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Murray V. Leisureplay Notes

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MURRAY V. LEISUREPLAY FACTS Issues arising out of the dismissal by the respondents ("MFC") of the appellant, Mr Murray, as Chief Executive Director of MFC. That dismissal prompted Mr Murray to sue MFC under clause 17.1 of his service agreement dated 2 June 1998 with MFC ("the agreement"). This court is concerned only with the small number of issues in the action which are the subject of the present appeal and cross appeal. The first issue ("the penalty issue") is whether the clause in the agreement providing for the payment of a year's gross salary in the event of termination of Mr Murray's employment without one year's notice is unenforceable as a penalty. The relevant clause in the contract provided: Liquidated Damages: In the event of a Wrongful Termination by way of liquidated damages the Company shall forthwith pay to the Executive a sum equal to one year's gross salary, pension contributions and other benefits in kind assuming that salary, pension contributions and benefits in kind had continued to be paid at the same rate as immediately prior to the date of Wrongful Termination. HOLDING BUXTON LJ Re-casting the "in terrorum language" I respectfully agree with my Lady in her paragraph 47, citing the observations of Mance LJ in the Cine case, that the language of stipulations in terrorem sounds unusual in modern ears; and particularly when applied to a contract such as the present, where a company well able to look after itself employed to play a leading and entrepreneurial role in its affairs a Chief Executive who, as his evidence cited by my Lady demonstrates, was motivated by a desire to protect his own interests. That insight requires a recasting in more modern terms of the classic test set out by Lord Dunedin in Dunlop [1915] AC at p86: "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" That recasting is to be found in the judgment of Colman J in Lordsvale Finance plc v Bank of Zambia [1996] QB 752 at 762G, a passage cited with approval by Mance LJ in paragraph 13 of his judgment in the Cine case [2003] EWCA Civ 1699:

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