Cavenagh v William Evans Limited [2012] EWCA Civ 697

Appeal against decision that an employer had been discharged from a responsibility to make a payment in lieu of notice where the claimant’s employment had been terminated but where an act of gross misconduct was subsequently discovered. The employer argued that the contract had been repudiated by the claimant and they had accepted the repudiation. Appeal allowed.

The claimant had been the managing director for the respondent but was made redundant with six months pay in lieu agreed. However prior to any payments being made it was discovered that the claimant had wrongly procured a payment to his pension from company funds. They respondent withheld payment and these proceedings were initiated, the claimant arguing for breach of contract. The respondent retorted that the actions of the claimant were gross misconduct and that he had repudiated the contract. In the court below the respondent relied on Boston Deep Sea Fishing and the judge rejected the claimant's submissions that this case was differentiated as it was an action in debt.

In this judgment Mummery LJ reviews the submissions before concluding that

"Having chosen to terminate the service agreement in that way the Company was not entitled to resile from the contractual consequences of its choice by later following the different common law route of accepting repudiation by  relying, after the termination event, on an earlier act of misconduct"

He adds that Boston Deep Sea Fishing did not go as far as to say that after-discovered misconduct provided an employer with a defence to an action for payment of an accrued debt. Tomlinson LJ, in his supplementary judgment, reinforces the decision and reflects that had the respondent summarily dismissed the claimant for a spurious reason, rather than simply terminating the contract for redundancy, then they may have been able to rely on the repudiatory breach.

Neutral Citation Number: [2012] EWCA Civ 697

Case No: B2/2011/1937




Claim No: 0SB00359

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 24/05/2012

Before :





Between :


- and -


MR SHAEN CATHERWOOD (instructed by Wilsons Solicitors LLP) for the Appellant

MR STUART CAKEBREAD (instructed by **Zaiwalla & Co) for the Respondent

Hearing date: 20th April 2012


Lord Justice Mummery:


  1. This monetary claim was brought by the former managing director of a company, which terminated his appointment under an express term in his service agreement providing for summary termination with pay in lieu of notice. He sued the company for his pay in lieu.
  1. The salient point is that, when the company exercised its contractual power, it did not know about the prior gross misconduct of its managing director. Had it known, it would have accepted his repudiatory breach of the service agreement and regarded itself as discharged from liability for pay in lieu. In those circumstances did the company have a defence to the claim for pay in lieu? The court below held that it did and dismissed the claim. This appeal by the managing director is against that order.

The appeal

  1. The appellant is Mr Duncan Cavenagh. He was the managing director of the respondent, William Evans Limited (the Company). The Company decided that he was redundant. It summarily terminated his service agreement, which provided for six month's pay in lieu of notice. The Company agreed to pay him accordingly. It did not keep its promise to pay, as it was subsequently discovered that Mr Cavenagh was guilty of gross misconduct pre-termination.
  1. The Company argued that Mr Cavenagh was not legally entitled to recover the agreed pay in lieu as a debt due to him and that, as the trial judge held, his prior gross misconduct gave the Company a complete defence to the debt claim. The Company relied on Boston Deep Sea Fishing and Ice Company v. Ansell (1888) 39 Ch D 339, a case in which a managing director counterclaimed for damages for wrongful dismissal and for arrears of salary in proceedings by the company for an account of secret commissions and for damages for breach of duty. The Court of Appeal held that the company could defend the claim by reliance on the managing director's prior gross misconduct as a good ground for dismissal, even though it was only discovered after commencement of the proceedings.
  1. Boston Deep Sea Fishing is a leading authority for some of the basic principles governing dismissal of an employee for gross misconduct: (a) where an employee is guilty of gross misconduct, he may be dismissed summarily, even before the end of a fixed period of employment; (b) dismissal may be justified by reliance on facts not known to the employer at the time of the dismissal, but only discovered subsequently, even after the proceedings began; and (c) the dismissed employee is not entitled to any wages or salary for the broken period of employment immediately preceding his dismissal, because his entitlement had not accrued by then.
  1. On this appeal the Company contended that the judge correctly held that it was entitled to rely on Mr Cavenagh's prior repudiatory breach as a defence. Against that Mr Cavenagh argued that Boston Deep Sea Fishing is distinguishable: in that case the employee's claim was for damages for wrongful dismissal: in this case Mr Cavenagh's claim is for a debt due under a term implemented by the Company and carrying with its exercise a stipulation to pay him 6 month's pay in lieu of notice.
  1. Having accepted the Company's defence HHJ Linda Sullivan QC made an order dated 30 June 2011 dismissing Mr Cavenagh's £65,000 claim for pay in lieu, along with other claims for pension arrears and for pension contributions for 6 months.
  1. The judge found that Mr Cavenagh caused an unauthorised withdrawal of £10,000 from the company's funds on 12 January 2010 for payment to his pension provider in the knowledge that he was not entitled to do so. The judge also found that the Company would have dismissed him summarily for that misconduct, had it known about it. Mr Cavenagh was refused permission to appeal against the judge's findings of fact.
  1. On 23 September 2011 Dame Janet Smith granted a stay of execution and permission to appeal limited to ground 1, which raises the point whether the gross misconduct discovered by the Company after dismissal enabled it to avoid the liability to pay Mr Cavenagh the agreed sum in lieu. Mr Cavenagh also brought proceedings in the employment tribunal for unfair dismissal or a redundancy payment, but they have been stayed pending the outcome of this appeal.

More facts

  1. The Company carries on the business of gun dealers and gunsmiths in St James's Street, London. It employed Mr Cavenagh as managing director from 1 February 2003 until 12 March 2010 when he was dismissed. The Company had been making losses since 2003. In early 2010 it settled on a different business structure without a managing director.
  1. Under the terms of his service agreement dated 1 February 2003 Mr Cavenagh was appointed to serve the Company as managing director at an annual salary of £130,000. Clause 3.1 provided that, subject as thereinafter provided, the employment would continue "unless and until terminated by either party giving to the other not less than six months prior written notice."
  1. Clause 11 ("Termination") provided that:-

"11.5 The Company may terminate the Appointment forthwith by paying salary and the value of all other contractual benefits in lieu of the required period of notice…and it is expressly agreed and declared that such payment in lieu of notice shall not constitute a repudiation of this Agreement."

  1. There were other express powers in clause 11 entitling the Company to terminate the service agreement forthwith on grounds that included gross misconduct and wilful breach or non-performance of his duties under the agreement: see clause 11.1.2.
  1. By letter dated 12 March 2010 the Company informed Mr Cavenagh that it had been decided that the role of managing director was no longer a viable position for the Company, would cease and that he would become redundant. The letter concluded:-

"In view of the above it is appropriate that your functions within the company will cease forthwith although of course you will receive all appropriate payments in lieu of any notice period to which you are entitled."

  1. Although clause 11.5 was not mentioned as such in the dismissal letter, it is clear from its terms that the Company was purporting to exercise its contractual power of termination under that clause. A compromise agreement was drafted, though never executed. Sometime between the sending of that letter and the commencement of these proceedings in June 2010 the Company discovered that on 12 January 2010 Mr Cavenagh had wrongly procured a payment of £10,000 to be made by the Company to his pension provider.
  1. Having uncovered Mr Cavenagh's prior misconduct the Company made no payments at all to him. In his proceedings issued on 15 June 2010 he claimed 6 months' salary in lieu and other sums. The Particulars of Claim did not expressly plead clause 11.5. The prayer claimed damages for breach of contract, but it is clear from paragraphs 8 and 9 of the Particulars that the claim was for payment of a debt: that is, the sum due under clause 11.5 by way of "six months salary and benefits in kind in lieu of notice" which neither at the time of, nor after, the letter of 12 March had the Company paid in lieu.
  1. The Company's defence referred to Mr Cavenagh's implied duty to act in good faith towards the Company and not to act so as to damage the relationship of trust and confidence between himself and the Company. It alleged that, in breach of his duties, he had instructed an accounts clerk to make the payment of £10,000 out of the Company's account to the pension provider. That was alleged to be an act of gross misconduct, which the Company had not discovered until after its dismissal of Mr Cavenagh on 12 March. The defence pleaded that the breach of contract by Mr Cavenagh was a fundamental and serious breach "which entitled the Company to treat the contract as at an end on the basis of a repudiatory breach by [Mr Cavenagh]." The pleading continued that, notwithstanding the purported dismissal for redundancy on 12 March, the Company was entitled to rely on his prior repudiatory breach as having terminated the service agreement on 12 January 2010. As pointed out by Mr Catherwood on behalf of Mr Cavenagh, it was not pleaded by way of defence that the Company had itself repudiated the service agreement by failing to pay him in lieu.
  1. The Company's counterclaim repeated the defence and claimed return of monies paid to him, or for his benefit, and due to the Company in quasi-contract, or because he had been unjustly enriched by acceptance and retention of the same. Wrongful procurement of the sum of £10,000 was alleged and return of that sum was claimed, along with an account of the monies paid to him by mistake on the basis that his contract of employment continued after the repudiatory breach on 12 January 2010.
  1. I note that the counterclaim did not plead any breach of duty by Mr Cavenagh in not informing the Company of his gross misconduct either at the time he committed it or at any time before he was dismissed, nor did it claim any damages or other relief against him in respect of such a breach. There is authority for the proposition that a director is under a duty, as a fiduciary, to report to the company breaches of his fiduciary duties: Item Software (UK)Ltd v. Fassihi [2004] IRLR 928. Nor was it pleaded that the Company's agreement to make payment in lieu was void or voidable by reason of a vitiating unilateral mistake of the Company, which was known to Mr Cavenagh, about its right to terminate the service agreement summarily and without pay in lieu on grounds known to Mr Cavenagh, but unknown to the Company: see, for instance, Horcal Ltd v. Gatland (1984) 1 BCC 99,089 at 99,092.

The judgment

  1. The skeleton arguments submitted to the trial judge show that the Company's defence by reference to Boston Deep Sea Fishing was that it was entitled to rely upon the after-discovered fact of employee misconduct, which would have justified summary dismissal without pay in lieu, notwithstanding the fact that it had exercised a contractual right to terminate the appointment summarily with pay in lieu.
  1. Against the Company it was submitted that the pay in lieu had accrued as a debt on the day of termination (12 March 2010) and that the Company was no more entitled to avoid liability to pay that debt by reason of the employee's prior breach than it was to avoid liability for other accrued rights, such as holiday pay, which the Company had accepted was payable in any event. Further, it was pointed out that Boston Deep Sea Fishing concerned an employer's liability to pay damages for wrongful dismissal and the attempt of the employer to avoid that liability by establishing a lawful termination in reliance on evidence of after-acquired knowledge of prior misconduct. That was in contrast to the Company's attempt in this case to avoid a contractual liability to pay an accrued debt.
  1. The judge cited passages from the authorities, summarised the submissions on them in the light of after-acquired knowledge of prior misconduct, which would have justified dismissal, and concluded:-

"Mr Catherwood [counsel for Mr Cavenagh] further submits that this is an action in debt and that that in some way alters the principles evinced in Boston. I reject that submission because it places far too great an emphasis on the formal nature of the pleadings and does not concentrate on the essential issues in the case. This case is about the contractual relationship between the Complainant and the Defendant."

Appellant's submissions

  1. The essence of the appeal ably argued by Mr Shaen Catherwood for Mr Cavenagh was that the Company elected to make payment in lieu of notice by terminating the appointment lawfully under clause 11.5 of the service agreement. He cited the well known passage from the speech of Lord Browne-Wilkinson in Delaney v. Staples [1992] 1 AC 687 at 692E setting out, in a non-exhaustive list, various categories of "payment in lieu of notice":-

"(2) The contract of employment provides expressly that the employment may be terminated by notice, or on payment of a sum in lieu of notice, summarily. In such a case if the employer summarily dismisses the employee he is not in breach of contract provided he makes the payment in lieu. But the payment in lieu is not a payment of wages in the ordinary sense since it is not a payment for work to be done under the contract of employment."

  1. That sum became recoverable by Mr Cavenagh from the Company as a debt. It was a contractually stipulated sum payable irrespective of the amount of actual damage that might have been suffered by him as a result of an unjustified summary dismissal: see Abrahams v. Performing Right Society Ltd [1995] ICR 1028 at 1040E-F. Such a payment was to be made under and in accordance with the termination provision spelt out in the contract; it was not a payment for work done under the contract; and it was not a payment by way of compensation or damages for breach of contract. Such a term may be included in a service agreement as provision for security or continuity of employment, required by an employee as an inducement to enter into the service agreement in the first place: EMI Group Electronics Ltd v. Coldicott (Inspector of Taxes) [2000] 1 WLR 540 at 545H and 547E-F. **
  1. That debt claim could not be defeated by the Company's reliance on the unknown prior act of gross misconduct found by the judge. Mr Cavenagh was entitled to all sums accrued due to him at the time of dismissal, including payment for untaken holiday and expenses, and to retain the salary paid to him between the act of gross misconduct and his dismissal. The prior act of misconduct did not affect his right to payment of those sums, or of the sum in lieu of notice, for which he had given consideration when he had agreed to enter into the service agreement on terms that entitled the Company to terminate it summarily.
  1. As for the principles in Boston Deep Sea Fishing, **that case was distinguishable as an instance of a claim for damages for wrongful termination being defeated by proof of an earlier repudiatory act subsequently discovered.

Discussion and conclusions

  1. Mr Stuart Cakebread for the Company picked out the unattractive features of Mr Cavenagh's stance. He was a fiduciary, who sought to take advantage of the Company's ignorance of his wrongdoing. If, as Mr Catherwood contended, the principles in Boston Deep Sea Fishing and in Mercer v. Whall (1845) 5 QB 447 at 466 were not applicable to this case, the paradoxical position would be this: the Company could have escaped pay in lieu liability to Mr Cavenagh, if it had "acted badly" by simply ignoring clause 11.5 of the service agreement and by dismissing him summarily; but it would have incurred pay in lieu liability to him by having "acted properly" by exercising the express unilateral power to terminate his appointment summarily under clause 11.5 of the service agreement thereby triggering an obligation for pay in lieu.
  1. As a result of having kept quiet at the time of dismissal about the unknown prior misconduct, Mr Cavenagh would be better off than he would have been, if he had disclosed his misconduct to the Company. In a very real sense Mr Cavenagh would profit from his own wrong in connection with a payment secretly made from the Company's funds.
  1. Mr Cakebread concentrated the court's attention on the most striking similarities between this case and Boston Deep Sea Fishing. In both cases (a) the employee had acted in repudiatory breach prior to being dismissed; (b) that breach was not known or made known to the employer; and (c) the employee was dismissed by the employer without that knowledge.
  1. According to Mr Cakebread the Boston Deep Sea Fishing principle is that an employer is entitled to resist a dismissed employee's monetary claims on dismissal by relying on a prior repudiatory breach, which provided grounds for dismissal, even though not known to the employer at the time of dismissal. He submitted that there was no difference, in principle, according to whether the employee brought a claim against the employer for damages or in debt; or whether the employer had purported to exercise its common law right to accept the employee's repudiation by gross misconduct, or had purported to exercise its contractual power to terminate the contract summarily with provision for pay in lieu.
  1. He cited a passage from the judgment of Mr David Donaldson QC in And So To Bed Ltd v. Dixon [2001] FSR 935 at 948 to the effect that the deputy judge could see no reason why the Boston Deep Sea Fishing principle that "a party who specifies one inadequate reason for his termination of a contract is not precluded from later relying on other facts if they constitute breaches of the necessary importance to amount to repudiation" should not apply when acceptance of the repudiation is found in a letter sent in the exercise of a contractual power.
  1. It would, he added, be too narrow an approach to the principle of after-discovery of prior misconduct to confine it to the case where the employee casts his claim as damages for wrongful dismissal. The substantive results should not differ depending on how the employee framed his cause of action against the employer. The result of this case should be that Mr Cavenagh was not entitled to payment in lieu when he could have been dismissed without pay in lieu for repudiatory breach by gross misconduct.
  1. Mr Cakebread made a further point, which was neither taken below nor foreshadowed in the pleadings or skeleton arguments: that the service agreement was not lawfully terminated by the Company, because it had not made the payment promised. This case was therefore indistinguishable from Boston Deep Sea Fishing, the ex-employee's claim in both cases being based on the ex-employer's repudiatory breach.
  1. In my view, it is not open to the Company to take that point at this late stage. In any event, the point does not take the matter any further as, even if non-payment of pay in lieu was a breach by the Company, it would not be a repudiatory breach. The position was that there had been a lawful termination of Mr Cavenagh's service agreement in accordance with its terms, even though the Company had not made the promised payment in lieu. Both sides treated the service agreement as at an end as from that date. Mr Cavenagh did not go into work again after that date.
  1. I can understand why the Company regarded Mr Cavenagh's misconduct and its subsequent discovery as undermining his legal entitlement to claim pay in lieu. On 12 March 2010 it did not know something relevant to termination of his appointment that he knew, but chose to keep quiet about. If it had known what he knew, it would have treated the service agreement as having been repudiated by him and it could have done so without incurring a liability to pay him in lieu. The service agreement appointing him to be managing director of the Company created a relationship of mutual trust and confidence between them. Yet he chose not to inform the Company of facts that would have affected its decision on how to proceed with termination of his appointment. It suited him to stay silent and watch the Company take a course of action that was more beneficial to him than it was to the interests of the Company served by him in a fiduciary capacity.
  1. However, I am persuaded by Mr Catherwood that the correct legal analysis of this case, on the basis of the pleaded case and the arguments at trial, turns on the effect of the decision of the Company in the letter of 12 March 2010. There is no escaping the fact that, on that date, the Company purported to exercise its contractual power under clause 11.5 to terminate the service agreement without notice, but with pay in lieu, and the Company agreed to pay it. A debt by the Company to Mr Cavenagh thereby accrued.
  1. Having chosen to terminate the service agreement in that way the Company was not entitled to resile from the contractual consequences of its choice by later following the different common law route of accepting repudiation by relying, after the termination event, on an earlier act of misconduct by Mr Cavenagh of which it was unaware on 12 March 2010.
  1. The contract itself did not contain any provision releasing the Company from its contractual obligation to pay the debt that arose from the exercise of the contractual power on 12 March. The contractual right to payment in lieu having accrued, Mr Cavenagh was entitled to payment of it in the same way as other sums that had accrued due at the date of dismissal.
  1. The general law did not release the Company from its contractual liability on the only ground relied on by the Company in this action, namely that it acquired knowledge after it had terminated the contract under clause 11.5, which would have entitled it to terminate it outside that clause and summarily without liability for pay in lieu. Boston Deep Sea Fishing did not go as far as to say that after-discovered misconduct provided an employer with a defence to an action for payment of an accrued debt. The principle for which that case stands is that an employer can defend a claim for damages for wrongful dismissal by using at trial, in its defence of justification, evidence of misconduct by the employee that was not known to the employer at the time of dismissal. In this case the Company was not seeking in the proceedings to justify its dismissal of Mr Cavenagh. There was no dispute that his appointment was terminated summarily on 12 March 2010 and in a fashion that was lawful: it was not a prima facie wrongful act, which the Company had to justify by evidence of breach of duty. The consequence of the lawful termination was that the Company became contractually bound to Mr Cavenagh for pay in lieu. All of that happened before the Company knew of, or was in a position to accept, Mr Cavenagh's prior repudiatory breach. The lawful termination had already triggered the liability for pay in lieu, which was, as a matter of legal analysis, quite a different situation than that facing the Court of Appeal in Boston Deep Sea Fishing.
  1. Mr Catherwood's contentions were in line with the general principles summarised in a recent case brought to counsel's attention by Tomlinson LJ and not cited to the trial judge - Shell Egypt & Anor v Dana Gas Egypt Limited [2010] EWHC 465 (Comm). In a judgment given while a still a judge at first instance, Tomlinson LJ summarised the principles that emerged from the authorities on the general point of when a termination letter, written in exercise of a contractual power to terminate the contract, could be regarded as an acceptance of a repudiatory breach by the other party terminating the contract.
  1. In that case the contract and the general law provided Shell Egypt with alternative rights having different consequences. In the light of the legal principles emerging from the authorities, Tomlinson J held that the critical question was whether the termination letter was to be read by a reasonable recipient as unequivocally communicating an election by Shell Egypt to terminate the contract under the contractual clause. The threads on that topic had been drawn together by Moore-Bick LJ in paragraph 44 of his judgment in Stocznia Gdynia SA v. Gearbulk Holdings Ltd [2010] QB 27:

"It must be borne in mind that all that is required for acceptance of a repudiation at common law is for the injured party to communicate clearly and unequivocally his intention to treat the contract as discharged: see Vitol SA v. Norelf Ltd …per Lord Steyn. If the contract and the general law provide the injured party with alternative rights which have different legal consequences, as was held to be the case in Dalkia Utilities V. Celtech, he will necessarily have to elect between them and the precise terms in which he informs the other party of his decision will be significant, but where the contract provides a right to terminate which corresponds to a right under the general law (because the breach goes to the root of the contract or the parties have agreed that it should be treated as doing so) no election is necessary. In such cases it is sufficient for the injured party simply to make it clear that he is treating the contract as discharged… If he gives a bad reason for doing so, his action is nonetheless effective if the circumstances support it. That, as I understand it, is what Rix LJ was saying in paragraph 32 of his judgment in Stocznia Gdanska SA v Latvian Shipping Co with which I respectfully agree." **

  1. Adopting that general approach and asking the critical question whether the letter of 12 March 2010 was to be read by a reasonable reader in the position of Mr Cavenagh as unequivocally indicating an election by the Company to terminate the contract under clause 11.5 of the service agreement, the answer is plain: the Company, albeit in a position of ignorance about the prior repudiatory breach, elected to terminate the appointment as managing director under clause 11.5, which is different from the right under the general law to accept a repudiatory breach as discharging the contract. The letter of 12 March could not be read by the reasonable reader as an acceptance under the general law of the prior repudiation by misconduct.
  1. I see nothing in the authorities or in general principles of contract law why that analysis of the contractual position should not also apply to a contract of employment. The prior unknown misconduct was not a defence to the claim for payment of the debt arising from the Company's election to terminate the service agreement summarily under clause 11.5.
  1. It is true that, as pleaded in the defence, implied contractual duties, such as those of mutual trust and confidence, may co-exist with fiduciary duties in the legal relationship created by a contract of employment. They would not normally be implied in most commercial contracts or exist in most commercial relationships. I make it clear that my conclusions on this case are based entirely on the pleaded issues and the arguments advanced. This appeal cannot be properly determined on the basis of other issues, which might have been raised in the pleaded defence and/or counterclaim, but have not been.
  1. This appeal turns on whether the Company made an irrevocable election as to how it terminated the service agreement. For the reasons given above, it made an election giving rise to a liability in debt for six month's pay in lieu. The Company must live with the contractual consequences of its election in the absence of any other pleaded theory as to why Mr Cavenagh was disentitled from recovering it from the Company, or from retaining it beneficially as against the Company.


  1. I would allow the appeal.
  1. In brief, the judge's decision was based on a faulty legal analysis of Mr Cavenagh's contractual rights as pleaded. The legal position is that:-

(1) By virtue of the letter of 12 March 2010 Mr Cavenagh acquired an accrued right under the service agreement to six month's pay in lieu. That debt was created by the Company's exercise of the contractual power to terminate his contract under paragraph 11.5.

(2) There was no provision in the service agreement denying him that right, if the Company subsequently discovered that he had committed a prior act of gross misconduct.

(3) There was no general principle of contract law barring or extinguishing his right to recover the pay in lieu as a debt from the Company. The principles laid down in Boston Deep Sea Fishing did not provide the Company with a defence to the claim for pay in lieu nor did the general principles governing the termination of a service agreement by acceptance of an employee's repudiatory breach.

(4) No point arose on Mr Cavenagh's liability to the Company on its counterclaim. It was limited to recovery of the sum of £10,000. He accepted liability and had agreed to repay it. There was no counterclaim against him for any other breach of contract or breach of duty.

  1. Lord Justice Tomlinson : I agree with the judgment of Mummery LJ. I add only a footnote as we are disagreeing with the judge below.
  1. The judge in my view fell into error because she regarded the Appellant as having been "dismissed for redundancy". From there, founding on observations of Mr David Donaldson QC in And So To Bed v Dixon [2001] FSR 47, she proceeded to the conclusion that "the principle in Boston has as much relevance whether the original termination of contract was for breach of contract or for some other reason, for example, redundancy, and/or termination of the contract in accordance with the contract where there is no breach."
  1. I think that the judge was misled by the notion that the Appellant had been dismissed for cause. In essence what had occurred was simply that the employer had terminated the contract, as either party thereto was entitled to do pursuant to clause 3.1, by giving six month's notice. Additionally, the employer had relied upon its entitlement pursuant to clause 11.5 to terminate the appointment forthwith by paying salary and the value of all other contractual benefits in lieu of the required period of notice. The fact that the termination letter described the Appellant as having become redundant adds nothing to the contractual analysis and is completely irrelevant to it.
  1. And So To Bed was a case where clause 13.1 of the contract entitled the licensor summarily to terminate the agreement upon the occurrence of a breach of contract unrectified after fourteen days notice thereof, given by the licensor. However the ability of the licensor to recover losses consequent upon the termination of the agreement was dependent upon his showing that the licensee had committed a repudiatory breach of the contract, and that the licensor had thereupon terminated the contract. As Diplock LJ explained in Financings Limited v Baldock [1963] 2 QB 104 at 123:-

". . . Where one party has done something which the law regards as a wrongful repudiation of the contract and the other party has thereupon determined the contract, whether under an express power contained in the contract or in the exercise of his right to do so under the common law, he is entitled to damages for non-performance of the contract during the period that it has still to run; but . . . if that party has not done something which the law regards as a wrongful repudiation of the contract, the other party, although he may be entitled under an express power to determine the contract, is not entitled to damages for non-performance of the contract during the period for which it would have continued to run but for such determination."

  1. As it happens in And So To Bed one of the three breaches relied upon as entitling the licensor summarily to terminate pursuant to the contract was repudiatory in character. Furthermore, since the consequence of contractual termination under clause 13.1 and the acceptance of a repudiatory breach was the same, viz, immediate termination of the contract without further liability attaching to the licensor, it was unnecessary to decide whether the licensor could additionally rely upon other renunciatory breaches by which the licensee evinced an intention no longer to continue with or to be bound by the contract. Because there was no inconsistency in its effect between a contractual termination and termination by acceptance of a repudiatory breach, no question arose as to the precise terms in which the licensor informed the licensee of his decision to terminate – cf the discussion by Moore-Bick LJ in Stocznia Gdynia cited by Mummery LJ at paragraph 41 above.
  1. In my view the judge here fell into error by, firstly, equating "termination for redundancy" with termination for breach and, secondly, overlooking that termination by acceptance of a repudiatory breach and a contractual termination where there is no breach may not give rise to equivalent effects or remedies. Here what had occurred was in essence termination on six month's notice, albeit the employer had exercised the right to dispense with the notice period by making or promising to make the appropriate payment in lieu. It brought about an entirely different situation from that which would have obtained had the contract been terminated by reason of a repudiatory breach, because in those circumstances the employer would have been entitled to an immediate termination without further liability save for salary and other benefits accrued up to the date of summary termination.
  1. Accordingly this was not a case where the termination letter could serve equally as a contractual termination or as achieving a termination by reason of an accepted repudiatory breach. However as Mummery LJ has explained the Boston Deep Sea Fishing principle is in any event of no relevance here, since the employer is not seeking retrospectively to justify a termination which was impermissible upon the grounds put forward at the time. The employers were entitled to terminate the contract forthwith on the terms indicated, subject only to a point which we have not allowed Mr Cakebread to raise for the first time in this court to the effect that the termination was ineffective until the promised payment was made. As Mr Cakebread himself accepted, both parties in fact treated the contract as if it had been properly and effectively terminated with immediate effect. The contract did indeed come to an end upon service of the employer's letter of 12 March 2010. That being the case the Boston Deep Sea Fishing principle has no further role to play. There is no place for it and there is no need for it, even if the employer could overcome the difficulty that acceptance of repudiatory breach and termination on notice and/or on payment in lieu of notice here lead to inconsistent outcomes. The employee's repudiatory breach remains unaccepted and of no effect.
  1. Mr Cakebread pointed out that the employers here would be in a better position had they on 12 March purported summarily to dismiss, or as I would prefer to put it, purported summarily to terminate the contract, relying on a spurious ground. In such circumstances the antecedent repudiatory breach could be relied upon to justify the otherwise wrongful termination. Whilst this is so I do not find this surprising nor does it cause me to doubt the correctness of the analysis of the situation which Mummery LJ has proffered and with which I respectfully concur. As Mr Catherwood pointed out, by agreeing to the provision whereunder his employment could be terminated summarily on payment of salary in lieu of notice, the employee surrenders valuable rights and confers a corresponding benefit on the employer. When an employer elects to terminate a contract on notice and offers payment in lieu of that notice it elects for a clean break. It takes the risk that it may subsequently discover matters which would have justified summary termination for breach, just as it takes the risk that the employee might subsequently have died or found a more attractive job elsewhere. The employers here obtained precisely that for which they had bargained. There is no basis upon which they either can or in my view should be able to deny to their employee that for which correspondingly he bargained.
  1. I would allow the appeal.

Lady Justice Hallett:

  1. I agree.

Published: 27/05/2012 12:23

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