters were in Paris. He expanded their European business greatly and formed a French subsidiary called Compagnie Francaise Woods, of which he became the head. From 1954 to 1961 he was paid are taining fee and a commission on sales. His earnings increased apace, so much so that in the year 1960/61 he received a retaining fee of £1,000 and commission of £5,800, making £6,800 or thereabouts. Then the Company changed the system. They instituted a bonus scheme for their employees. Each employee was paid a salary and allocated so many points, according to his position, entitling him to participate in the scheme. Mr Lavarack was allocated 5,600 points. The result was that in 1961/62 Mr Lavarack was paid a salary of £4,000 and a bonus of £5,500, making £7,500 or thereabouts.

In 1962 the Company asked Mr Lavarack to enter into a service agreement. He did so. It was for five years and was again on the basis of a salary of £4,000 a year and a bonus. It was embodied in writing and contained the following terms:-

"1. Mr Lavarack shall be employed by the Company in the capacity of European Sales Manager ….

2. Mr Lavisrack' employment hereunder shall be deemed to take effect as from the 1st April, 1962, and continue until determined by six months' notice in writing given by either party to the other, expiring on or at any time after 31st March, 1967…

4. The Company shall, during the continuance of his employment hereunder, pay Mr Lavarack as remuneration for his services a salary at the rate of not less than £4,000 per annum payable monthly on the last day of each month and such bonus (if any) as the directors of the Company shall from time to time determine.

9. Mr Lavarack shall not during the continuance of his employmenthereunder be engaged or interested (save as the holder of shares or securities of a Company quoted or dealt in on are cognised Stock Exchange in the United Kingdom or elsewhere) either directly or indirectly in any concerns other than that of the Company save with the written consent of the Company".

By correspondence the Company gave its written consent to Mr Lavarack being a director of a French Company called Martindale Electrique and acquiring 25 per cent, of the ordinary share capital of that Company.

Thenceforward for over two years Mr Lavarack served Woods of Colchester and its French subsidiary, Compagnie Francaise Woods. He received these sums for his work:-

Unfortunately differences arose and on 27th July, 1964, the Company dismissed Mr Lavarack at a moment' notice, sayings "This letter is to give you formal notice of termination of your service agreement dated 18th July, 1962, with effect from today". Inasmuch as the agreement had still two years and eight months to run, Mr Lavarack was clearly entitled to compensation. On 9th November, 1964, he issued a writ claiming damages for wrongful dismissal. He took out a summons under Order XIV. The Company charged him with fraud. The charge was baseless. So baseless, indeed, that it did not give rise even to an issue fit to be tried. On 28th April, 1964, Mr Lavarack obtained judgment for damages to be assessed. In December 1965 Master Jacob sat to make the assessment. He assessed the damages at £2,945. Mr laverack says this is too small. The Company cross appeal saying it is too large.

In assessing damages for wrongful dismissal, the Court,as I understand it, has to make two calculations: First, the Court has to consider what the position would have been if his old employment had run its full course. It must calculate the sums which he might reasonably have expected to receive in his old employment. Secondry, the Court has to consider what the plaintiff has done since his dismissal. It is his duty to act reasonably in mitigation of damages. If he has acted reasonably and obtained new employment, the Court must calculate the sums which he has received for his work in his new employment during the run-off period. If he has not acted reasonably, the Court must calculate the sums which he might reasonably have been expected to receive if he had acted reasonably. The damages then are assessed by giving him the sum which be would have received in his old employment, less the sum to be deducted in mitigation of damage.

THE EARNINGS IF HIS OLD EMPLOYMENT HAD CONTINUED

There are three items under this head. Two were beyond dispute.

Item 1:

If his employment had continued, Mr Lavorack would have received a salary at £4,000 a year from the date of dismissal, 27th July, 1964, to the end of the term, 31st March, 1967

£10,710. 12S. 5d.

Item 2:

A bonus for the year 1964/5 which was declared at a Board Meeting on 22nd May, 1964 (before his dismissal)

£2,613 2s. Od.

Item 3:

Item 3 is disputed. It concerns the future bonuses for the years 1965/1966 and 1966/1967. Is the plaintif entitled To compensation for loss of these bonuses or their equivalent? The plaintiff had no legal right to receive a bouns every year. It was entirely in the discretion of the directors. Hence it was suggested to us that he was not entitled to receive compensation for loss of future bonuses. Is cannot assept this contention.When a servant is wrongfully dismissed from his employment, he is entitled to compensation for the full amount of all the emoluments and allowances which he would have earned "but for the breach of contract, see Addis v. Gramophone Co.1909 Appeal Cases, p. 488, at p. 504: and this includes not only salary and commission to which he is entitled by law, but also bonuses which he might reasonably expect to receive from his employer. For the simple reason that by the wrongful dismissal, the employer has deprived him of the chance of receiving such bonuses; and he is entitled to compensation for the loss of the chance, even though he had no legal right to receive them, see Richardson v. Mellish (1824) 2 Bingham, p. 229, at p. 239 by Chief Justice Best: Inchbald v. Western Neilgherey Coffee Co. (1864) 17 Common Bench New Series at p. 740 by Chief Justice Erie, at p. 743 by Mr Justice Keating: Chaplin v. Hicks, 1911, 2 King' Bench, p. 786. This loss of a chance is a regular head of compensation. Thus, a hair dresser' assistant, who is wrongfully dismissed, is entitled to compensation for the loss of the chance of earning tips, even though he has no legal right to them, see Hanubeyis v. Leon, 1919, 1 King' Bench, p. 208. Likewise, when a man had a good chance of receiving a pension under a contributory pension scheme, he was entitled to compensation for the loss of it, even though the employer had a right to discontinue the scheme, see Bold v. Brough Nicholson, &Hall1964, 1 Weekly Law Reports, p. 201 at p. 211.

An attempt was made before us to bring this case within the rule that "where there are several ways in which a contract may be performed, that mode is adopted which is the leastprofit able to the plaintiff, and the least burdensome to the defendant", see Cockburn v. Alexander, 6 Common Bench, p. 791 at p. 814 by Mr Justice Maule. But that has no application here. There were not two ways in which this contract could be performed. There was only one way, namely, by the plaintiff performing his service and the defendants paying him for it. In such a case the compensation is to be based on the probabilities of the case - onthe remuneration which the plaintiff night reasonably be expected to receive - and not on the bare minimum necessary to satisfy the legal, right, see Abrahams v. Reiach, 1922, 1 King' Bench, p. 477; Withers v. General Theatre Corporation, 1933, 2 King'" Bench, p. 536.

I am prepared to hold, therefore, that if the bonus scheme had been continued, the plaintiff would have been entitled to compensation for loss of future bonuses. But a further point arises. We know that in fact the bonus scheme was discontinued in the year after Mr Lavarack left. In 1965 a new managing director was appointed. He rearranged the basis of remuneration of the employees. Instead of their receiving a salary and a bonus (based on a bonus scheme) he replaced it with a fixed salary and no bonus. Most of the employees got an increase in salary and no bonus. (Two at the very top got a decrease in salary and no bonus, but we do not know why). But, so far as Mr Laverack is concerned, if he had not been dismissed, his salary would have been increased for the rest of his term. In lieu of a bonus, his salary would have been increased by £1,000 a year. The Master' finding was clear and cannot be disputed: "If the service agreement had not been terminated and the plaintiff had continued in the employment of the defendants, his salary for the years 1965/66 and 1966/67 would have been increased by the annual sum of £1,000 and that, therefore, he has lost the sum of £2,000 by way of increased salary which he would otherwise have received". Accordingly, the Master held that there should be added:

Item 3:

It is said, however, that once the bonus...