Tullett-Prebon Group Ltd v El-Hajjali
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE NELSON,Mr Justice Nelson |
| Judgment Date | 31 July 2008 |
| Neutral Citation | [2008] EWHC 1924 (QB) |
| Court | Queen's Bench Division |
| Docket Number | Case No: HQ007X00670 |
| Date | 31 July 2008 |
[2008] EWHC 1924 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Nelson
Case No: HQ007X00670
Daniel Oudkerk (instructed by Rosenblatt) for the Claimants
Chris Quinn (instructed by Archon) for the Defendant
Approved Judgment
Hearing dates: 14 th– 17 th January 2008
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
This is a claim for damages for breach of an employment contract made in writing on 24 September 2006 between the Claimants and their prospective employee, the Defendant. The Claimants and Defendant remained prospective employer and employee as although an employment contract was signed by them, the Defendant changed his mind after signing the contract and before joining the Claimants, deciding to remain with his original employers, Link Asset and Securities Company Limited. The claim is for liquidated damages under clause 19.4 of the contract or alternatively, for damages to be assessed. On 25 June 2007 it was ordered that the Court should first try two issues, whether clause 19.4 of the contract was a lawful liquidated damages clause or a penalty clause, and whether, if causation was relied upon by the Defendant, which it is, he is not in any event liable for his breach of the contract because no loss has been caused by that breach.
In determining these issues I have had the benefit of opening and closing written submissions by both parties together with oral submissions and evidence from Mr Marcus Bolton and Mr Simon Drake directors of the prospective employer Claimants, Peter Marshall the Claimants' former in house legal adviser, Mr Philip Haberman the Claimants' accountancy expert, Mr Ghaleb El-Hajjali the prospective employee Defendant, and Mr Charles Davies the group chief executive of the Link Asset and Securities Company Limited, the Defendant's then and present employers.
The Facts.
The Claimants are a leading inter-dealer brokers with a wide range of activities including global foreign exchange, commodities, interest rates and equity markets. The Defendant is a Senior Derivatives Broker and manager of Variance Swaps broking at Link. The Claimants and Link were competitors in some areas and there had in the past been some disputes between them over employees.
Both the Claimants and Link deal in sophisticated financial instruments. Variance Swaps are part a suite of specialist financial products known as 'Exotic Equity Options'. The parties found some difficulty in giving a precise definition of the more specialist financial instruments used by them but fortunately this creates no disadvantage as it is sufficient for the purposes of this litigation to understand their essential nature rather than their finer detail. Standard equity options, involving call options or put options in which the investor is seeking to profit from his assessment of the likely movement of the market in a particular stock towards or beyond the strike price at which he has purchased his option, are called Vanilla Options. Exotic Equity Options are derivative products other than Vanilla Options. They are considerably more complex than Vanilla Options. Variance Swaps are a subset of Exotic Equity Options and involve trading on the volatility of the market. The period over which the volatility may be measured could be days or even years. If the volatility of the underlying asset exceeds the expected volatility over the period set by the buyer and seller at the point of trade the buyer of the Variance Swaps will receive money from the seller but if the reverse is the case and the volatility is less than expected at the point of trade the buyer must pay money to the seller. Mr Davies described Variance Swaps as a nice clean bet between two parties which nevertheless had a properly assessable risk and a commercial logic behind it. It was in Variance Swaps that the Defendant's expertise lay. He is a highly regarded broker with considerable expertise in this field.
At the more sophisticated end of the Exotic Equity Options trade are Pure Exotic Equity Options. There are only of the order of 4 or 5 major players and true specialists in this complex market. This may involve multi-layered transactions of which there are several interlinked options dependant for their success upon different factors. The structure which is set up may be based upon the performance of the index or a single share and the performance and hence potential profit or loss could be assessed either during the period of the option or at its end. Such complex options structures are sometimes set as an insurance or to lay off risks in some other area of the market. They may therefore involve devising a structure which effectively bets on making money from the materialisation of a business risk which it is feared may occur. The Defendant was not an expert in Pure Exotic Equity Options, but his experience and expertise in Variance Swaps could have enabled him to develop into those products, in part because the client base is similar.
The Claimants had decided in early 2006 that there were significant profitable business opportunities in Exotic Equity Options and had as a consequence decided to hire a senior specialist Variance Swaps Broker. They did not have any significant presence in the trading of Exotic Equity Options and wished to develop their own expertise in this area. They regarded the establishment of a Variance Swaps desk as a useful stepping stone into Exotic Equity Options and the pure variety of those. They sought the assistance of recruitment agents and Mr El-Hajjali was identified as a proven Variance Swaps Broker with a substantial revenue stream in that kind of brokerage, and a well established client base.
Meetings and negotiations took place between the Claimants and the Defendant for some six months. The Defendant was represented in those negotiations by his then solicitors Mischcon de Reya. The Defendant's contract with Link had a somewhat obscure notice clause upon which the Defendant sought the opinion of a leading employment silk, Mr Selwyn Bloch QC.
The contemporaneous e-mails show that the Claimants were informed that the Defendant was a £2 million p.a. broker who earned a million or so p.a. but his basic was only £30,000 p.a. His P60 was sought to confirm his current income so as to give “100% credibility” to his verbal claims. (E-mails 4 August 2006, 24 August 2006). The Defendant produced his P60 for the year 2005/6 which showed that his earnings for the year were £984,439.53p. The Defendant said in evidence that he informed the Claimants that this sum included a substantial advance payment for his pension for the tax year 2005/6 and I accept that he did. Like many brokers, Mr El-Hajjali, was paid substantially upon the basis of commission, so it was possible to calculate the revenue which he was producing for his then employers. Mr Marcus Bolton told me that when by arrangement, he met Mr El-Hajjali on 11 July 2006 in a bar at Covent Garden he focused his questions on the Defendant's revenue stream, the depth of his client relationships and broadly what he felt he could earn in terms of gross brokerage revenue. No detailed figures or expectations were discussed but Mr Bolton wanted to satisfy himself, and did, that Mr El-Hajjali was the right person for the role.
The Defendant agreed in cross-examination that the Claimants would have wanted to know what his revenues were and he would have wanted to tell them what they were so that they could pay him appropriately. He agreed that it was likely that he did in fact tell them what his revenue was even though he had been unsure that he had done so in his witness statement. He accepted that he gave them his P60 and Link contract so that they could ascertain his revenue. He also agreed that the figure of £984,000 on his P60 together with the pension payment of about £250,000 which he been paid gave remuneration of about £1.2 million which would demonstrate a revenue of about £2.2 M. (Transcript Day 3 p52–54).
On the basis of the witness statements, the oral evidence and the contemporaneous e-mails, I am satisfied that the Defendant did in fact discuss his revenue figures with the Claimants at the various meetings which took place as well as his income, and that the Claimants were aware, both from the information given to them by the Defendant and by their own calculations based upon his remuneration figures, that he achieved a revenue of the order of £2M at Link. It was on the basis of this revenue and his hope that he might make more if he started shortly that the Defendant sought, and obtained the Claimants' agreement to, a guaranteed remuneration package of £1.2M for his first year.
During the course of tough negotiations the Defendant had increased his demands in relation to his salary to £300,000 a quarter and wanted his new job title to be 'Head of Exotic Equity Options'. He hoped to make much more than £300,000 per quarter and hence generate more revenue than £2.2M. It is clear that he expected or certainly hoped to do well for the Claimants, and the Claimants hoped and expected him to do well for them. Correspondingly the Defendant considered that Link might make a loss as a result of his departure and sought an indemnity from the Claimants in case he should be sued by Link.
The Defendant's contract with Link required notice to be given on only two specified dates, 24 March or 24 September in each calendar year. A 3 months notice period had to be given, and expired at the end of the six month period following the end of the notice...
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