Neutral Citation Number: [2008] EWHC 1924 (QB)
Case No: HQ007X00670
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 31/07/2008

Before :

MR JUSTICE NELSON
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Between :

	Tullett Prebon Group Limited	Claimants	
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	Ghaleb El-Hajjali	Defendant	

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Daniel Oudkerk (instructed by Rosenblatt) for the Claimants 
Chris Quinn (instructed by Archon) for the Defendant 

Hearing dates: 14th – 17th January 2008
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Judgment
Mr Justice Nelson : 
1.	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.
2.	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.
3.	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.
4.	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.
5.	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.
6.	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.
7.	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.
8.	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.
9.	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).
10.	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.
11.	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.
12.	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 period, thereby resulting in a notice period of 9 months. In addition there was a post termination covenant restricting his ability to work in competition for 12 weeks which made the total period one year. (Clauses 13 and 16 of the Link contract). Link were also entitled to put the Defendant on garden leave whilst he was serving his notice, and on the face of the clause, entitled to pay him only £30,000, his basic pay, instead of his full remuneration package which with commission would be some 30 times as much as his basic pay.
13.	Both sides were concerned about the impact of garden leave. The Defendant was troubled that his strong relationships with several customers would not be maintained if he was to remain out of the market for longer than 3 months and feared that if he was out for as long as 6 or 9 months he would lose his franchise with them. The Claimants were concerned that the longer the Defendant was kept out of the market the greater the delay until he could start producing his revenue stream and the greater the risk to that revenue.
14.	The Defendant is recorded in the e-mail of 24 August 2006 as having informed his lawyers that he was convinced Link would try and put him in the garden at £30,000. It was decided to seek Mr Bloch’s advice as Mr Marshall was of the view that if he was put on garden leave for only his basic salary, rather than his full remuneration there would be a breach of contract and the Defendant would be freed from it and able to join the Claimants and commence work in October 2006. Mr Bloch’s advice was sought and he was instructed, inter alia, that it was unlikely that Link would seek to have the Defendant work out his notice.
15.	Mr Bloch advised on the telephone on 8 September 2006 and confirmed that advice in writing on 14 September 2006. He advised that the notice period was 9 months, not the 3 or 6 months which Mischcon de Reya had suggested as possibilities, that the court would either decline to enforce garden leave because the payment package was only basic salary rather than full remuneration, or at least truncate very substantially the period of garden leave. On the basis of his instructions he advised that it was unlikely that Link would seek to have Mr El-Hajjali work out his notice, Mr Bloch concluded that the most likely scenario was that Link would simply seek to enforce the 12 week post-termination covenant which they would be entitled to do unless they had committed any repudiatory breach of contract. If they sought to enforce garden leave it was possible that they may commit such a breach. This latter part of the advice, based on his instructions and Mr Bloch’s expert opinion formed the basis of Mr Marshall’s view that the Defendant could start work for the Claimants as early as October 2006.
16.	Thus, on receipt of Mr Bloch’s advice Mr Marshall prepared an in-house advice for the Claimants dated 20 September 2006. In that document he stated:-
“If, as we believe, Link will try to put him in the garden and only pay him £30,000 per annum he will join us immediately and they will have to decide whether to go to court to get an injunction to restrain a breach of contract. The view expressed by all those who have looked at it including Selwyn Bloch QC is that they will fail in obtaining an injunction or if they did get an injunction it would be for a reduced garden leave period of between one and three months.”
The Defendant was looking for an indemnity for costs and damages that he may incur if sued by Link. Mr Marshall assessed that as £300,000 plus marginal profit loss of £100,000 and £100,000 legal costs. The range he said was between £300,000 and £900,000 plus damages. Mischcon de Reya expressed the view that the damages payable to Link would ‘only ever likely to be small because you’ll be put on garden leave’ but that if not, compensation could amount to £900,000 over nine months plus £400,000 costs making a total cap of £1.3M. (E-mail 22 September 2006).
17.	In order to assess the viability of making an offer of employment to a new broker the Claimants sought to compare the likely revenue of a prospective employee with the costs of employing him. These projections were called Business Initiative Proposals (BIPs) and were regularly used in such circumstances. The BIPs for the Defendant’s prospective employment were commenced on 20 September 2006; as they have been regarded as confidential their disclosure has been restricted to the Defendant, his counsel, his solicitors, expert accountant and the Court. When the Defendant changed his demands from a £1m guarantee, for his first year, to a £1.2M guarantee Mr Bolton ran the calculations on the basis of a three person desk, revenues in year 1 of £3.36M rising to £3.7M in year 2 and concluded that the figures looked ‘eminently do able’ and showed a return of 19.1% in year 1. He therefore concluded that the deal was still alive. (E-mail 21 September 2006). The BIPs could not provide a precise forecast of profit to the company from the Defendant’s employment, or loss to the Claimants if he failed to work for them as they were based on premises that only the future would reveal. They made no allowance for different start dates, which might significantly affect the income stream; they are based on the Defendant’s anticipated revenue on what he told them and one P.60 as to his current earnings; they assumed a 66.66% uplift upon the figure based solely on Mr Bolton’s own experience, which did not include Variance Swaps, and they assumed that the brokers who were to work with the Defendant at Tullett Prebon, who had no experience in Variance Swaps, would be as good as those with whom he had been working at Link.
18.	Mr Bolton considered the BIPs for times ranging from about 10 minutes to 1 hour and failed to notice errors, for example as to the number of brokers to be working with the Defendant which were contained within the figures. I am satisfied however that the BIPs were prepared, that Mr Bolton considered them, and that he believed from his own meeting with the Defendant, what he had learned from others who had met the Defendant such as Mr Drake and Mr Marshall, and from his consideration of the BIPs, that the employment of the Defendant would be of considerable advantage to the Claimants and should be pursued.
19.	Shortly before midnight on 24 September 2006 the Claimants and Defendant entered into the Tullet contract. That consisted of a letter setting out the terms and conditions and an attached Schedule of Standard Terms. When Mr Marshall had first prepared the contract he had changed the standard wording of Clause 19.4 from a payment of 50% of the net guaranteed bonus to 50% of ‘your signing payment (if any)’. The contract underwent several redrafts but 19.4 remained the same throughout after Mr Marshall’s initial change. Mr Marshall said in evidence that when the nature of the remuneration changed he discussed with Mr Bolton whether they should revert back to 50% of the net guaranteed bonus but it was decided that the redraft should remain the same for commercial and negotiating reasons. He told Mr Bolton that it was safer to have a lower compensation figure than a larger one so that the liquidated damages clause was not seen as some sort of unlawful penalty.
20.	Clause 19.4 as agreed between the parties stated as follows:-
“19.4  You agree (a) to take all such steps and do all such acts and things within your power and to execute all documents and papers as may reasonably be required by the Company to give full force and effect to this Employment Agreement and (b) to take up your employment with the Company as provided by this Employment Agreement and should you fail to do so, to pay to the Company, by way of agreed liquidated and ascertained damages, a sum equal to 50% of the net basic salary and (if any) 50% of your signing payment (if any) that the Company has contracted to pay to you during the Term of this Employment Agreement. You agree that this is a genuine pre-estimate of the Company’s loss, given the loss of profit it will suffer as a direct consequence of the loss of your anticipated revenue generation under this Employment Agreement.”
21.	The contractual letter of 24 September 2006 at its conclusion, contained the following:-
“NOTE: Once signed by you, this Employment Agreement forms an irrevocable legal commitment by you to join the Company, which you agree to fulfil if you are already employed elsewhere, by promptly giving notice of your resignation (if you have not done so already) of such other employment and starting work for the Company as soon as that notice has expired. ..You should also refer to Clause 19.4 of the attached Schedule of Standard Terms in this regard.”
22.	Before he signed the agreement the Defendant’s solicitors drew his attention to Clause 19.4 and in their e-mail of 22 September 2006 stated in bold that if he changed his mind after signing the agreement Tulletts would be very likely to sue so he should not sign unless he was sure, notwithstanding the time deadline.
23.	On 29 September 2006 the Defendant told Mr Drake that he had decided to remain with Link. As soon as he had handed in his resignation Mr Davies had discussed the matter with him and as a consequence he subsequently decided not to leave Link. The evidence before me was that he was not paid any greater remuneration but given the opportunity to develop and investigate new products within his Variance Options work and would be jointly responsible for taking senior decision making roles on new European Variance Products. Mr Davies stated that they were thrilled that he had agreed to withdraw his notice of termination of employment with them in a letter dated 27 September 2006. The Defendant was concerned that he might be sued by the Claimants and as a consequence asked for and was given an indemnity against that litigation by Link.
24.	 On 30 November 2006 the Claimants sent a letter before action to which the Defendant responded on 21 December 2006. The Claimants sought to obtain a replacement for the Defendant but failed to achieve this. In his witness statement Mr Bolton said that he was then optimistic about negotiations that were then in train, but that prospect had fallen through by the time he gave evidence at trial. It was the Defendant’s case that a substitute for him should have been found relatively easily from various different potential sources including Europe.
25.	The Claimants contend that the damages they are likely to suffer from the Defendant’s breach of contract are in the region of £3,742,435 or £2,469,201 depending upon the date when the Defendant would have started working for them. Mr Philip Haberman, an expert accountant of Ernst & Young LLP said that these losses were calculated in accordance with correct accountancy principles and were consistent with the internal projections carried out by the Claimants by the BIPs prior to the employment contract being signed on 24 September 2006. The sum payable under clause 19.4 is calculated at £293,994.
The Law.
26.	The Courts have been reluctant to interfere with the terms of a contract agreed between two parties well capable of protecting their respective commercial interests. One instance where at common law they will interfere with such a bargain however is where the contract contains a clause which is properly to be regarded as imposing a penalty for its breach rather than a genuine estimate of the loss likely to be sustained in the event of a breach. The rationale for this rule is unclear; either it is a common law rule which is sui generis Robophone Facilities Limited v Blank [1966] 1 WLR 1428, 1446, or it originates as equitable relief where the Court of Equity will limit the sum recoverable to the actual loss suffered. Phillips Hong Kong Limited v The Attorney General of Hong Kong [1993] 61 BLR 49. What the parties have agreed should however normally be upheld as any other approach will lead to undesirable uncertainty especially in commercial contracts. Phillips 59.
27.	The classic definition of a penalty is set out in the judgment of Lord Dunedin in Dunlop Pneumatic Tyre Company Limited v New Garage & Motor Company Limited [1915] AC 79. There it was held that parties who use the words ‘penalty’ or ‘liquidated damages’ may prima facie be supposed to mean what they say but their use of particular words is not conclusive. It is for the court to ascertain whether the term is in truth a penalty or liquidated damages. “The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage.” It is a matter of construction in each case as to whether a sum stipulated is a penalty or liquidated damages, to be decided on the terms and inherent circumstances of each particular contract judged at the time of the making of the contract not at the time of its breach. Each case will be fact dependent, but one test which has been applied is if the sum stipulated is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach, the clause will be held to be a penalty. Dunlop Pneumatic Tyre Company Limited 86, 87. In Clydebank Engineering and Shipbuilding Company Limited and Don Jose Ramos Yzquierdoe Y Castaneda [1905] AC 6, 10, Lord Halsbury considered that the basis for interference by the courts in an agreement between the parties was whether the clause was unconscionable and extravagant.
28.	This area of the law has been considered on a number of occasions recently. In Lordsvale Finance Plc v Bank of Zambia [1996] QB 752 Mr Justice Coleman said at 762G:-
“The speeches in Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Limited [1915] AC 79 show that whether a provision is to be treated as a penalty is a matter of construction to be resolved by asking whether at the time the contract was entered into the predominant contractual function of the provision was to deter a party from breaking the contract or to compensate the innocent party for breach. That the contractual function is deterrent rather than compensatory can be deduced by comparing the amount that would be payable on breach with the loss that might be sustained if breach occurred.”
29.	This decision has been approved in the recent cases in the Court of Appeal of Cine Bes v United International Pictures [2003] EWCA Civ 1669 and Murray v Leisureplay [2005] IRLR 946. The approach in Dunlop was also reiterated in Jeancharm Limited t/a Beaver International v Barnet Football Club Limited [2003] EWCA Civ 58.
30.	Any clause which provides for the payment of a substantial sum of money upon breach is likely to deter a breach, even if it is a genuine attempt to estimate the potential loss arising from a breach. That no doubt is why Mr Justice Coleman stated that a clause is a penalty clause if its predominant contractual function is to deter a party from breach. In Murray, Lord Justice Buxton at paragraph 111 noted that the two alternatives, a deterrent penalty or a genuine pre-estimate of loss were alternatives with no middle ground between them. Accordingly, he said “if the Court cannot say with some confidence that the clause is indeed intended as a deterrent, it appears to be forced back upon finding it to be a genuine pre-estimate of loss.” The word ‘genuine’ means compensatory rather than deterrent.
31.	The notion that the Courts might be moving away from the position set out in Dunlop and adopting a broader discretionary approach was rejected in Jeancharm Limited, Lord Justice Keene at para 21. The Supreme Court of Canada in Elsey v J G Collins Insurance Agencies Limited [1978] 83 DLR 15 had said:-
“It is now evident that the power to strike down a penalty clause is a blatant interference with the freedom of contract and is designed for the sole purpose of providing relief against oppression for the party having to pay the stipulated sum. It has no place where there is no such oppression.”
32.	Whilst the question of oppression cannot be regarded in English law as the sole test and the Dunlop approach is still extant (Phillips 58) it is nevertheless a relevant factor to take into account as Lord Woolfe said in Phillips at 59:-
“Likewise, the fact that two parties who should be well capable of protecting their respective commercial interests agreed the allegedly penal provision suggests that the formula for calculating liquidated damages is unlikely to be oppressive.”
33.	The fact that the parties state that the clause is not a penalty clause and the fact that they are of equal bargaining power are not decisive factors but they are certainly relevant to the consideration of the Court. It has to be borne in mind that it is clearly established that the burden of proving that a clause is a penalty clause lies upon the person who seeks to escape liability under it,  Robophone 1447, where Lord Justice Diplock also said that the Court should not be astute to descry a penalty clause in every provision of a contract which stipulates a sum to be payable by one party to another in the event of a breach by the former. As was noted by Lady Justice Arden in Murray both the Dunlop case and the Phillips case showed that a contractual provision does not become a penalty simply because the clause in question results in over payment in particular circumstances. “The parties are allowed a generous margin.” (Paragraph 43)
34.	Where it is difficult for the parties to assess what the damages might be, ‘the greater the advantages to both parties of fixing by the terms of the contract itself an easily ascertainable sum to be paid in that event.’ Robophone 1447.
35.	This confirmed the approach to this issue by Lord Dunedin in Dunlop when he said at page 88:-
“It is no obstacle to the sum stipulated being a genuine pre-estimate of damage, that the consequences of the breach are such as to make precise pre-estimation almost an impossibility. On the contrary, that is just the situation when it is probable that pre-estimated damage was the true bargain between the parties. (Clydebank case page 11 and Webster v Bosanquet [1912] AC P398)”
36.	There is no doubt on the authorities that where the sum stipulated for is extravagant and unconscionable in amount compared with the greatest loss that could conceivably proved to have followed from the breach, that the clause will be held to be a penalty. Dunlop 87, Phillips 59. In some cases it has been said that it is only if the sum is extravagant or unconscionable that the clause will be held to be a penalty. Thus in Phillips Lord Phillips said ‘So long as’ the sum payable is not extravagant it can still be a valid liquidated damage provision and in Murray, Lord Justice Clarke said:-
“..It is not for the Claimants to justify the payment but for the Defendant to show that the payment is extravagant and unconscionable and not a genuine pre-estimate of loss.” (Para 106)
37.	It is also to be noted that the head note in Murray states that a clause will only be held to be a penalty if the party seeking to avoid the terms can demonstrate that the sum payable on breach is extravagant or unconscionable. The judgments of Lady Justice Arden and Lord Justice Buxton do not however in my view wholly support this summary, though, as stated, it was implicit in Lord Woolfe’s judgment in Phillips.
38.	For my part I consider that in most cases it will only be where a clause can be shown to be extravagant and unconscionable in relation to the greatest conceivable loss that a clause will properly be found to be a penalty clause though each case will depend upon its own individual circumstances and will have to be determined on its own facts.
39.	It has been contended by the Defendant in the present case that the fact that the stipulated sum may, on one scenario of damages, be considerably smaller than the damages that the Claimants might recover, does not prevent it from being a penalty clause even though it is normally the case that a clause will only be held to be a penalty clause, where the stipulated sum is likely to exceed the damages which might be recovered. McGregor on Damages para 13-071 suggests that where the stipulated sum is disproportionately small in relation to the probable loss it cannot realistically be called a penalty in the conventional sense of an extravagant and unconscionable sum fixed in terrorem, even though it is disproportionate to and cannot be said to be a genuine pre-estimate of the probable loss. A small agreed sum is akin to a clause limiting the extent in damages of a party’s liability. Nevertheless the cases cited in paragraphs 13-071, 13-073 demonstrate that the determination of whether a clause is a penalty clause is fact specific and do not perhaps permit one to conclude that a small stipulated sum could never be a penalty clause.
40.	The cases of Murray, and Giraud UK Limited v Smith [2000] IRLR 763 establish that a contract of employment may contain a lawful liquated damages clause provided that it is not a penalty clause. The parties have not been able to put before me a decided case which deals with the situation where a proposed employer has recovered under a liquated damages clause against a proposed employee who never commences employment i.e. ‘no show’ case.
41.	Cases where an employee is sued for breach are uncommon and the prima facie measure of damages for a failure or refusal to work is the cost of procuring another person to do the work, less the amount that would have been  paid under the contract to the Defendant. Where however a substitute is not immediately available an employer may claim the consequential loss of that failure, the value of the work lost by reason of the employee’s defection less the amount that would be paid to him under the contract. In Ebbw Vale Steel Co v Tew [1935] 79 SJ 593  the Court of Appeal held:-
“..The Judge should ascertain the workman’s probable output during the time of default, find its selling value, deduct the expenses which would have been incurred had the workman performed his contract, and which were not incurred when he failed to produce it, and award that amount to the employer.”
42.	Such a claim for consequential loss is appropriate where a substitute cannot be found. In such circumstances an employer may choose to claim such consequential loss rather than the simple cost of replacement. The case of Anglia Television v Reid [1972] 1QB 60 shows that an employer may, where an employee fails to perform and a substitute cannot be found, claim wasted expenditure where it is unable to prove what loss of profit would have occurred. It does not establish that the only measure in such cases is wasted expenditure or the cost of obtaining a replacement rather than loss of profit or consequential loss.
The evidence.
43.	I am invited by each side to disregard parts of the other side’s principal witnesses because of variations between their witness statements or pleadings and their oral evidence. I am quite satisfied however that each of the witnesses was in essence seeking to give the Court a truthful account. Mr Quinn on behalf of the Defendant made much of the fact that in the pleadings and Mr Bolton’s first witness statement it was said that the Defendant’s solicitor had amended clause 19.4 whereas it was Mr Marshall, the Claimants’ employee who had amended the first draft. Mr Bolton accepted that this was so and thought that he may have assumed that the amendment had been by the Defendant’s solicitors. It is also pleaded that the parties agreed that the Claimants’ likely losses would be in the order of £3.37M and £3.7M whereas the first BIP was only commenced after the last meeting with the Defendant had taken place, and Mr Bolton was clear in his evidence that he would not have discussed the BIPs with the Defendant in any event. They were always regarded as confidential calculations whenever they were made by Tullett Prebon in order to assess whether to hire someone.
44.	Mr Bolton accepted in cross-examination that in his first statement it was said that before entering into the contract the Claimants had made a genuine pre-estimate of the losses it would suffer in the event of a breach, whereas no such reference was made in his second witness statement. Mr Bolton accepted that this was so but said that a pre-estimate of profit or a loss were the same thing. I am satisfied on the evidence that this is so and that the second witness statement more accurately represents the situation. The Claimants did not make a calculation of what they might lose by breach, but a calculation in the BIPs of what they might stand to gain by engaging the Defendant. These were essentially the same thing as the profit they might make from him being an employee was, after the expenses of employing him were deducted, the profit they might lose from failing to engage him. I had the opportunity of observing and listening to Mr Bolton and I am satisfied that he was seeking to give the Court honest answers to the questions posed of him.
45.	I came to the same conclusion in relation to the Defendant. It is correct, as Mr Oudkerk on behalf of the Claimants submitted that the Defendant’s reluctance to accept that he would not have been placed on garden leave by Link was not the assessment he was apparently making at the time. Nor were Link or the Defendant open about the indemnity which Link gave him in respect of litigation by Tullett Prebon against him, and the details of that indemnity have never been disclosed. Its precise terms therefore remain unclear. There was also a contrast between the Defendant’s evidence in his witness statement as to having no recollection of providing the Claimants with figures as to his gross revenue and his evidence in cross-examination when he accepted that it was likely that he did tell the Claimants what his revenue was, and that the reason he gave them his P60 and contract was so that they could ascertain his revenue. In spite of this, again having observed and listened to the Defendant giving his evidence I am satisfied that he was in essence seeking to give a truthful and accurate account as to his recollection of what happened at the time.
46.	This of course is the key to this litigation; what the parties did and what they thought at the time is the relevant test, not what happened thereafter save in so far as that inevitably casts light upon what happened at the time. I accept Mr Bolton’s evidence that they wanted to engage the Defendant, were prepared to pay substantial sums of money for him, and considered that he would make a significant contribution to their business. He told me that in January 2008 they were already doing more work in Variance Swaps but would be doing even more if the Defendant had been there. They thought that the Defendant would be the key which would unlock the door. Mr Bolton did not spend a considerable time considering the BIPs, which were not prepared by him, but was satisfied from his examination of them, his meetings with the Defendant and discussion with others that the Defendant would be a profitable acquisition. The contemporaneous e-mails demonstrate this. Even when the Defendant ‘moved the goalposts’ and demanded more by way of guarantee Mr Bolton satisfied himself that the running calculations demonstrated that the deal was still ‘eminently do able’ and ‘return 19.1% in year one’. The deal was therefore he concluded still alive. (E-mail 21 September 2006).
47.	The Defendant accepted that he was a top Variance Swaps broker with remuneration of about £1M in his last year and capable of generating a lot of revenue. It was he who wanted it to be made clear in his contract that he was to be head of the desk and wished the opportunity to expand into pure Exotics from Variance Swaps. He negotiated hard, and was sufficiently confident to be able to demand more. After he had received Mr Bloch’s advice he described himself as being ‘up for it’. He wanted a guarantee of £300,000 per quarter as compensation for being kept out of the market but also because that is what he hoped he would generate. Indeed he reckoned that he might make at least £300,000 per quarter which was consistent with more than revenues of £2.2M.
48.	It was also clear from the evidence of Mr Davies of Link that he valued the Defendant highly. He described him as having strong client relations which made him extremely valuable to a competitor. He was, amongst others at the same desk at Link, a ‘rain maker’. Mr Davies was anxious to keep the Defendant in Link’s employ by offering him more control and the opportunity of advancement. He was not offered more money though he was given an indemnity against any litigation brought by him by the Claimants, the terms of which are not before the Court. That indemnity was offered almost as soon as the Defendant informed Mr Davies that he was going to go to work for the Claimants.
49.	Mr Marshall told me that he discussed with Mr Bolton whether clause 19.4 should be reamended to revert back to what had been in the original draft where it referred to net guaranteed bonus. He said to Mr Bolton that they could leave it as it was for two reasons, firstly because commercially it would be changing the tone of the contract and that might upset the other side and secondly because it would be safer to have a lower compensation figure than a much larger one for establishing that the liquidated damages clause ‘was not in fact seen as some sort of unlawful penalty’. He used the phrase ‘better to have a bird in the hand than two in the bush’ and Mr Bolton said he was fine with that. (Transcript day 2 p 48). Mr Bolton told me that he had discussions with Mr Marshall as to how to ensure that clause 19.4 was not excessively punitive. I accept the Claimants’ evidence as to these discussions. This evidence was not set out in Mr Marshall’s witness statement, but having heard him give the evidence I am satisfied that it is correct.
50.	There was considerable uncertainty amongst all the participants in the negotiations as to when the Defendant might be able to start his employment with Tullett Prebon. The earliest option was October 2006 which, as Mr Marshall said in evidence, could arise if the Defendant was put on garden leave by Link at only his basic pay. This could amount to a breach of contract which would effectively free the Defendant to work for the Claimants almost immediately, and Link would be most unlikely in the circumstances to be able to obtain any injunctive relief which would prevent the Defendant from commencing his new employment. The most pessimistic view was that it would be a full year before the Defendant could work for the Claimants. It is clear from the contemporaneous e-mails that whatever the Defendant said in his witness statement, he thought at that time that he probably would be put on garden leave at £30,000 per annum. Hence the e-mail of 24 August 2006 and the oral instructions to Mr Bloch that it was unlikely that Link would seek to have Mr El-Hajjali work out his notice. It was upon the information as a whole, including these instructions, that Mr Bloch advised that the most likely scenario was that Link would seek to enforce the twelve week post termination covenants, paying him basic salary, with the risk of committing a breach should they insist on seeking to enforce garden leave at basic salary. This opinion was the reason for the Claimants’ case at trial being that the most likely scenario was that the Defendant would be able to start working for them in December 2006.
51.	Mr Davies told me in evidence that Link invariably tried to keep people working their notice though one person had been put on garden leave in the last three or four years. Whether or not this is what would have happened to the Defendant, the fact remains that the evidence is clear that both he and the Claimants thought at the time that he would be put on garden leave.
52.	Mr Bolton told me that the Claimants had made substantial efforts to replace the Defendant but had failed to do so. By the time that he gave his evidence what they had considered to be a good prospect had failed to materialise. They had used Mr Sullivan, the same head hunter who had tracked down the Defendant, but his attempts had failed. I accept Mr Bolton’s evidence on this issue. I am satisfied that the Claimants used their best endeavours to find somebody as good as the Defendant to take on the new role that they hoped to create, but had failed to do so. There may be, as Mr Davies said, brokers on shorter periods of notice in Paris or other parts of Europe and it may be that others have converted readily from Vanilla options into Variance Swaps with great success. The fact that such people exist is not however the same as finding them and securing their services. I reject the evidence of Mr Davies and the Defendant that it would have been easy to find a replacement and hence the implication that the Claimants had not made proper efforts to do so.
53.	The loss which might be sustained by the Claimants from the failure of the Defendant to work for them is clearly difficult to ascertain. The start date, the state of the market, and the efficiency and experience of those working with him in a team are some of the major factors which might influence the loss. Mr Haberman, the Claimants’ accountant, accepted that it was always very difficult to predict the market. At the time his evidence was given the credit crunch had not occurred and the market had not started to descend. I accept Mr Haberman’s evidence, which was unchallenged by any evidence called by the Defendant, that the BIPs utilised correct accounting principles. He gave a range of damages, based upon these, which the Claimants might recover; a sum in excess of £3M or in excess of £2M depending on what the start date would have been, down to £2.3M or £1.5M depending on the start date, and based upon the figures provided by Mr Davies to the Defendant. I recognise that Mr Haberman took February 2007 as his calculation base and not September 2006.
54.	I was prepared to accept Mr Haberman’s evidence as to the Claimants’ loss upon the basis that his calculations were founded upon the BIPs which were contemporaneous documents designed to show what profit the Claimants might make out of employing the Defendant. I accept that the BIPs suffer from inaccuracies and limitations, not least that they do not factor in different start dates. Nevertheless the BIPs formed a proper accounting basis upon which a loss could be considered and I am satisfied that the probability is that the Claimants could establish a loss from the failure of the Defendant to join their company. The Defendant is a highly valued employee. The Claimants were prepared to enter into many months of negotiations and offer substantial sums of money for his services. He was optimistic about providing substantial revenues for his new firm. He provided them with the opportunity to expand in the Variance Swaps market and possibly break into the Pure Exotic Equity Options market. Whatever the start date might have been, I am satisfied on the evidence of Mr Bolton, Mr Drake, the BIPs, Mr Marshall, Mr Haberman, and the Defendant and Mr Davies, that the Claimants would on the balance of probability have suffered a loss exceeding the sum payable under clause 19.4 which is £293,994. With a start date of December 2006 the loss was probably substantially greater than that. In any event however, the evidence demonstrates that this is one of those cases where firstly a loss was likely to be incurred and secondly the precise amount of such a loss was extremely difficult to calculate because of the variables.
The submissions.
1. The Claimants.
55.	It is submitted by Mr Oudkerk on behalf of the Claimants that the Defendants have failed to discharge the burden of showing that the clause is a penalty clause. The Court should be cautious before holding that a clause is a penalty where the parties have reached a clear bargain, especially if the parties were of equal commercial bargaining position. Both parties anticipated that they would make very substantial gains from the contract. The Defendant’s solicitors indicated that the Defendant considered he would earn a lot more than £300,000 per quarter if he commenced work shortly after September 2006. The Claimants expected that the Defendant would generate substantial revenues for them as he himself expected to do. He provided information to them to show that he had generated revenues of the order £2.2M for the year ending April 2006. The BIPs showed that the Claimants estimated that they would make a very substantial profit justifying the payment of over a £1M to the Defendant. As a corollary, the parties recognised that Link could suffer a substantial loss if the Defendant ceased to work for them. The Defendant’s solicitors had estimated this as a possible loss of £900,000 over nine months.
56.	The Defendant expressly acknowledged and agreed at clause 19.4 that the clause was a genuine pre-estimate of the company’s loss of profit. Neither the Defendant nor his solicitors have suggested that the clause was anything other than a lawful liquidated damages clause. The sum payable under 19.4 was proportionate. It was fixed so low that it allowed for a very considerable margin in favour of and to the benefit of the Defendant. The payment under the clause will vary according to the particular employee bonus or signing on fee, and here it was altered by Mr Marshall to apply to the Defendant’s situation. In reality the sum payable is modest in comparison with the maximum loss that could be suffered by the Claimants as a result of the Defendant’s breach of contract. The Defendant had the benefit of expert legal advice throughout and was advised that if he changed his mind the Claimants would be likely to sue. It is unattractive for the Defendant as a commercial man now to argue that he should be entitled to resile from his bargain, especially where he has, before resiling from that bargain, obtained an indemnity from his previous employers.
57.	The submission that the clause is a penalty because it over estimates the Claimants’ loss is misconceived. McGregor on Damages 13-071 demonstrates that this is so.
58.	This is not a case such as Giraud as the Claimants here have accepted that if clause 19.4 is enforceable it cannot and will not sue for a greater sum. It is the Defendant who is arguing ‘heads I win, tails you lose’ here not the Claimants. There has been no failure by the Claimants to mitigate their loss. They have used best efforts to recruit a replacement for the Defendant and failed to do so. In any event a dispute such as this is precisely the sort of dispute that a liquidated damages clause is designed to avoid as was said in Murray at para 115.
59.	As to causation the Claimants clearly have suffered a loss and the correct measure, where a substitute cannot be engaged, is consequential loss not cost of replacement.
60.	Policy should dictate that such a clause as 19.4 is enforceable. It saves time and costs by agreeing a pre-estimate of damage. There is no reason why such a clause should not apply in an employment situation. The calculation of loss will inevitably be more difficult where an employee has not yet joined, but that makes a liquidated damages clause even more appropriate. There was no attempt to renegotiate the clause.
2. The Defendants.
61.	It is submitted by Mr Quinn on behalf of the Defendant that there was no meeting of minds at all as to what the Claimants’ loss was likely to be in the event that the Defendant failed to attend work. There was no agreement or even discussion as to any likely loss. There are too many uncertainties connected with his prospective employment. Clause 19.4 is an entirely standard term applicable to all employees and cannot therefore be intended to have been a pre-estimate of loss. It required the Defendant to pay Tullett Prebon a sum which bore no relationship to any loss which Tullett Prebon believed it would suffer and it was therefore a penalty designed to deter from breach.
62.	The Claimants’ evidence contained false assertions as to for example, whether they had been any agreement as to £3.37M or £3.7M or as to whether the Defendant’s solicitors had amended the clause. I have dealt with those submissions on the evidence under the previous heading.
63.	The BIPs do not constitute any genuine pre-estimate of loss. They are not reasonable figures and Mr Bolton gave scant consideration to them. They are unreasonable because no allowance is made for different start dates, they are based upon insufficient evidence as to the Defendant’s revenue, being one P60 only, they are unclear as to what the revenue would have been, the 66.66% uplift was based upon Mr Bolton’s experience which does not even include Variance Swaps and there was an assumption, which Mr Bolton conceded was unreasonable, that Tullett Prebon’s brokers would be at least as good as Link’s brokers.
64.	As to the parties’ thought processes at the material time there was no meeting of minds as to any pre-estimate of loss, no adequate evidence as to Tullett Prebon’s thoughts upon the matter, or the Defendant’s. The evidence as to when the Defendant might start was inconsistent. Mr Bolton and Mr Marshall said that 2 October 2006 was a realistic start date but the Claimants’ case at trial was that December 2006 was the likely start date. The Claimants rely on Mr Bloch’s advice that it was unlikely that Link would seek to make the Defendant work out his notice yet he was merely instructed that that was the case. Mr Marshall’s insistence on October 2006 as the start date was strange given that he thought that Link would be as tough as they could be. The BIPs were unreliable as the start date of the Defendant’s employment was unknown. Given a fast moving market in Variance Swaps the difference between October 2006 as the start time and October 2007 made the BIPs unreliable.
65.	The vagaries that arise in the employment context were well demonstrated by the fact that they assumed that Mrs Alessandroff would remain in place as a broker. By the time that Mr Bolton gave evidence she had however already left Tullett Prebon.
66.	There is no evidence that the Defendant would have been capable of managing the two employees with whom he had never worked before. One cannot impute to the parties the requisite agreed loss. There has to be a covenanted pre-estimate and there was none here. The primary purpose here was to deter the Defendant from not turning up. There is no desire to compensate the Claimants for the loss which they reasonably might expect to make. Clause 19.4 was finalised before the Claimants had even commenced the BIPs process. The Claimants clearly did not turn their mind to loss whilst they were negotiating with the Defendant.
67.	As to causation the correct measure of damages was the cost of recruiting a replacement and as Tullett Prebon had not pleaded such a claim its case must fail. Alternatively the evidence of Mr Davies and the Defendant showed that the Claimants should have been able to recruit an adequate replacement for the Defendant in the time during which he would have been unable to work for them whilst serving his notice or on garden leave. It should have cast its net wider than it did into Europe and contemplate the ease with which a good Vanilla Options Trader could turn his hand to Variance Swaps.
68.	‘No Show clauses’ should not be enforced in an employment relationship because of the very uncertain position of prospective employment. It was difficult, as Mr Haberman had accepted, to be able to predict the market. He also accepted that employment relationships are subject to all sorts of vagaries such as illness, capability, conduct, relationships in the office and other similar matters. These inherent problems can only be exacerbated when considering a prospective employment relationship where there is even more uncertainty. None of the reported cases deal with a ‘no show’ clause. The situation in Giraud is the same as here. The clause does not place any limitation on the right of the employer to recover damages for his actual loss in the event of it being greater than that specified in the clause. A serving employee like the Claimants in Murray v Leisureplay plc owes enforceable post determination duties including restrictive covenants to his employer; a prospective employee does not.
69.	When the authorities cited under 13.073 in McGregor are considered it can be seen that it is not the case that a smaller stipulated sum can never amount to a penalty clause. What has to be considered is the essential distinction between liquidated damages clause and a penalty clause, namely whether its purpose was to deter or to compensate. The disparity between the stipulated clause and the substantial claim for damages shows that the clause was not framed so as to provide the Claimants with compensation for the loss that it thought it would suffer. The disparity shows that there was no genuine covenanted pre-estimated of damage.
70.	The proper measure of damages is in any event is the cost of finding a replacement as the cases cited under para 28-027 of McGregor demonstrate. (National Coal Board v Galley [1958] 1 WLR 16 and Anglia Television v Reed [1957] AC 60)
Conclusions.
71.	There is no reason why an employment contract should not contain a liquidated damages clause, as the cases of Giraud and Murray establish. Nor do I consider that there is any reason in principle why such a clause should not be a valid part of a contract of employment which is breached by the prospective employee failing to work at all for the employer. Each case will depend upon its own individual facts and must be considered accordingly, but the increased uncertainties which may well be present in prospective employment as opposed to commenced employment are not such as to exclude the operation of a liquidated damages clause. Where an employee is to be hired for a particular project or particular function, his presence is critical to that project or function and as a result of his failure to honour the bargain loss is sustained by the prospective employer there is no reason in principle why a liquidated damages clause should not operate to compensate the employer, provided it is not of course on its proper construction a penalty clause.
72.	I have come to the conclusion that clause 19.4 is not a penalty clause, and have no doubt that the Defendant has failed to discharge the burden of establishing that it is a penalty clause. The Defendant is a highly intelligent and successful man with well established and recognised skills as a broker. He was approached by the Claimants, whom he knew to be a competitor of his current employers, and decided to enter into negotiations with them to see if terms could be agreed for him to leave Link and join Tullett Prebon. He was in a powerful position in the negotiations firstly because of his established skill and knowledge, secondly because of the revenue he had proved that he could achieve and thirdly because of a loyal client base which might, at least in substantial part, transfer to any new employer. I have no doubt on the evidence that he was a substantial ‘catch’ for any prospective employer, and particularly so for the Claimants who wished to establish a firm foothold in the Variance Swaps market with a view to moving into the Pure Exotic Equity market. Whilst the Defendant had no experience in the latter his client base and experience in the former persuaded both him and the Claimants that he could achieve substantial revenue with them in Variance Swaps, with prospects of moving into the Pure Exotic Equities market. The fact that the Defendant felt confident in his ability to achieve this is demonstrated by his choice of title with Tullett Prebon; this described him as head of Exotic Equity Options. The Defendant increased his demands during the course of negotiations from a guaranteed £1M to a guaranteed £1.2M. I have no doubt that the Defendant and Tullett Prebon were equal negotiating partners. Throughout, the Defendant had the assistance of a skilled and extremely experienced firm of solicitors, Mischon de Reya. They advised him on the proposed contract, including clause 19.4, and warned him that if he were to fail to commence employment with Tullett Prebon they would be likely to sue him.
73.	With the benefit of such expert legal advice the Defendant entered into an employment contract which included clause 19.4. He was fully aware of its terms and had agreed to them when he signed the contract. The wording is not decisive but he did agree that the liquidated and ascertained damages set out in that clause constituted a genuine pre-estimate of Tullett Prebon’s loss of profit it would suffer as a direct consequence of the loss of his anticipated revenue generation under the employment agreement.
74.	Where a bargain has been struck by two parties of equal bargaining power, with each party legally represented, a Court should consider long and hard before permitting one of the parties to resile from that agreement. In such circumstances it is in my judgment only where a stipulated sum is extravagant or unconscionable in amount compared with the greatest loss or range of losses that could conceivably prove to follow breach that the clause should be held to be a penalty. There is no proper reason for the Court so concluding here. I am satisfied for the reasons given that the Claimants will probably be able to establish a loss from the Defendant’s failure to work for them and that such a loss is probably considerably in excess of the amount of the stipulated sum namely £293,994. Each side genuinely considered that the Defendant’s employment by Tullett Prebon would bring substantial financial benefits both to the company and to the Defendant himself. Given his skill, expertise and client base that is probably true. I see no basis upon which it could be said that the stipulated sum is extravagant or unconscionable in the circumstances of this case.
75.	I am satisfied that the Claimants did not before concluding the agreement with the Defendant, seek to estimate what loss might occur were the Defendant not to fulfil his part of the bargain. What they did do was to calculate what profit he might bring to the company which, although losses were not expressly calculated at the time, provided the basis for later establishing what losses they might suffer. It is also clear that there was no agreement or indeed even discussion with the Defendant as to what any loss might be should he fail to work for the Claimants. 
76.	Neither of these matters benefit the Defendant. The potential loss was always going to be difficult to calculate, given such uncertainties as the start date of employment, the state of the market, and the quality of employees and team he would be working with at the Claimants. It is in circumstances such as these, where it is very difficult to ascertain the precise loss, that the agreement by the parties of a liquidated damages clause is likely to save time and costs and be to the advantage of both sides. See Dunlop, Robophone and Murray.
77.	In any event on the facts of this particular case the Claimants did give consideration to whether clause 19.4 was a penalty clause or a clause designed to compensate. Mr Bolton said that the term was intended not to be oppressive but to compensate Tullett Prebon on a conservative basis for the losses it would suffer in the event of the Defendant failing to commence employment. Mr Marshall discussed with Mr Bolton, before the signing of the contract, whether or not clause 19.4 should be re-amended so as to relate to guaranteed bonus again rather than signing on fee as he had put in his amendment before the first draft was sent to the Defendant. There was a specific discussion between Mr Marshall and Mr Bolton as to the need to avoid a stipulated sum which was at such a level that it could be regarded as a penalty clause. Mr Bolton and Mr Marshall clearly had in mind at that time the need to avoid the liquidated damages clause being regarded as a penalty clause. This in my judgment is a sufficient consideration of the matter, in circumstances where the loss is difficult to assess, to render the clause a liquidated damages clause, rather than a penalty clause. The fact that there was no agreement or even discussion between the parties as to what the loss might be is not, as the Defendant submits, fatal to the Claimants’ case. It is only necessary that the Claimants should consider the stipulated sum and seek to ensure that it is not pitched at such a level as to be greater than any damages they might recover. Had the Defendant been dissatisfied with the wording of clause 19.4 he could have questioned it or challenged it through his solicitors. He chose not to do so. The clause varied in its application according to a prospective employee’s bonus or signing on fee, and was specifically redrafted by Mr Marshall to suit the Defendant’s situation.
78.	It is of course the case that any liquidated damages clause will also deter the potential payee from breach of contract, but that does not in itself make the clause a penalty. Were that to be so almost all liquidated damages clauses would be penalties. The predominant purpose of the clause must be to deter, and I am satisfied on the facts of this case that that is not so. It is unnecessary to decide what proportion each purpose of the clause bears to the other as I am satisfied that, at the very least, the clause was as much to compensate the Claimants for any failure to work for them by the Defendant as it was to deter him from breach. These two purposes may often be relatively equal where each side is of equal bargaining power, and recognises that a substantial loss, which is not easy to calculate, may occur if the contract of employment does not take place.
79.	The BIPs were not intended to be a genuine pre-estimate of loss, but a genuine pre-estimate of profit, which would be lost if the contract of employment did not go ahead. They were not a perfectly honed instrument as they suffered from potential uncertainties such as start time, and involved speculation such as the 66.66% uplift which Mr Bolton and the system applied to the figures. The BIPs system had however worked satisfactorily in the past in deciding whom to employ and there is no evidence which properly challenges Mr Bolton’s assessment even though he had no direct experience of Variance Swaps. The BIPs were in my judgment an adequate basis upon which to assess whether it was worthwhile employing the Defendant and hence were figures from which an assessment of loss could be made. They were certainly sufficient for Mr Bolton and Mr Marshall to seek to ensure that the stipulated sum in clause 19.4 was a conservative figure which did not amount to a penalty.
80.	I am satisfied from the evidence of Mr Bolton, the BIPs and Mr Haberman that whenever the Defendant commenced employment with the Claimants there would probably still have been a loss of profit in excess of the sum in 19.4. But in any event the clause does not become a penalty simply because it might result in over payment in particular circumstances. The parties are allowed a generous margin, Murray paragraph 43. The evidence satisfies me that the parties contemplated at the material time that the Defendant would probably be able to commence employment in December 2006. This was a reasonable view based upon the Link contract, Mr Bloch’s view of it and the Defendant’s own instructions to him that he would probably be put on garden leave and not required to serve his notice. The contemporaneous e-mails show that the Defendant was of the view that he would be put on garden leave at his basic salary which rendered it likely on Mr Bloch’s view, that Link would be in breach of contract. It was a reasonable view to form that December 2006 in such circumstances was a likely start date for the employment of the Defendant by the Claimants. Even Mr Marshall’s view that October 2006 was a likely start date was tenable. The ‘tougher’ Link were, the more likely they would be to put the Defendant on garden leave at his basic pay. These were the very circumstances likely to lead to a breach of contract which might free the Defendant even from the non competition clause.
81.	I am therefore satisfied that what the parties had agreed here should be upheld. It was neither extravagant nor unconscionable but was a conservative estimate of what the Claimants might lose, and was probably considerably less than the loss they had actually incurred. As the Claimants have foresworn any intention to sue for a sum greater than that in the liquidated damages clause the decision in Giraud, which was in any event on its own facts, is not applicable.
82.	As to causation I have already found that the Claimants did their best to seek a replacement and failed to do so. They are not in breach of any duty to mitigate. The correct measure of damages where a substitute cannot be found is consequential loss rather than the cost of a replacement, depending on the choice of the Claimants. The Defendant’s case on causation must therefore fail. I would add that in Murray it is pointed out that one of the advantages of a liquidated damages clause is that it avoids the investigation of issues such as the duty to mitigate.
83.	Finally, it is my view that a significantly smaller stipulated sum than the probable damages would be most unlikely to render a clause a penalty clause, though each case has to be decided on its own individual facts. Certainly here the Defendant would not be able to discharge the burden of establishing that the clause was a penalty unless he could show that it was extravagant or unconscionable and on my findings it is neither. The loss was difficult to calculate and the Claimants put their minds through Mr Marshall and Mr Bolton, to the issue of whether clause 19.4 was so punitive in its amount that it might be regarded as a penalty. They satisfied themselves that it was not and in my judgment in such circumstances the clause should be regarded as one aimed at compensation rather than deterrence. As Lord Justice Buxton said in Murray the choices are between genuine pre-estimate of loss or a deterrent penalty and if the Court cannot say with some confidence that the clause is indeed intended as a deterrent it is forced back upon finding it to be a genuine pre-estimate of loss. That is the fallback position here, but in my judgment that is not needed as on the facts the Defendant cannot succeed in his attempt to escape the consequences of his clear unfettered agreement of clause 19.4.
84.	Accordingly I conclude that clause 19.4 is a liquidated damages clause not a penalty clause and that the Defendant’s arguments on causation fail. He is therefore in breach of clause 19.4 and liable for that breach.