B e f o r e :
THE MASTER OF THE ROLLS
(Lord Denning)
LORD JUSTICE DIPLOCK
and
LORD JUSTICE RUSSELL
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Between:
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DENNIS LAVARACK
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Plaintiff Appellant
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v
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WOODS OF COLCHESTER LTD.
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Defendants Respondents
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(Transcript of the Shorthand Notes of The Association of Official Shorthandwriters Ltd.,
Room 392, Royal Courts of Justice, and 2, New Square, Lincoln's Inn, London, W.C.2.)
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MR M. LITTMAN, Q.C. and MR A. LLOYD (instructed by Messrs Theodore Goddard & Co,)
appeared as Counsel for the Appellant
MR D.P. CROOM-JOHNSOH, Q.C. and MR LEONARD LEWIS (instructed by Messrs Clifford Turner & Co.)
appeared as Counsel for the Respondents.
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HTML VERSION OF JUDGMENT
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Crown Copyright ©
THE MASTER OP THE ROLLS: Mr Lavarack is a very able man of business. He is now only 51, but he has achieved phenomenal success. In 1954 he was employed by Woods of Colchester as their European representative. 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. Prom 1954 to 1961 he was paid a retaining 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 £3,500, 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 Lavarack's 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 employment hereunder be engaged or interested (save as the holder of shares or securities of a Company quoted or dealt in on a recognised 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 Martin-dale 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:-
| |
|
£ |
s |
d |
| 1962/5: |
Salary |
3,643 |
15 |
8 |
| |
Bonus |
2,689 |
6 |
10 |
| |
|
6,333 |
2 |
6 |
| 1963/4: |
Salary |
3,379 |
18 |
1 |
| |
Bonus |
3,170 |
19 |
7 |
| |
|
6.550 |
17 |
8 |
Unfortunately differences arose and on 27th July, 1964, the Company dismissed Mr Lavarack at a moment's 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 Lavarack 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 bis old employment. Secondly, 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 he would have received in his old employment, less the sum to be deducted in mitigation of damage.
1. 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 Lavarack 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. 0d.
Item 3 is disputed. It concerns the future bonuses for the years 1965/1966 and 1966/1967. Is the plaintiff entitled to compensation for loss of these bonuses or their equivalent? The plaintiff had no legal right to receive a bonus 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. I cannot accept 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 Bests Inchbald v. Western Neilgherev Coffee Co. (1864) 17 Common Bench New Series at p.740 by Chief Justice Erle, at p.743 by Mr Justice Keating: Chaplin v. Hicks, 1911, 2 King's Bench, p.786. This loss of a chance is a regular head of compensation. Thus, a hairdresser's assistants 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 Manubene v. Leon, 1919, 1 King's 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 & Hall 1964, 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 least profitable 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 - on the remuneration which the plaintiff might reasonably be expected to receive - and not on the bare minimum necessary to satisfy the legal right, see Abrahams v. Reiach, 1922, 1 King's Bench, p.477; Withers v. General Theatre Corporation, 1933, 2 King's 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 Lavarack 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's 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:
Expected increase in salary (in lieu of bonus) of £1,000 a year for the years 1965/66 and 1966/67 £2,000.0s.0d
It is said, however, that once the bonus scheme was discontinued, the plaintiff lost any right to compensation for loss of future bonuses. I cannot see this. If the defendants, after he left, had discontinued their business altogether, or transferred it to someone else, he would not thereby be deprived of his compensation, see Turner v. Goldsmith, 1891, 1 Queen's Bench, p.544: Brace v. Calder, 1895, 2 Queen's Bench, p.253. Nor should he be deprived of it "because, after he left, they discontinued the bonus scheme and replaced it by a scheme for increase in salary. The defendants, by wrongfully dismissing him, have deprived him of the chance of getting either future bonuses or their equivalent - an increase of salary in lieu of bonus: and he is entitled to compensation for loss of the chance. The value of the chance was in this case considerable. The Master was satisfied that, if he had not been dismissed, he would have got £2,000 by way of increase of salary. So he has lost this sum. I think he should be allowed it under Item 3.
2. THE EARNINGS IN HIS NEW EMPLOYMENT
Immediately after his dismissal in July 1964 Mr Lavarack took up employment with a French Company called Martindale Electrique (which I will call Martindale), It was not in competition with Woods. But it was in a bad way. It had lost about £9,000, and had resources left of only £3,000, Mr Lavarack bought half the shares for £1,500 and became manager at a. salary of £1,500 a year.
In addition, Mr Lavarack took a financial interest in a new Company called Compagnie Francaise de Ventilation (which I will call Ventilation). This Company was highly competitive with Woods, Mr Lavarack would not, if his employment had continued, have been able to take a financial interest in it. Ventilation was formed by a former colleague, Monsieur Devaud, who also left Woods about the same time as Mr Lavarack, But Mr Lavarack did not work for this Company. He put money into it. He invested £14,000 in it.
The Master held that Mr Lavarack acted reasonably and properly in taking up employment with Martindale: and no doubt in making the investments. He held that Mr Lavarack must give credit for his drawings from Martindale, actual and prospective, for his work for them. These sums came to £3,717.9s.2d. for the period from August 1964 to March 1967. That item is not in dispute.
But a serious question arises as to Mir Lavarack's investments in Martindale and Ventilation. Ought he to give credit for his profits from them?
(i) Martindale: This Company has done well under Mr Lavarack's management. In the first seventeen months from August 1964 to December 1965 it made £4,000, largely "by reason of one special contract. In the following two years to December 1966 and December 1967 it is expected to make £2,500 a year. Thus the £9,000 loss will be made good and it will start to make profits in 1968.
(ii) Ventilation: This Company was under the management of M. Devaud. It made losses in its first and second years, 1965 and 1966, but it is expected to break even in the year 1967 and then to make profits in 1968.
The Master held that Mr Lavarack ought to give credit for his investments in both these Companies. He estimated the present value of the fixture profits at £1,500 in the case of Martindale and £7,500 in the case of Ventilation, and deducted those sums.
In my opinion the Master was wrong in requiring Mr Lavarack to give credit for his investment in Ventilation. He might have invested his money in any other Company and made similar profits. It is sheer speculation whether he would do better in Ventilation than in others. I realise that Mr Lavarack was only at liberty to invest in Ventilation because his employment was terminated. But nevertheless the benefit from that investment was not a direct result of his dismissal. It was an entirely collateral benefit, for which he need not account to his employers.
Martindale stands on a little different footing. His salary of £1,500 was very low for a man of his ability: and it looks as if he was getting, in addition, a concealed remuneration by a profit on his shares in the Company. In the course of the argument Lord Justice Russell worked out the estimated improvement in his equity over the period from August 1964 to March 1967, in so far as it was due to his work. It cones to £2,066. I think that Mr Lavarack should give credit for that figure in addition to the actual earnings of £3,717.9s.2d,
3. THE RESULTING CALCULATION
| |
£ s d |
| Earnings if his old employment had continued; Item 1: |
10,710-12-5 |
| Item 2: |
2,613- 2-0 |
| Item 3 : |
2,000- 0-0 |
| |
15,323-14-5 |
| Earnings in his new employment: Salary |
3,717- 9-2 |
| Capital Improvement |
2,066- 0-0 |
| |
5,783- 9-2 |
| The loss is therefore |
15,323-14-5 |
| Less |
5,783- 9-2 |
| Result: |
9,540- 5-3 |
There are a few additional adjustments. 1 per cent. must he deducted for the accelerated receipt of damages. That reduces it to £9,445.0s.0d. Also 6s.8d. in the £ on 4 per cent. must be deducted for income tax. That reduces it to £9,320.0s,0d. To this figure must be added a sum of £400 for an agreed item set out in paragraph 10 of the statement of claim. The final figure is, therefore, £9,720.0s.0d.
If I am in error in including the figure of £2,000 for Item 3, the final figure would he £7,768.
I would allow the appeal and assess the damage at £9,720: but as my brethren think the £2,000 should be excluded, the final figure will be £7,768.
LORD JUSTICE DIPLOCK: Upon all but one of the items both of loss and of mitigation of that loss which are in issue on this appeal, I agree with the judgment which has just been delivered by the Master of the Rolls, They appear to me to raise no question of law but turn upon the application of well known principles to somewhat unusual facts. Upon these items there is nothing I can usefully add to what the Master of the Rolls has already said. But as he indicated in the last few words of his judgment, I share with my brother Russell the misfortune of differing from the Master of the Rolls upon the item of £2,000 in respect of expected increase of salary in lieu of bonus which Master Jacob awarded to the plaintiff. As this does raise a question of law of some general importance, it is right that I should set out the reasons why I have reached the conclusion that this is not an item which the plaintiff can claim in an action for wrongful dismissal.
The plaintiff's service agreement with the defendant provided for his remuneration as follows: "(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". At the date of the service agreement there was a bonus scheme in existence which applied to all employees, some ten in number, of similar grade to the plaintiff. The amount of the bonus for the current financial year from March 31st was determined by the directors in April or May and notified to the employees, it being expressly stated: "The continuance of this scheme beyond 31st March" - of the following year - "is not implied".
The amount of the bonus for the year ending 31st March, 1965, had been notified to the plaintiff before his dismissal and it is conceded that the bonus for that year ought to be taken into account in the estimate of what the plaintiff would have earned had he continued in the defendants' employment.
But after 31st March, 1965, the defendants, for reasons of policy not dictated by a desire to reduce the plaintiff's claim for damages, abolished the bonus scheme. The Master held, I think rightly, that had the plaintiff remained in their employment such abolition would not have constituted a breach of his service agreement and that he would accordingly not have been entitled under that agreement to be paid any greater sum than £4,000 per annum after 31st March, 1965. But when the bonus scheme was abolished the defendants entered into negotiations with each of the employees of similar grade to the plaintiff who were in their employment at that date as a result of which the salary of each was adjusted in accordance with the defendants' view of his individual merits. In all cases the new salary was less than the sum of the previous salary and bonus. In two cases the new salary was actually less than the previous salary without bonus; in the remaining seven cases it was larger by amounts varying from £1,500 to £500 per annum. The learned Master took the view that if the defendants had retained the plaintiff in their employment - and, presumably, despite their manifest desire to dismiss him, also retained a favourable opinion of his merits - his salary would have been raised by £1,000 per annum. The learned Master accordingly treated his salary as being £5,000 per annum for two years after 31st March, 1965, instead of the contractual sum of £4,000 per annum.
I think he was wrong to do this. I accept as correct the principle stated by Lord Justice Scrutton in Abrahams v. Reiach, 1922, 1 King's Bench, p.477 at p.482, that in an action for breach of contract "a defendant is not liable for not doing that which he is not bound to do".
One of the most firmly established applications of this general rule was that expressed by Mr Justice Maule in Cockburn v. Alexander, 6 Common Bench, p.791, at p.814, thus: "Generally speaking where there are several modes in which the contract might be performed that mode is adopted which is the least profitable to the plaintiff, and the least burthensome to the defendant"; and the only question argued by counsel in Abrahams v. Reiach was whether or not the contract sued on was one which gave to the defendants an option as to the mode in which it might be performed. All three members of the Court held that it did not, but obliged the publishers to publish an edition of the book of a size which was reasonable in all the circumstances. Each member of the Court explicitly accepted as beyond argument the correctness of the rule expounded in Cockburn v. Alexander.
In Withers v. General Theatre Corporation, 1933, 2 King's Bench, p.536, which was relied upon by counsel for the plaintiff, the facts and the terms of the contract sued upon are not fully set out in the report and the only question on appeal was whether there had been a misdirection which justified a new trial. The main point discussed was a general one about the measure of damages for loss of publicity; the question of the defendant's option as to the mode of performance arose incidentally. On this question Lord Justice Scrutton in the leading judgment said (at p.55l)s "A jury ought not to be asked to award damages on what the plaintiff might have expected, but they ought to have been told that the question was what would be the most beneficial performance of the contract to the defendants, and that the damages could not exceed a basis calculated upon that". Lord Justice Greene dealt with this aspect of the case obiter only, and I do not read Lord Justice Romer's laconic judgment as indicating his dissent from what Lord Justice Scrutton had said.
The general rule as stated by Lord Justice Scrutton in Abrahams v. Reiach, that in an action for breach of contract a defendant is not liable for not doing that which he is not bound to do, has been generally accepted as correct and in my experience at the Bar and on the Bench has been repeatedly applied in subsequent cases. The law is concerned with legal obligations only end the law of contract only with legal obligations created by mutual agreement between contractors - not with the expectations, however reasonable, of one contractor that the other will do something that he has assumed no legal obligation to do. And so if the contract is broken or wrongfully repudiated, the first task of the assessor of damages is to estimate as best he can what the plaintiff would have gained in money or money's worth if the defendant had fulfilled his legal obligations and had done no more.
Where there is an anticipatory breach by wrongful repudiation, this can at best be an estimate, whatever the date of the hearing. It involves assuming that what has not occurred and never will occur has occurred or will occur, i.e. that the defendant has since the breach performed his legal obligations under the contract, and if the estimate is made before the contract would otherwise have come to an end, that he will continue to perform his legal obligations thereunder until the due date of its termination. But the assumption to be made is that the defendant has performed or will perform his legal obligations under his contract with the plaintiff and nothing more. What these legal obligations are and what is their value to the plaintiff may depend upon the occurrence of events extraneous to the contract itself and where this is so, the probability of their occurrence is relevant to the estimate.
The cases cited by the Master of the Rolls, only one of which was referred to in the argument at the hearing, do not in my respectful view involve any departure from this principle. In Richardson v. Mellish, 2 Bingham, p.229, the contract sued upon obliged the defendants in the events that happened to appoint the plaintiff as master of a vessel for two voyages so far as such appointment lay within their power. Their power to do so was dependent upon the approval of the East India Company and, of course, upon the continued existence of the vessel and of the plaintiff himself. It was argued that because the plaintiff's right to employment was dependent on these contingencies extraneous to the contract, he could not recover damages for the loss of the second voyage which had not yet started when the action came on for trial. It is not surprising that this argument failed. Inchbald v. Western Neilgherey Coffee Co., 17 Common Bench New Series, p.740, was a case of anticipatory breach in which the defendants by their own act put it out of their power to perform their contractual obligations. So was Brace v. Calder, 1895, 2 Queen's Bench, p.253. In Turner v. Goldsmith, 1891, 1 Queen's Bench, p.544, it was held that upon the true construction of the contract the defendants undertook to provide the plaintiff with the opportunity of earning commission for five years and that the event which happened, viz. a fire at their factory, did not absolve them from this obligation. In Manubens v. Leon, 1919, 1 King's Bench, p.208, it was held to be an implied term of the contract that the plaintiff should be given the opportunity of earning tips from customers. This was an example of a contract under which one party accepted a Legal obligation to give the other party an opportunity of obtaining a benefit from a third party. Chaplin v. Hicks, 1911, 2 King's Bench, p.786, which was cited in argument, is the well known instance of a contract under which the defendant assumed a legal obligation to give the plaintiff a chance of winning a prize in a competition. The only question argued was whether the damages for loss of a chance were too speculative to be capable of estimation. Under the contract the final selection of the prize winners was left to the defendant himself but it was accepted by his counsel that he was under an implied obligation to make a nona fide selection based upon the merits of the candidates.
The events extraneous to the contract, upon the occurrence of which the legal obligations of the defendant to the plaintiff thereunder are dependent, may include events which are within the control of the defendants: for instance, his continuing to carry on business even though he has not assumed by his contract a direct legal obligation to the plaintiff to do so. Where this is so, one must not assume that he will cut off his nose to spite his face and so control these events as to reduce his legal obligations to the plaintiff by incurring greater loss in other respects. That would not be the mode of performing the contract which is "the least burthensome to the defendant".
The decision of Mr Justice Phillimore in Bold v. Brough Nicholson & Hall Ltd., 1963, 3 All England Reports, p.849, is an example of this and does not involve any departure from the principle that the injured party is only entitled to be compensated for the loss of those benefits which he would have been legally entitled to claim if his contract had been performed. There the plaintiff was employed upon terms whereby he was legally entitled to claim pension contributions from his employers so long as a pension scheme for their employees was continued. The employers had a right to discontinue the scheme as a whole but no discretion to withhold contributions in respect of the plaintiff so long as the scheme continued. Their relevant undertaking was in effects "If as a matter of general business policy we continue the scheme, in that event we will pay contributions for you". They had not in fact discontinued the scheme by the time the plaintiff's action for damages for wrongful dismissal was brought: there was therefore no question that if his contract of employment had been performed up to that date, he would have been legally entitled to claim his pension contributions under the scheme. As respects the balance of the unexpired period of his service agreement, Mr Justice Phillimore was faced with the familiar task of estimating what his legal entitlement to pension contributions would be likely to be if his contract had been performed during that period and that depended on the likelihood that the event would occur upon which his entitlement to pension contributions under his contract would have ceased. The employers' discretion to continue or discontinue the pensions scheme was not a discretion as to the manner of performing their contract of service with the plaintiff but a discretion as to the way in which they would conduct their business as a whole. Upon this the amount which they would be under a legal liability to pay to the plaintiff under his contract of service depended - in the same way as the amount which they would be under a legal liability to pay to employees remunerated in whole or in part by commission would depend upon the exercise of their discretion as to expansion or contraction of their trade in a particular article or as to its price. The plaintiff was accordingly entitled to be recompensed for the likelihood that his employers would have continued to conduct their business as a whole in such a way as to produce the event which would have entitled him to claim pension contributions under his service agreement if it had been performed.
This case is to be contrasted with Beach v. Reed Corrugated Cases Co., 1956, 1 Weekly Law Reports, p.817, where under the contract of employment the employers had an option to discontinue retirement contributions to the plaintiff whether or not the general scheme continued. The likelihood of their continuing the general scheme was thus irrelevant to their legal obligation to the plaintiff. They could perform their contract in the manner least burthensome to themselves by discontinuing his retirement contributions.
In the present case if the defendants had continued their bonus scheme, it may well be that upon the true construction of this contract of employment the plaintiff would have been entitled to be recompensed for the loss of the bonus to which he would have been likely to be legally entitled under his service agreement until its expiry. But it is unnecessary to decide this. They were under no contractual obligation to him to continue the scheme and in fact it was discontinued. His legal entitlement under the contract on which he sues would thus have been limited after 31st March 1965 to his salary of £4,000 per annum. And there, in my view, is the end of the matter. I know of no principle upon which he can claim as damages for breach of one service agreement compensation for remuneration which might have become due under some imaginary future agreement which the plaintiffs did not make with him but might have done if they wished. If this were right, in every action for damages for wrongful dismissal, the plaintiff would be entitled to recover not only the remuneration he would have received during the currency of his service agreement but also some additional sum for loss of the chance of its being renewed upon its expiry. Q.E.A.
I would disallow the sum of £2,000 included in the assessment by the learned Master, and would substitute for his award the figure of £7,768. The calculation of this figure will be given by Lord Justice Russell.
LORD JUSTICE RUSSELL: I cannot accept that the problem of the appropriate sun to be set off against the loss of salary and bonus can in any degree be solved by an assessment of the value of a two year acceleration in the investments made by the plaintiff. The actuary is in no way to be blamed or criticised for the calculations made upon the hypotheses put to him: but the fact that those hypotheses led him in the course of calculations to a valuation of one company at a figure of £143,000 is sufficient to my mind to demonstrate their remoteness from reality.
On the addition of £2,000 to the gross sum of which the plaintiff has been deprived, in my judgment this was not justified. It represented additional salary which the Master considered that the plaintiff could be expected to receive when the bonus scheme was abolished had he remained in his employment. But under his contract he had no right to any salary about £4,000 per annum: he had no right to insist on the continuation of the bonus schemes nor in my view can a right be spelled out of his contract to have some upward adjustment in salary should the bonus scheme be dropped. It was argued that cases such as Abrahams v. Reiach 1922, 1 King's Bench, p.477, supported the view that damages for wrongful dismissal could include extra benefits which the contract did not oblige the employer to confer upon the plaintiff, but which he might have reasonably expected them to confer upon him in due course otherwise than in the course of performing the contract. I do not accept that reading of the case, nor of any judgment in it. The question was what would reasonably be expected to accrue to the plaintiff by force of the contract had the publishers fulfilled their obligation under the contract, which was construed as an obligation to make such a publication in book form as would be reasonable in all the circumstances. The case is correctly summarised in Mayne on Damages, 12th Edition, para. 186 on those lines. I agree with Lord Justice Diplock that the decision in Bold v. Brough Nicholson & Hall Ltd., 1963, 3 All England Reports, p.849, does not depart from the general principle, and for the reasons that he gives. A plaintiff in an action for damages for wrongful dismissal can rely only on the fact that the defendant was obliged to carry out the contract sued upon. His prospects in terns of money or money's worth resulting from the carrying out of the contract may he conditioned by the estimated impact of external events on the results of the carrying out. But it has never been held that the plaintiff can claim any sum on the ground that the defendant might after the repudiation date have voluntarily subjected himself to an additional contractual obligation in favour of the plaintiff. That is not the laws nor, with respect, do I think it would be in accord with the sense of the matter so to holds an employer whose attitude to the employee has reached the stage that he is prepared to sack him out of hand is, to say the least, an unlikely source of future generosity. I cannot find any support for the contrary proposition in the additional authorities to which the Master of the Rolls makes reference.
Addis v. Gramophone Go. Ltd., 1909 Appeal Cases, p.488, decided that damages for wrongful dismissal cannot include compensation for the manner of dismissal, for injured feelings, or for the fact that dismissal makes fresh employment more difficult. Lord Shaw of Dunfermline at p.504 (referred to by the Master of the Rolls) made no reference at all to possible receipts from the employer to which the contract of service did not entitle the servant.
Richardson v. Mellish, 1824, 2 Bingham, p.229, was a case in which the defendant shipowner contracted in the particular circumstances to reinstate the plaintiff in command as Captain of the Minerva for the last two of six voyages for which Minerva was under charter to the East India Company. The defendant broke his contract. At the trial one of the two voyages had taken place but not the second. The question was whether the jury were properly directed to include in the damages not only his estimated loss in respect of the first voyage, but also in respect of the second. The defendant had contracted that the plaintiff should have command for both the voyages. Two points were taken. One was that the plaintiff might die or become incompetent or the ship might perish before the second voyage, and the plaintiff should not be awarded damages in respect of the second voyage unless and until it was ascertained that none of these things had happened, when the plaintiff could bring further proceedings for further damages: this point was given short shrift. The other point was that the East India Company had the right to object to the renewal of an appointment for a second voyage, and might not have allowed it. The Common Pleas rejected this argument also, pointing out that in practice the Company virtually invariably allowed such renewals. The case therefore was one in which the defendant was bound by contract as to the second voyage provided the Company did not object, and concerned only the impact of an outside influence upon the prospects of the contract being fulfilled. It has no bearing on the present case.
Inchbald v. Western Neilgherey Coffee Co., 1864, 17 Common Bench New Series, p.733, was a case in which the defendant Company engaged the plaintiff as a broker to place the shares in the Company for a reward of £100 down ana a further £400 when all the shares should have been allotted. The Company by voluntary winding up made it impossible for the shares to be allotted, and this was a breach of the contract, which contract involved that the Company should not do anything to prevent or make less probable the receipt by the plaintiff of the benefit of the contract. The question was how the damages were to be assessed, and this depended on an estimate of the prospects or chances of the whole share capital being taken up had the Company not been wound up, having regard to circumstances which included a contractual dispute with the proposed vendor of the estate which the Company had been formed to acquire. The estimate was reflected in an assessment of damages at £250. Neither the case nor any comment in it bear at all on the present case.
I need not refer to the well known case of Chaplin v. Hicks, 1911, 2 King's Bench, p.786, save to remark that it was not a case in which the chance, of which the plaintiff was deprived, was a chance that the defendant might confer a voluntary benefit outside the compulsion of the contract, and therefore can be of no assistance here.
Manubens v. Leon, 1919, 1 King's Bench, p.208 - the case of the hairdresser's tips - was simply an illustration of the proposition that damages for wrongful dismissal from a situation will include an estimate of what continuation in that situation would have brought in its train by way of benefit from third parties, albeit gratuitously.
I turn to the question of the Ventilation Company and the plaintiff's investment therein. I can see no justification for considering this investment as of any relevance to the damage occasioned by the wrongful dismissal. It was an investment of money and nothing more. Its profitability or otherwise cannot be attributed to his release from his obligation to devote his time to the service of the defendants, because such minimal time as he devoted to the affairs of the Ventilation Company cannot seriously be regarded as having been made available to him by his dismissal. It is of course true that during his employment he was barred from such investment in a company carrying on this particular type of business, which is in Prance in competition with the defendants. But that does not suffice to entitle the defendants to set off any improvement in the value of the plaintiff's shareholding against his loss of salary and bonus. It is simply a question of turning his private money or credit to account, and not his time and work. It is no different from an investment which he could have made during his continued service.
Finally, there is the question whether any and what deduction should he made from the damage suffered on account not only of his salary earned and expected in the period from Martin-dale, hut also on account of the undoubted fact that the expenditure of the time released to him by the wrongful dismissal has enabled him by his work and management during that time to enhance the value of the half interest in Martindale that he bought for £1,500 shortly after his dismissal. I agree that account should be taken of this, though of necessity a fairly high degree of estimation is involved. The Master held that in all the circumstances it was reasonable that the plaintiff should go into Martindale on the terms on which he did, rather than hawk his services around. One of the reasons for saying that it was reasonable is that avowedly the plaintiff was hoping to gain in part by improving by his own efforts the value of his holding as well as, in other part, by a relatively low salary. To the extent that this hope has been fulfilled in the relevant 2 2/3 years, it seems right to set it against his loss of salary from the defendants. As to the method of assessment of the extent to which his released time has contributed to the increase in value of his interest, the following calculation leads to the figure of £7,768 mentioned by the Master of the Rolls:
| Improvement in value of Martindale |
£ |
|
| Equity in 2% years |
7133 |
|
| Plaintiff's half |
3566 |
|
| Deduct in respect of the period, |
|
|
| total risk rate on plaintiff's |
|
|
| investment 100% |
1500 |
|
| |
£2066 |
Plaintiff's capital gain |
| Loss of salary and bonus |
£13,325 |
|
| Less |
2,066 |
capital gain |
| |
11,259 |
|
| Less |
3,717 |
Salary earned |
| |
7,542 |
|
| Less |
75 |
1% for acceleration |
| |
7,467 |
|
| Less |
99 |
6/8d. in £ on 4% of |
| |
|
damages (agreed) |
| |
7,368 |
|
| Plus |
400 |
another agreed figure |
| |
£7,768 |
Total judgment |
Order: Appeal and cross appeal allowed. Amount of Judgment of Master Jacob varied to £7,768 with 5 per cent. interest from the 31st January, 1966 to date. Plaintiff to have the costs here and below.
