Murray v Leisureplay Plc
| Jurisdiction | England & Wales |
| Judge | Lady Justice Arden,Lord Justice Clarke,Lord Justice Buxton |
| Judgment Date | 28 July 2005 |
| Neutral Citation | [2005] EWCA Civ 963 |
| Docket Number | Case No: A2/2004/1827 |
| Court | Court of Appeal (Civil Division) |
| Date | 28 July 2005 |
[2005] EWCA Civ 963
Lady Justice Arden
Lord Justice Clarke and
Lord Justice Buxton
Case No: A2/2004/1827
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
STANLEY BURNTON J
Mr Edward Bannister QC (instructed by Bray Walker) for the appellant
Mr Richard Salter QC and Mr Michael Lazarus (instructed by Ingram Winter Green) for the respondent
Following the trial of this action, Stanley Burnton J gave a careful and lengthy judgment in which he dealt with a number of difficult issues arising out of the dismissal by the respondents ("MFC") of the appellant, Mr Murray, as Chief Executive Director of MFC. That dismissal prompted Mr Murray to sue MFC under clause 17.1 of his service agreement dated 2 June 1998 with MFC ("the agreement"). This court is concerned only with the small number of issues in the action which are the subject of the present appeal and cross appeal. The first issue ("the penalty issue") is whether the clause in the agreement providing for the payment of a year's gross salary in the event of termination of Mr Murray's employment without one year's notice is unenforceable as a penalty. The second issue ("the amendment issue") arises only if the appeal against that holding is dismissed: the judge rejected an application at the start of the trial on the part of Mr Murray to amend his particulars of claim so as to include a claim for damages of £252,897 at common law. The third issue ("the section 320 issue") is whether under section 322 of the Companies Act 1985 ("CA 1985") MFC can recover from Mr Murray the costs which it incurred in an arrangement to acquire a company from Mr Murray made in breach of section 320 of the Companies Act 1985. The costs were incurred by MFC in instructing accountants to prepare a draft due diligence report on the company to be acquired and in hiring an additional director to assist with the acquisition. Section 320 (as amended) of the CA 1985 invalidates transactions and arrangements involving the acquisition of assets worth more than £100,000 from a director without a resolution at general meeting. The judge held that MFC had entered into an agreement in breach of section 320 when it entered into an agreement for the acquisition from Mr Murray of the share capital of Blue Planet Investment Management Ltd ("BPIM"). The fourth and last issue on this appeal ("the section 727 issue") is whether if Mr Murray is liable for those costs the court should grant him relief under section 727 of the CA 1985.
The Penalty Issue
The agreement provides in material part as follows: —
"1. INTERPRETATION
1.1 In this Agreement the following words and expressions have the meanings set opposite them: …
(a) "Wrongful Termination"
(b) termination of this Agreement by the Company except in accordance with any of clauses 3.1, 3. 2, or 15; or
(b) termination of this Agreement by the Executive in circumstances which amount to the acceptance of the Company's repudiary [sic] breach of contract …
2. APPOINTMENT
2.1 The Company shall employ the Executive as chief executive director and the Executive shall serve the Company as chief executive director …
3. TERM
3.1 The Executive's employment shall be treated as having commenced on 1 December 1997 and he shall be employed until the expiry of not less than one year's written notice given by either party to the other so as to expire at any time, save that following the execution of heads of agreement relating to the acquisition of a building society or other financial institution the Executive's employment shall be terminable by not less than three years' written notice given by either party so as to expire at any time. The Company reserves the right to terminate the Executive's employment by payment in lieu of notice.
3.2 Notwithstanding the provisions of clause 3.1 the Executive's employment shall terminate automatically when the Executive reaches the age of 70 years …
5. REMUNERATION
5.1 As remuneration for his services hereunder the Company shall pay to the Executive a salary at the rate of one hundred and twenty five thousand pounds (£125,000) per annum (which shall be deemed to accrue from day to day) payable in arrears by equal monthly instalments on the fifteenth (15) day of each month such salary being inclusive of any fees to which the Executive may be entitled as a director of the Company.
5.2 The said salary shall be reviewed by the Remuneration Committee of the Board from time to time (but not less frequently than annually) and the rate thereof may be increased with effect from any such review date …
12. RESTRICTIVE COVENANTS
12.1 The Executive shall not without the prior written consent of the Board (such consent to be withheld only so far as may be reasonably necessary to project the legitimate interests of the Company or any Associated Company):
(a) For a period of 12 months after the termination of his employment hereunder be engaged or interested (whether as a director, shareholder, principal, consultant, agent, partner or employee) in any business concern (of whatever kind) which shall in the United Kingdom be in competition with the Company or with any Associated Company and whose activities include the acquisition of building societies, and other financial institutions including life insurance companies and friendly societies being activities of a kind with which the Executive was concerned to a material extent during the period of one year prior to the termination of his employment with the Company PROVIDED ALWAYS that nothing in this clause 12.1(a) shall restrain the Executive from engaging or being interested as aforesaid in any such business concern insofar as his duties or work relate principally to activities of a kind with which the Executive was not concerned during the period of one year prior to the termination of his employment hereunder:
(b) For a period of 12 months after the termination of his employment hereunder either on his own behalf or on behalf of any other person, firm or company directly or indirectly solicit or entice or endeavour to solicit or entice away from the Company or from any Associated Company any employee of executive or managerial status engaged in its or their business and with whom the Executive had dealings at any time during last year of his employment hereunder.
12.2 Whilst each of the restrictions in clauses 12.1(a) and 12.1(b) are considered by the parties to be reasonable in all the circumstances as at the date hereof it is hereby agreed and declared that if any one or more of such restrictions shall be judged to be void as going beyond what is reasonable in all the circumstances for the protection of the interests of the Company and/or any Associated Company but would be valid if words were deleted there from the said restrictions shall be deemed to apply with such modifications as may be necessary to make them valid and effective and any such modification shall not thereby affect the validity of any other restriction contained herein.
13. TERMINATION BY RECONSTRUCTION OR AMALGAMATION
If the employment of the Executive hereunder shall be terminated by reason of the liquidation of the Company for the purposes of amalgamation or reconstruction or as part of any arrangement for the amalgamation of the undertaking of the Company not involving liquidation and the Executive shall be offered employment with the amalgamated or reconstructed company on terms not less favourable than the terms of this Agreement the Executive shall have no claim against the Company in respect of the termination of his employment by the Company…
17. LIQUIDATED DAMAGES
17.1 In the event of a Wrongful Termination by way of liquidated damages the Company shall forthwith pay to the Executive a sum equal to one year's gross salary, pension contributions and other benefits in kind assuming that salary, pension contributions and benefits in kind had continued to be paid at the same rate as immediately prior to the date of Wrongful Termination, save that following the execution of heads of agreement relating to the acquisition of a building society or other financial institution the Company shall forthwith pay to the Executive a sum equal to three years' gross salary, pensions contributions and other benefits in kind assuming that salary, pensions contributions and benefits in kind had continued to be paid at the same rate as immediately prior to the date of Wrongful Termination. In the event of a dispute as to the value of any benefit in kind the amount payable shall be determined by the Company's auditors.
17.2 Subject to any rights accrued at the date of termination of the Executive's employment under the provisions of any pension scheme, option scheme or bonus or benefit plan of the Company, any payment of liquidated damages by the Company shall be made in full and final settlement of all and any claims arising out of the Executive's employment, its termination, or his ceasing to hold the office of director of the Company or any associated company …"
At the trial, the judge heard a number of witnesses, including Mr Murray. He concluded that Mr Murray was an unreliable witness ([70]). The agreement was signed by two directors, namely Mr Brian Rankin and Mr John Redwood. The judge found that although the agreement had been approved by the board of MFC in its original form (which was less favourable to MFC) and in the amended form in which it was finally executed, Mr Murray "was able within broad limits to determine the terms of his service agreement…" ([...
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