Contract of service - Breach of contract - Inducing breach of contract

BGC Capital Markets (Switzerland) LLC v Rees and others: Queen's Bench Division (Sir Raymond Jack sitting as a judge of the High Court): 27 July 2011

The claimant (BGC) and the second to fourth defendants, T, were substantial groups of companies carrying on businesses of inter-dealer broking, acting as intermediaries for banks and other financial institutions. On 5 June 2007, the first defendant, R, commenced work for the BGC, as head of the company's Swiss francs forward desk under a contract of 6 March.

The contract was for an initial period of four years with an additional notice period of three months, and the earliest R might have left under that provision was 4 September 2011. Clause 3(d)(ii) of R’s contract stipulated that a loan of £144,525 to him became immediately repayable when he wrongly terminated his contract.

Clause 15.2.3 of the terms and conditions of the contract imposed post-termination restrictions on R for six months after its termination, to be enforceable in Switzerland, UK, Italy and France. Clause 15.2.32 included a ‘non-deal covenant' that stipulated that R should not ‘become interested in (as an employee) any business activity that is in competition with the Restricted Business’.

It was agreed that ‘the Restricted Business’ for the purpose of the clauses was the forward Swiss desk. Article 340 of the Swiss Code of Obligations provided that a prohibition had to be appropriately restricted, such that it did not ‘unfairly compromise the employee’s future economic activity’. On 6 April 2009, R gave notice to BGC that he was treating the contract as ended by reason of BGC's reduction of his salary. That had been done by BGC under a term of the contract permitting a reduction if the desk's earnings failed to meet a defined level.

On 25 April, R entered a contract of employment with T and he commenced work as a broker on T's forward cable desk on 18 May. BGC issued proceedings claiming damages by way of loss of profits from R for breach of his contract by terminating it on 6 April 2009 and damages for breach of the post-termination restrictions on his employment contained in the contract. There was also a claim for misuse of confidential information. BGC further claimed from R the sum of £144,525, the net amount of a 'forgivable loan' paid to R under his contract.

R counterclaimed, against BGC damages for constructive dismissal. BGC claimed damages against T for inducing R's breaches by offering him a job. It was agreed that the issues arising in connection with BGC's case that T had induced R to leave his employment in breach of contract were to be determined in accordance with English law.

The issues for consideration were, inter alia: (i) whether BGC was entitled to damages for loss of profits from R for breach of his contract; (ii) whether R was liable for breach of the post-termination restrictions on his employment, the issue being whether in working on the T forward cable desk, R was in competition with the Swiss desk; (iii) whether the company was entitled to £144,525, the net amount of a 'forgivable loan' paid to R under his contract; and (iv) whether T were liable in damages for inducing R's breaches by offering him a job.

The court ruled: (1) The approach to the loss of profit claims in respect of breach of contract of employment was to compare the financial position of a claimant as it was with the balance of the contract unperformed with that position if the defendant had not terminated the contract (see [71], [88] of the judgment).

In the instant case, BGC had established that R had wrongly terminated his contract of employment. BGC was entitled to operate the salary reduction provision as it had done subject to whether the resulting salary was appropriate remuneration. In the instant case, the salary in question was appropriate remuneration. Accordingly, R had no good ground to determine his contract.

However, had R not terminated his contract, he would have worked for BGC in London for six months and would then have left in accordance with V’s offer. BGC was entitled to recover the whole of that sum but it was to be set off against any claim for lost profits.

Taking all matters into account, BGC had failed to show that it had suffered any loss in respect of a six-month period. Further, release payment damages were not available under either under Swiss law or English law (see [68], [71], [78], [81], [91], [97] of the judgment). Accordingly, BGC’s claim for damages failed (see [151] of the judgment).

Wrotham Park Estate Co v Parkside Homes Ltd [1974] 2 All ER 321 considered; A-G v Blake (Jonathan Cape Ltd third party) [2000] 4 All ER 385 considered; Horkulak v Cantor Fitzgerald International [2003] IRLR 756 considered; WWF-World Wide Fund for Nature (formerly World Wildlife Fund) v World Wrestling Federation Entertainment Inc [2008] 1 All ER 74 considered; Giedo Van Der Garde BV v Force India Formula One Team Ltd [2010] All ER (D) 122 (Sep) considered.

(2) In order to be enforced in England, a restriction on post termination employment had to be enforceable under both its proper law and English law (see [101] of the judgment).

In the instant case, it could not be said that on the basis of minimal trading in forward cable that the two desks had been in competition with one another. If that was wrong, the court would nonetheless hold that to prevent R from working on T’s forward desk would be ‘an unfair compromise of R’s future activity pursuant to art 340a of the Swiss Code'.

BGC did not have a protectable interest in preventing R from doing business in forward cable with banks and their employee traders with whom he had done business in Swiss francs because BGC had no business in forward cable. However, it was accepted that BGC had an interest in respect of R’s specific trades in Swiss francs which were in breach of cl 15.2.2, whereby he had agreed not to transact business with clients he had dealt with at BGC (see [104]-[105], [107] of the judgment).

(3) In respect of the loan to R, the contract was clear as to how cl 3(d)(ii) should operate and there was nothing inconsistent with Swiss law in its provisions. Accordingly, BGC was entitled to recover the whole of the loan (see [98], [153] of the judgment).

(4) It was settled law that the defendant had to intend to cause a breach of the contract, which had involved knowledge of the existence of the contract and that it would be broken, or at least turning a blind eye, to whether it would be broken or not (see [147] of the judgment).

Applying settled law, it was clear that the defendants did not have the requisite intention to inducing R to terminate his contract. Accordingly, BGC's claim against T and R failed (see [147] and [153] of the judgment).

BGC's claim against R to recover the loan succeeded. It's claim against R for breach of cl 15.2.2 succeeded but its claim for damages failed. BGC's other claims against R failed and its claim against T failed (see [153] of the judgment). OBG Ltd v Allan; Douglas v Hello! Ltd (No 3); Mainstream Properties Ltd v Young [2007] 4 All ER 545 considered.

Jonathan Cohen (instructed by McDermott Will & Emery UK LLP) for BGC. Mohinderpal Sethi (instructed by Edwards Angell Palmer & Dodge UK LLP) for the first defendant. Simon Devonshire QC (instructed by Rosenblatt) for the second, third and fourth defendants.