Cavendish Square Holdings BV & Anor v El Makdessi [2012] EWHC 3582 (Comm) (14 December 2012)

Neutral Citation Number: [2012] EWHC 3582 (Comm) Case No: 2010 FOLIO 1499 IN THE HIGH COURT OF JUSTICE QUEEN'S BENCH DIVISION COMMERCIAL COURT 7 Rolls Buildings Fetter Lane London, EC4A 1NL 14/12/2012 B e f o r e : MR JUSTICE BURTON ____________________ Between: CAVENDISH SQUARE HOLDINGS BV TEAM Y&R HOLDINGS HONG KONG LTD Claimant - and - TALAL EL MAKDESSI Defendant ____________________ Joanna Smith QC and Richard Leiper (instructed by Squire Sanders) for the First Claimant Michael Bloch QC and Camilla Bingham (instructed by Clifford Chance) for the Defendant Hearing dates: 12, 13,14, 15 & 16 November 2012 ____________________ HTML VERSION OF JUDGMENT ____________________ Crown Copyright © MR JUSTICE BURTON: The Claimants, Cavendish Square Holdings BV ("Cavendish") and Team Y&R Holdings Hong Kong Ltd ("the Company") are companies in the WPP group of companies, which is reputedly the world's largest advertising and marketing communications group. The Defendant, Mr Makdessi, was the founder and owner, latterly with Mr Ghossoub (colloquially "Joe"), of what became by the late 1990s, and remained, the largest advertising and marketing communications group in the Middle East ("the Group"). The business of the Group was vested by 2008 in the Company, and Cavendish had acquired 12.6% of the Company. By an agreement dated 28 February 2008 ("the Agreement"), Cavendish agreed to purchase from the Defendant and from Joe in the first instance 47.4% (so as to total 60%) of the shares in the Company, and provision was made for its subsequent purchase (by virtue of put and call options, to which I shall refer below) of the remaining 40%. These proceedings arise out of the (now admitted) breach of fiduciary duty by the Defendant which, if the relevant covenants in the Agreement are, as Cavendish asserts, valid and enforceable, would also constitute breaches of those covenants. By the terms of the Agreement, and a Service Agreement which he signed contemporaneously, Joe agreed to remain as an employee and director of the Company, as he continues now to do. The Defendant, during the course of the negotiations leading up to the Agreement, made it clear that he did not wish to remain an employee, and what was intended to be a Service Agreement for him was replaced by an agreement also in the event simultaneously signed ("the Appointment"), by which he was appointed a non-executive director of the Company and non-executive chairman, for the initial term of eighteen months renewable, by which he agreed, in Clause 2.2 that " in addition to the requirements of all directors [his] role as a non-executive director has the following key elements ", namely identified specific obligations by way of ongoing support of the Company. The Appointment was specifically provided for in the Agreement (Schedules 9 and 12), as was Joe's Service Agreement. The consideration for the purchase by the Claimant of the 47.4% shareholding in the Company was very substantial. By Clause 3.1 of the Agreement Cavendish agreed to pay to the two Sellers, the Defendant and Joe (who were to share the consideration in the proportions 53.88% for the Defendant and 46.12% for Joe): i) the sum of $34 million on completion; ii) the sum of $31.5 million ("the second payment") to be paid in accordance with the terms of Clauses 3.6 to 3.12; iii) a further Interim Payment, which was to be payable thirty days after determination of the defined "OPAT" (audited consolidated operating profit of the Group), calculated as 47% of 8 times the average OPAT for 2007 – 2009, giving credit for $63 million (namely all the earlier payments save for $2.5 million, being interest); iv) a Final Payment, payable thirty days after determination of the relevant OPAT, calculated as 47.4% of an agreed multiplier (apparently in the event 7) times the average OPAT for 2007 – 2011, giving credit for the $63 million and the Interim Payment. It was provided by Clause 3.2, that if the Interim Payment and/or the Final Payment turned out to be a negative figure then it/they should be treated as zero, but there was to be no clawback of the earlier payments; and by Clause 3.3 the aggregate amount of all payments was subject to a maximum of $147.5 million. The price was justified in the Agreement itself as follows: i) " 11. PROTECTION OF GOODWILL 11.1. Each Seller recognises the importance of the goodwill of the Group to the Purchaser and the WPP Group which is reflected in the price to be paid by the Purchaser for the Sale Shares. Accordingly, each Seller commits as set out in this Clause 11 to ensure that the interest of each of the Purchaser and the WPP Group in that goodwill is properly protected ." ii) There were restrictive covenants imposed on the Defendant and Joe by Clause 11.2 as follows (I shall set them out, incorporating their appropriate relevant definitions taken from Schedule 12 of the Agreement): " 11.2. Until the date 24 months after the Relevant Date [being the later of the date of termination of employment by the Group (not relevant in the case of the Defendant), the date that he no longer holds any Shares or the date of payment of the final instalment of the Option Price pursuant to Clause 15.5(b) – which I set out below] , no Seller will directly or indirectly without the Purchaser's prior consent: (a) carry on or be engaged, concerned or interested in competition with the Group, in the Restricted Activities [being the provision of products and/or services of a competitive nature to the products and/or services provided by the Group Companies in the twelve months prior to the date of the alleged breach of Clause 11.2] within the Prohibited Area [being any countries in which the Group Companies have carried on the business of marketing communications and ancillary services at any time in the period of twelve months prior to the date of the alleged breach] ; (b) solicit or knowingly accept any orders, enquiries or business in respect of the Restricted Activities in the Prohibited Area from any Client [being a client or potential client of any Group Company which has placed any order in connection with the Restricted Activities during the twelve months prior to the date of the alleged breach or which was in discussions with and Group Company in relation to such provision in such period] ; (c) divert away from any Group Company any orders, enquiries or business in respect of the Restricted Activities from any Client; or (d) employ, solicit or entice away from or endeavour to employ, solicit or entice away from any Group Company and senior employee or consultant employed or engaged by that Group Company. " There were additional obligations on the Sellers in Clause 11.3 relating to passing off and confidential information, which are not relevant to these proceedings. By Clause 7.5 ("the Carat Clause") the Defendant and Joe agreed within four months after completion to dispose of any shares held by them in Carat Middle East, and to procure that a joint venture agreement (as defined), to which Group Carat (Nederland) BV and the Defendant were parties, would be terminated. Carat is defined on its website as " the world's leading independent media planning and buying specialist…Owned by global media group Aegis Group Plc… [with] more than five thousand people in seventy countries worldwide ", and is admittedly a competitor of the Claimants/WPP. iii) There was a further covenant provided in Clause 11.7 restrictive of the Claimant: " The Purchaser recognises the importance of the Group to the Sellers and to the value of the Interim Payment and the Final Payment. Accordingly, the Purchaser commits as set out below to ensure that the interests of each Seller in that goodwill is properly protected. The Purchaser will not (and will procure that no other member of the WPP Group will) at any time until the end of the last financial period relevant to the calculation of the Consideration without the Sellers' prior written consent other than within the Group Companies, trade in any of [twenty three identified] countries…using [specified] names. " The Defendant resigned as non-executive chairman in April 2009, and on 1 July 2009, at the Company's request, resigned as non-executive director of all companies, save the Company itself, from whose board he was removed on 27 April 2011, after the commencement of these proceedings. What was discovered by the Claimants by December 2010 was that the Defendant had acted in breach of his duties to the Company as Director and, as Cavendish contends, thus also in breach of his obligations under Clause 11.2 of the Agreement. These proceedings were commenced on 15 December 2010, in which Cavendish sues for breach of the Agreement, and the Company for breach of fiduciary duty. The Defendant eventually admitted, only as recently as October 2012, when with my consent his Amended Defence and Counterclaim was reamended, that he was in breach of duty to the Company. Very substantial allegations had been pleaded, and were to be the subject of evidence, in respect of the Defendant's alleged breaches. The Defendant admitted (without accepting all such factual assertions by the Claimants) that he had in fact (in breach of the Carat Clause) continued to be involved and interested in Carat. A Part 36 offer was made by the Defendant to the Company in respect of the Company's claim for breach of fiduciary duty in the sum of $500,000, and was accepted by the Claimant on 8 October 2012. The proceedings have continued in respect of the Claimant's claim for breach of the Agreement (together with certain other matters relating to dividends, which are not before me at this stage). As a result of this slimming down of the case, to avoid any need for proof of the alleged breaches at this stage, the issues before me have been effectively ones of law in relation to the effect of the Agreement, and have been ably and effectively argued by counsel, Joanna Smith QC and Richard Leiper for Cavendish and Michael Bloch QC and Camilla Bingham for the Defendant. Apart from the provisions of the Agreement which I have set out in paragraphs 3 and 4 above, the other material clauses (again incorporating the definitions where appropriate) are now set out: i) Defaulting Shareholder is defined in Schedule 12 as: " a) A Seller whose employment with the Company is lawfully summarily terminated by the Company where that Seller: i) has committed any act of gross misconduct… ii) is convicted of an offence of dishonesty or violence… iii) is found in a court of law to have committed any deliberate act of harassment… and (in any such case) there is material prejudice to the interests of the Group arising from the facts giving rise to such termination or b) A Seller who is (a) in breach of Clause 11.2 hereof ." The superfluous (a) is the residue from an earlier additional sub-clause which was, as referred to in paragraph 13(i) below, deleted during negotiations. An issue remains, not for determination by me at this stage in the proceedings, as to when the default, i.e. the breach of Clause 11.2 first occurred, which is or may be relevant to Clause 5.6 below. At present, in paragraph 9(a) of the Reamended Defence and Counterclaim it is admitted that " after 28 February 2008 the Defendant had an ongoing, unpaid involvement in the affairs of Carat ". Mr Bloch is awaiting instructions as to whether to seek leave to withdraw or amend such admission. ii) By Clause 5.1 under the heading "DEFAULT", it is provided that " if a Seller becomes a Defaulting Shareholder he shall not be entitled to receive the Interim Payment and/or the Final Payment which would other than for his having become a Defaulting Shareholder had been paid to him and the Purchaser's obligation to make such payments shall cease ". iii) Clauses 5.6 and 5.7 read as follows: " 5.6. Each Seller hereby grants an option to the Purchaser pursuant to which, in the event that such Seller becomes a Defaulting Shareholder, the Purchaser may require such Seller to sell to the Purchaser (or its nominee) all (and not some only) of the Shares held by that Seller (the Defaulting Shareholder Shares). The Purchaser (or its nominee) shall buy and such Seller shall sell with full title guarantee the Defaulting Shareholder Shares… within 30 days of receipt by such Seller of a notice from the Purchaser exercising such option in consideration for the payment by the Purchaser exercising such option in consideration for the payment by the Purchaser to such Seller of the Defaulting Shareholder Option Price [defined as " an amount equal to the Net Asset Value [NAV] on the date that the relevant Seller becomes a Defaulting Shareholder – hence the relevance of the date discussed in (i) above – multiplied by " the percentage which represents the proportion of the total shares the relevant Seller holds]. 5.7. The Purchaser may in its absolute discretion satisfy the Defaulting Shareholder Option Price in cash or by procuring the issue of such number of WPP Shares to the relevant Seller as shall, when placed by WPP Group plc's stockbroker in the open market on such Seller's behalf, realise… a cash sum in the hands of such Seller equal to the Defaulting Shareholder Option Price. For such purposes, the Purchaser shall place such WPP Shares in the open Markey and release the relevant payment to the relevant Seller as soon as possible after its due date… " iv) By Clause 13.4 (with specified exceptions) the Purchaser and the Sellers (for so long as either Seller remained a shareholder in the Company) agreed to procure that " subject to the retention of such reasonable and proper reserves as the board of each Group Company determines to be required for its own foreseeable working capital and investment requirements ", each Group Company will promptly distribute by way of dividend the maximum amount of profit lawfully available for distribution at the end of each financial year. v) Clause 14.2 relates to the entitlement of the Sellers to remain a director of the Company for so long as they continued to hold shares in the Company (subject to their being liable to be removed in the event of conflict with their duties). vi) Clause 5.6 is the call option, set out in (iii) above, by which the Claimant is given the right to acquire the Defendant's shares in the event of breach of Clause 11.2. It is common ground that if that call option becomes available, it overrides and ousts the put option provided by Clause 15.1 set out below, which in any event could not be exercised by the Defendant prior to 1 January 2011. vii) Clause 15 can be summarised as follows: a) Clause 15.1 records the granting by the Claimant to each Seller of an option exercisable by a Notice, provided for in Clause 15.2, to sell all (and only all) his remaining shares at a price determined in accordance with Clause 15.3. b) By Clause 15.2 the Defendant may serve such a Notice at any time between 1 January and 31 March 2011 or any subsequent year, and upon delivery of such a Notice Cavendish would become bound to buy and the Defendant bound to sell all such remaining shares held by him. c) The option price (subject to a cap under Clause 15.4 of $75 million in the case of each individual Seller, save as there set out) is calculated by multiplying by 8 the average OPAT for the four years consisting of the year prior to, the year of and the two years immediately following the service of the Notice, times the percentage of the Seller's shareholding in the Company. Cavendish claims that the Defendant is in any event, by virtue of his admissions of breach of fiduciary duty, in breach of clause 11.2 in relation to (at least) his continued involvement in Carat, and seeks a declaration that the Defendant is a Defaulting Shareholder, is not entitled to payments of the Interim Payment or the Final Payment as a result of Clause 5.1, and is obliged, as of the date 30 days after the service of a Notice by it pursuant to Clause 5.6, namely 14 January 2011, to sell to Cavendish all his shares in the Company at the Defaulting Shareholder Option Price , and it seeks specific performance of the latter obligation. Cavendish did seek damages for the breach of the Agreement, but in the light of the Defendant's response that all its pleaded case (in paragraph 31 of the Reamended Particulars of Claim) was by reference to the loss of value in its shareholding in the Company by virtue of the Company's losses included in paragraph 30 of the same pleading, and that such was irrecoverable as " reflective " (or, as I prefer, derivative ) loss, (irrecoverable as a result of the decision of the Court of Appeal in Prudential Assurance Co. Ltd v Newman Industries Ltd (No. 2) [1982] Ch 204 and in the House of Lords in Johnson v Gore Wood and Co. [2002] 2 AC 1 ), it no longer pursues such claim for damages in these proceedings. The Company's claim for damages has of course been compromised as set out in paragraph 6 above. The Defendants' case is as follows, all upon the basis that if its submissions in law fail then it accepts that it has no defence on the facts: i) Clause 11.2, of which he would otherwise admit he is in breach, is in unreasonable restraint of trade, the onus of proof being upon Cavendish to establish the contrary, such that Cavendish cannot enforce it in whole or in part ("Restraint of trade"). No issues of the public interest arise, in respect of which the onus would lie on the Defendant. ii) Clauses 5.1 and/or 5.6 is/are unenforceable penalty clause(s), the onus being upon the Defendant so to establish ("Penalty"). iii) The proper construction of Clause 5.6 is that the Defendant is only bound to sell (and/or transfer) his shares when the true Defaulting Shareholder Option price is tendered or paid (paragraph 6 of its Reamended Defence and Counterclaim, added as of 29 October 2012). The consequence of that is that (the " date that the relevant Seller becomes a Defaulting Shareholder " not yet having been formally declared, and hence the value as at that date not being thus able to be determined) the Defendant has not yet been obliged to transfer the shares in law or in equity, and (implicitly) another notice must now be served. It is common ground between the parties that, both for the purpose of resolving the reasonableness of the covenant, and the commercial justifiability and otherwise propriety of the alleged penalty clause(s), the factual matrix is admissible in that regard: see in particular as to restraint of trade Haynes v Doman [1899] 2 Ch 13 at 24, Bridge v Deacons [1984] 1 AC 705 at 714 and Dawnay Day & Co v De Braconier d'Alphen [1998] ICR 1068 at 1075, 1086 – 1087 (Walker J) and 1100 D-H (CA) and as to the law of penalties Lombank Ltd v Excell [1964] 1 QB 415 (CA) at 427 and Murray v Leisureplay Plc [2005] IRLR 946 (CA) at paras 52, 106. The Claimant served witness statements from a number of witnesses which it was intended to call, but in the event, and as a result of the admissions by the Defendant, the evidence of only two witnesses was to be adduced, and since the Defendant chose not to require them to be called for cross examination, their evidence was read, namely the evidence of Mr Andrew Scott, WPP's Director of Corporate Development since 1999, who led the commercial team that negotiated with the Defendant and Joe in relation to the acquisition, and the first 24 paragraphs of a witness statement by Joe, who was of course party with the Defendant to those negotiations, and remained as Chief Executive Officer of the Group after the acquisition. There is, in relation to the issue of penalty, dispute by Mr Bloch as to the effect of some parts of the (thus unchallenged) evidence of Mr Scott, to which I return below, but, that apart, I summarise the effect of the factual matrix evidence: i) The Defendant's Group, prior to the Agreement, according to the Due Diligence Report prepared by KPMG on 17 August 2007 for Cavendish (not challenged by the Defendant) " provide(d) advertising, media, direct marketing and public relations services in more than 15 countries across the Middle East and North Africa, via a network of around twenty companies with more than 30 offices. ...the Group has a high profile in the region and its activities are frequently reported in the local media. " The Defendant was described as " a key principal and major shareholder …[He] reportedly established [the Group] in 1983 in Jeddah in Saudi Arabia. He was also the driving force behind...the operations...in Lebanon. He is a well known and high profile figure in the Middle East advertising sector ". Joe describes in paragraph 9 of his witness statement how the business " as of 1994 grew into one of the largest and most successful advertising and marketing communications groups in the Middle East. The success of the business led to a corresponding growth in the individual influence of both [the Defendant] and me in the Middle East ", and he refers to and produces the December 2008 edition of Lebanon Opportunities magazine, which listed the Defendant as one of the fifty most influential business leaders in the whole of Lebanon: Joe too was very influential, as he there describes and evidences. The Defendant himself in a subsequent email of 25 March 2009, told a Mr Povey of WPP to " remember that I am the founder of the Group and my name is very much linked and in many markets: especially Lebanon ". ii) The terms of the Agreement were heavily negotiated, over six months, with each side represented by well known and very experienced Solicitors, Allen and Overy for the Claimant and Lewis Silkin for the Defendant and Joe. As discussed in paragraph 2 above, the Defendant did not want a Service Agreement after completion, unlike Joe, because (paragraph 21 of Joe's statement) his " stated position was that he did not want to be an employee, and indeed intended to get out of advertising altogether, as he intended to pursue a career in politics in Lebanon ". He and the Defendant entered into Clause 11.2 (paragraph 23) since he was " quite happy to agree to restrictive covenants, as I recognised the vital importance of goodwill to business in the advertising sector, particularly in the Middle East, where personal relationships are so crucial to doing business: for this reason for restrictive covenants to be effective it is important to seek to prevent clients being solicited but it is also as important to try to prevent staff being poached: without its clients an advertising business is nothing. " iii) In his statement, at paragraph 10, Mr Scott describes the importance of securing the continued interest of sellers, who were founders of a company, in the success of the company, and the need for the purchasers to protect their investment and the goodwill of the business purchased. At paragraph 11 he said that the Defendant had been critical to the success of the Group: " he was its founder, a leading business personality in the sector, and had very strong relationships, both with clients and with many senior employees… we did need to ensure he retained a business interest – the shareholding – that would keep him involved and "interested" in ensuring the success of the company and also help us protect the business via covenants ." At paragraph 15 he said that " this type of business in the Middle East is typically dependent upon personal relationships established between the agencies and their clients: for many of the key client contacts (which were the foundation of [the Group] that personal relationship depended upon Joe and [the Defendant]. It was therefore important for WPP both to understand their future intentions and to ensure that they could not damage the businesses value post-acquisition. " iv) Finally he said this at paragraphs 30ff: " As Clause 11.1 makes clear, these restrictions are intended to protect the value of the goodwill in the group of companies which the ... Claimant...was purchasing. This was both the goodwill at the point of purchase and the anticipated goodwill during the period in which the Sellers retained an interest in the business. That goodwill is represented by the... Claimant's interest in and the value to it of the stability of the Group's customer connections, the Group's ability to attract new customers (through the recommendation of existing customers and through the maintenance of its reputation) and the stability of the Group's work force… 32. The date of payment of the final instalment of the option price under Clause 15.5(b)... is the date upon which the individual ceases to have any involvement in the business which he has sold. The period of restraint is defined as being the period up until twenty four months following the Relevant Date. 33. …Given the strength of [the Defendant's] long-standing connections with clients and senior employees and his high profile as a successful businessman in the Middle East, I have no doubt that this period was necessary in order to protect the business. At the time that the [Agreement] was agreed, we did not anticipate that those connections would diminish to any significant degree whilst he maintained a shareholding in the company. This was because he was and remained such a well known figure within the region and was so strongly identified with this business; indeed he was known to be the founder of [it]. " There is again no issue between the parties as to the fact that the drafts were amended as between the respective solicitors (after detailed communication with their clients) in the course of negotiations, and the following in particular is clear: i) Whereas it was specifically provided, in what subsequently became the Defaulting Shareholder definition (see paragraph 7(i) above), that a breach of the obligation set out in sub-paragraph (a) was required to result in material prejudice, it was specifically discussed whether there should be a similar provision in relation to sub-clause (b). It is in fact clear that that discussion was against the background that the then draft had two limbs to sub-clause (b) (I refer to paragraph 7(i) above), namely a second limb (b), referring to a clause in (and schedule of) Joe's Service Agreement, which could lead to, as Lewis Silkin put it, what was " otherwise a minor breach of e.g. the confidential information schedule in the Service Agreement " triggering the Defaulting Shareholder provision. The result of this discussion was not an insertion of a further materiality provision, but the exclusion of what was (b) within sub-clause (b) – hence the residue of a superfluous (a) . There was, thus, effectively a compromise, and the Claimant continued to assert before me that any breach of Clause 11.2, in the case of these sellers, would be material, and in any event would and should trigger the Defaulting Shareholder provisions. ii) Lewis Silkin drafted, and insisted on the inclusion of, what is now Clause 11.7 (see paragraph 4(ii) above). Allen and Overy backed down, after a reduction in the duration of the covenant. iii) There was initial objection to the duration of the obligation under Clause 11.2. Lewis Silkin backed down. iv) There was objection by Lewis Silkin as to the basis upon which the valuation under Clause 5.6 would be carried out. Lewis Silkin contended for " fair value ", to be agreed or determined by an independent firm of chartered accountants, though they recognised the need for a provision, which they proffered, that " in determining a fair market value for these purposes the independent chartered accountant shall take due account of the Purchaser's representations as to the Group's future prospects following the events which resulted in the Seller becoming a Defaulting Shareholder ". There was considerable negotiation, with Lewis Silkin referring to this as a ' key issue for Joe ' (seemingly not for the Defendant). Allen and Overy resisted, and Lewis Silkin, acting for the Defendant and Joe, backed down. The significant impact of all this, the detail of which does not in effect matter, is in my judgment as follows: i) That these were negotiations for a substantial vendor–purchaser agreement, with payment to the Defendant (and Joe) of very substantial consideration and not (at any rate in relation to the Defendant) for a Service Agreement. ii) There was plainly a level playing field. The Defendant (and Joe) were keen to sell, and to receive substantial consideration, over and above the assets and liabilities of the company (its assets according to the balance sheet of 28 February 2008, which was Schedule 11 to the Agreement, being $69 million) in respect of the goodwill which they had created, and Cavendish was keen to buy, but determined to protect that goodwill, which it did not wish to see destroyed. Restraint of Trade Counsel for the parties very helpfully agreed a list of Propositions of law with regard to restraint of trade, which I set out below and happily accept, subject to a few additions I make by reference to non-controversial submissions made to me, and to the 32 authorities to which I was referred. i) Cavendish must show that the restraints in Clause 11.2 of the Agreement go no further than was reasonable for the protection of its interest: Mason v Provident Clothing and Supply Co Ltd [1913] AC 724 at 733 (per Lord Haldane L. C.) and 737 – 738 (per Lord Shaw). ii) The question of reasonableness is to be assessed as at the date of the Agreement, including a reasonable assessment of the future: Bridge v Deacons (supra) at 718: see also Putsman v Taylor [1927] 1 HB 637 at 643 and Gledhow Autoparts Ltd v Delaney [1965] 1 WLR 13 66 per Lord Diplock at 1377. " Deferred restraint " is permissible as a " means of protecting the plaintiff's interest in the client connection which they had acquired... to compel a severance of the personal connection with the defendant when that should become necessary but not before " (per Millett J in Allied Dunbar (Frank Weisinger) Ltd v Weisinger [1988] IRLR 60 at paragraph 21). iii) For a restraint to be reasonable in the interests of the parties, it must afford no more than adequate protection to the party in whose favour it is imposed: Herbert Morris Ltd v Saxelby [1916] AC 688. iv) A restraint may be enforced when the covenantee has a legitimate interest, of whatever kind, to protect, and when the covenant is no wider than is necessary to protect that interest: Dawnay, Day (supra) (including a stable workforce and customers): and as to goodwill, being " the reputation and connection… which may have been built up by years of honest work or gained by lavish expenditure of money " see Trego v Hunt [1896] AC 7 at 24 per Lord Macnaghten. v) The two questions for the Court are therefore: (i) What are the interests which it is legitimate for the Claimant to protect? and (ii) Is the protection taken through Clause 11.2 no more than is reasonably necessary to protect those interests ( Allied Dunbar supra)? vi) The law distinguishes between covenants in employment contracts and covenants in business sale agreements. There is more freedom of contract between buyer and seller than between master and servant, because it is in the public interest that the seller should be able to achieve a high price for what he has to sell: Nordenfelt v The Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 , Mason v Provident Clothing (supra) and Attwood v Lamont [1920] 3 KB 571: see also Ronbar Enterprises Ltd v Green [1954] 1WLR at 820 and at 821 per Jenkins LJ: " It is obvious that in many types of business the goodwill would be well-nigh unsaleable if it was unlawful for the vendor to enter into an adequate covenant against competition. " The quantum of consideration may enter into the question of the reasonableness of the covenant: Alec Lobb Ltd v Total Oil (Great Britain) Ltd [1985] 1WLR 173 (CA) at 179, 191 (citing Nordenfelt (supra) at 565). vii) Even in the business sale context, however, if a covenant goes further than is reasonably necessary to protect a legitimate business interest, it is void and will not be enforced: Nordenfelt (supra). viii) The Court should be slow to strike down clauses freely negotiated between parties of equal bargaining power, recognising that parties are often the best judges of what is reasonable as between themselves: North Western Salt Co Ltd v Electrolytic Alkali Co Ltd [1914] AC 461 at 471, Esso Petroleum Ltd v Harpers Garage Ltd [1968] AC 269 at 300, Allied Dunbar (supra) at paragraph 32, Dawnay, Day (supra) esp. at 1107 (CA), Emersub XXXVI Inc v Wheatley per Wright J (QB) at p13. However the court's deference to the parties is not absolute. The mere fact that parties of equal bargaining power have reached agreement does not preclude the court from holding the agreement bad where the restraints are clearly unreasonable in the interests of the parties: Kores Manufacturing Co. Ltd v Kolok Manufacturing Co. Ltd [1959] 1 Ch 108 (where the restraint was held to be " grossly in excess of what was adequate " (at 124)). The onus is on the Claimant to establish the reasonableness of the restraints (proposition (i) above). This is a vendor-purchaser covenant, in relation to which (see proposition (vi)) such onus is not a heavy one. As appears from the recitation in Clause 11.1 of the Agreement (paragraph 4(i) above) and the evidence summarised in paragraph 12 above, there was substantial goodwill in the business, for which Cavendish paid substantial monies – see Alec Lobb (supra). Cavendish in essence, as Ms Smith put it in oral argument, was ' buying a clear run ', as it was entitled to do. The Defendant did not criticise any particular aspect of the restrictions (save as to duration, to which I shall refer below). There was no challenge to the width of the Prohibited Area (save in one respect, called the 'Yemen point' in argument, which Mr Bloch in the event did not pursue), to the Restricted Activities or to the definition of Client . Mr Bloch referred to what he called an " elision of threats ", suggesting that there was no sufficient consideration of the need for the separate covenants, but it seems to me clear that there was simply an effective protection of the goodwill (including customers and workforce) against competition by the founder of the business which Cavendish was purchasing who would be a formidable competitor, and who specifically agreed by Clause 7.5 to terminate his contract with Carat (and did not). There were inevitably references by Mr Bloch to the discussions referred to in paragraph 13(i) above during negotiations, which resulted in any breach of Clause 11.2 being left as a triggering breach without an express requirement for it to be material . However, not only is it clear that (as there described) this was fully negotiated 'on a level playing field' as between experienced lawyers for vendor and purchaser (not employer/employee), but I am satisfied that it was entirely reasonable for the purchaser to take the view, and for this court to conclude, that any 'competition breach' was material. Various metaphors were used in argument, mostly by me – the 'big beast on the prowl' or the 'wolf among the folds' – but it is clear to me that the Claimants were entitled to be concerned that they required protection from any competition by the Defendant, in any of the respects set out in Clause 11.2. The interest which was protected was against competition by a very influential vendor, but in addition one who was continuing as a non-executive chairman/director of the Company (with additional obligations under the Appointment), and, even after the expiry of the Appointment, as director and minority shareholder. The Claimant was in my judgment entitled to the deferred restraint referred to in Proposition (ii). Mr Bloch submitted that the provision for the restraint was uncertain, because the date of its commencement or duration was uncertain, thus rendering the covenant unreasonable. I do not accept this. While he remained a director, he would in any event owe similar fiduciary duties. Its real significance would be in effect at some stage in the future when he would cease first to be a director and then to be a minority shareholder, but any such covenant in an employment contract or a partnership agreement (e.g. Bridge v Deacons ) will only become significant once the covenantor leaves the employment or partnership at a date in the future. The deferred restraint in this case was clear, certain and required. As to the duration of the covenant, it is explained by Mr Bloch to be one for a minimum of eight and a half years. This is because (absent an earlier breach and operation of Clause 5.6) the call option under Clause 15 can only be operated by the Defendant (at the earliest) between January and March 2011, whereafter there then follows the period for calculation of the relevant OPAT for the next two years (see paragraph 7(vi)(c) above), and then two years. The Defendant thus had the freedom to relieve himself of the covenant, and be free to compete, by exercising the call option, but he would have to wait to be free until summer 2016. Mr Bloch submits that this was far too long. He referred to the advice of the Office of Fair Trading as in some way indicative, but I found this analogy unhelpful, not only because such (non-binding) advice does not apply to an international merger, but because it certainly has no application to the facts of this case. There was some discussion, raised by me, as to the possible use of a blue pencil in respect of the definition of Relevant Date, which I have incorporated into my recitation of Clause 11.2 in paragraph 4(ii) above and now repeat: " Relevant Date means in respect of a Seller the later of the date of termination of his employment by the Group, the date that he no longer holds any Shares or the date of payment of the final instalment of the Option Price pursuant to Clause 15.5(b). " The first of the three dates is of no relevance to the Defendant, as I have already stated, and I raised the question as to whether the third limb could be severed, so as to leave only " the date that he no longer holds any Shares ", as being the Relevant Date (see Attwood v Lamont (supra) at 577). Mr Bloch further pointed out that the restrictive covenant imposed on Cavendish, restraining competition with its business by other members of the WPP Group in Clause 11.7, lasted only for some four years, until after the calculation of the Final Payment. I am satisfied that there is no substance in Mr Bloch's contentions: i) With regard to Clause 11.7, this is certainly a similar covenant, but in no way identical to the protection against competition needed by Cavendish; but in any event, as appears in paragraph 13(ii) above, it was negotiated in by the Defendants' solicitors, and accepted, knowing that it was in respect of a different period. ii) The minimum period of eight and a half years is, in my judgment, tied to a relevant interest of Cavendish. There is no call to consider severance, even if it were otherwise available, given that the period of restriction is tied to the minority shareholding interest of the Defendant, its calculation and its deferred acquisition. iii) In any event, the time of a minimum of eight and a half years is not in my judgment an unreasonable period of protection for the Claimant. In Nordenfelt , the very authority relied upon for Proposition (vii), the covenant against competition by the vendor for twenty five years was upheld (as was an indefinite covenant in Leather Cloth Company v Lorsont [1869] LR 9 Eq 345). iv) In any event, as has been frequently stated, at any rate in vendor-purchaser covenants, there is no reported case in which a restriction otherwise reasonable has been held to be unreasonable on grounds of duration (see Connors Bros. Ltd v Connors [1940] 4 AER 179 (PC) at 195a and Bridge v Deacons (supra) at 717). Lord Shaw in Mason v Provident Clothing (supra) referred to as a basis for Proposition (vi) sets out the position plainly: " It may clearly appear that the express view of the bargain may have been the elimination from the sphere of competition of the powerful personality of a possible rival who, by the very terms of the contract, had been paid for disappearing into retirement, carrying his sheaves with him. In such cases a restraint is enforced by the law. " v) 'Judicial deference', referred to in Proposition (viii) is of particular significance in this case. Kores v Kolok (supra), there referred to, is a very different, and probably exceptional, case, where the two significant players in the relevant (newspaper) business, according to the judgment of Jenkins LJ at 125 " have, as it seems to us, sought to do indirectly that which they could not do directly, by reciprocal undertakings between themselves not to employ each other's former employees, entered into over the heads of their respective employees, and without their knowledge ". I remind myself of the words of Millett J in Allied Dunbar (supra) at para 32, where, in referring to a situation in which there has been negotiation by both sides, as to covenant and price, " just as the parties are the best judges of the reasonableness as between themselves of the terms they have negotiated, so the price is the best means of adjusting the otherwise disproportionate advantages and disadvantages of the other terms of the contract ". vi) Mr Bloch submits that it is significant that the covenants are here to be enforced by reference to clauses which are submitted to amount to a penalty. If they do so amount, a matter to which I shall now turn, then they will fall away. If they do not, then I do not agree with Mr Stanley Burnton QC, to whose judgment, as a Deputy Judge of the High Court in Taylor Stuart and Co. v Croft 9 April 1997 (Ch), that this factor may possibly be relevant, Mr Bloch referred. If the covenants in this vendor-purchaser agreement are of themselves not in unreasonable restraint of trade, then the fact that in the event of a breach of them they may actually be enforced by proceedings, either for an injunction or for the enforcement of the provisions of the contract, does not render them any less reasonable, or any more in restraint of trade. I am satisfied that the provisions of Clause 11.2 are not in unreasonable restraint of trade. Penalty Clauses 5.1 and 5.6, set out in paragraph 7 above, are submitted by the Defendant to constitute, both severally and, a fortiori, together, a penalty. As with the restraint of trade arguments, counsel have put together a bible of the relevant authorities on this topic, 28 of them. The starting point was the seminal speech of Lord Dunedin in Dunlop Pneumatic Tyre Co. Ltd v New Garage and Motor Co. Ltd [1915] AC 79 , for which he had had a dry run in delivering the judgment of the Privy Council in Public Works Commissioner v Hill [1906] AC 368 . There were three other speeches of their Lordships in the House of Lords, and, as they were unanimous, to an extent their speeches must be drawn on in order to flesh out the conclusions of Lord Dunedin. I set them out as follows, as further occasionally clarified by subsequent judicial authority: i) [Lord Dunedin's second proposition at page 86]: " The essence of a penalty is a payment of money stipulated as in terrorem of the offending party. " As Mance LJ pointed out in Cine Bes Filmcilik v United International Pictures [2003] EWCA Civ 1669 [2004] 1 CLC 401 at paragraph 13, such wording is no longer as accessible as it was in 1914, and he preferred and approved the words of Colman J in Lordsvale Finance Plc v Bank of Zambia [1996] QB 752 at 762G where he said " 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 ". ii) [Lord Dunedin's proposition (3)]: " The question whether a sum stipulated is [a] penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach. " Lord Woolf, delivering the judgment of the Privy Council in Philips Hong Kong Ltd v The Attorney General of Hong Kong [1993] 61 BLR 41 at 59, added a caveat, which does not appear to feature in any other reported case, namely that " the fact that the issue has to be determined objectively, judged at the date the contract was made, does not mean that what actually happened subsequently is irrelevant. ". iii) [Lord Dunedin's proposition 4(a)]: " It will be held to be [a] penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach. " This is adopted in similar words by Lord Atkinson at 95 (" unconscionable and extravagant…having regard to any possible amount of damage likely to have been in the contemplation of the parties when they made the contract "). Lord Parker of Waddington at 97 is somewhat less clear: " If…the sum agreed to be paid is in excess of any actual damage which can possibly, or even probably, arise from the breach, the possibility of…a bona fide pre-estimate of damage has always been held to be excluded. " However, Lord Parmoor at 101 uses identical words to Lord Atkinson (" extravagant or unconscionable in relation to any possible amount of damages that could have been within the contemplation of the parties "). It is Lord Dunedin's words which are regularly quoted thereafter, e.g. in Murray v Leisureplay Plc [2005] IRLR 946 (CA) per Clarke LJ at para 106(vi) and in terms per Buxton LJ at para 116 where he refers to the words of Lord Dunedin's proposition 4(a) as " a principal test ". iv) [Lord Dunedin's proposition 4(c)]: " There is a presumption (but no more) that it is [a] penalty when "a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage". " This is clarified by Lord Parker at 98, where he is unfazed by the possibility that actual damage may vary from nominal damage right up to substantial damage, where " whatever damage there is must be the same in kind for every possible breach [in his example a solicitation of a customer, which may be unsuccessful or successful, and, if the latter, varying greatly according to the value of the custom lost] and the fact that it may vary in amount for each particular breach has never been held to raise any presumption or inference that the sum agreed to be paid is a penalty ". He therefore concludes that " a distinction should be drawn between cases in which the damage likely to accrue from each stipulation is the same in kind and cases in which the damage likely to accrue varies in kind with each stipulation ". In the latter case a presumption might arise (always capable of being displaced) if " the damage likely to accrue from breaches of the various stipulations being in kind different, a separate pre-estimate in the case of each stipulation " was not provided. v) [Lord Dunedin's proposition 4 (d)]: " 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. " In Colman J's judgment in Lordsvale , to which I have referred above, he encapsulated the modern approach to penalties, some eighty years on from Lord Dunedin, not only by reference to the modernisation of the language. In a passage which was subsequently approved by the Court of Appeal in both Cine Bes per Mance LJ at para 15 and in Murray , he made it clear that the analysis of whether a provision was or was not a penalty no longer depended upon the dichotomy between a liquidated damages clause and a penalty and upon the need to concentrate upon whether there was a genuine pre-estimate of loss in order to resolve such dichotomy. He said this (763G-764A): " It is perfectly true that for upwards of a century the courts have been at pains to define penalties by means of distinguishing them for liquidated damages clauses. The question that has always had to be addressed is therefore whether the alleged penalty clause can pass muster as a genuine pre-estimate of loss. That is because the payment of liquidated damages is the most prevalent purpose for which an additional payment on breach might be required under a contract. However, the jurisdiction in relation to penalty clauses is concerned not primarily with the enforcement of inoffensive liquidated damages clauses but rather with protection against the effect of penalty clauses. There would therefore seem to be no reason in principle why a contractual provision the effect of which was to increase the consideration payable under an executory contract upon the happening of a default should be struck down as a penalty if the increase could in the circumstances be explained as commercially justifiable, provided always that its dominant purpose was not to deter the other party from breach. " Mance LJ said at para 15 in Cine Bes : " I have…found valuable Colman J's further observations in Lordsvale …which indicate that a dichotomy between a genuine pre-estimate of damages and a penalty does not necessarily cover all the possibilities. There are clauses which may operate on breach, but which fall into neither category, and they may be commercially perfectly justifiable. " This concentration on commercial justification becomes the more significant as the law has developed, as will be seen, so as to apply the concept of penalty in a wider context. Thus I concluded in M&J Polymers Ltd v Imerys Minerals Ltd [2008] 1 AER (Comm) 893 that a 'take or pay clause' might qualify as a penalty clause, i.e. that the concept of penalty could apply to a debt claim as much as to a damages claim (contrary to the previous understanding in Jervis v Harris [1996] Ch 195 ). My conclusion (at paragraph 46) was that the clauses in question plainly had commercial justification and (as I summarise in paragraph 25 of my later judgment in E-Nik Ltd v Department for Communities and Local Government [2012] EWHC 3027 (Comm) ) " did not amount to oppression, were negotiated and freely entered into between parties of comparable bargaining power and did not amount to a provision in terrorem " (see also Lancore Services Ltd v Barclays Bank Plc [2008] EWHC 1264 (Ch) [2008] 1 CLC 1039 at para 98 per HHJ Hodge QC). Quite apart from the fact that the onus of establishing that a provision is an unenforceable penalty lies upon the party so asserting, there is substantial authority as to the reluctance of the court so to conclude; a reluctance of a substantially greater variety than the 'judicial deference' to which I have referred in the case of restraint of trade at paragraph 15(vii) above. Diplock LJ in Robophone Facilities Ltd v Blank [1966] 1 WLR 1428 (CA) at 1447 stated 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 of the former ". Lord Woolf in Philips at 58 agreed with Diplock LJ, and approved the view of Dickson J in the Supreme Court of Canada in Elsley v JG Collins Insurance Agencies Ltd [1978] 83 DLR 1 at 15 (itself approved by the Australian High Court in Esanda Finance Corporation Ltd v Plessnig [1989] ALJ 238) that: " It is now evident that the power to strike down a penalty clause is a blatant interference with 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 oppression. " In expressing his agreement, Lord Woolf referred to the fact that " it will normally be insufficient to establish that a provision is objectionably penal ". Similarly Jackson LJ in Alfred McAlpine Projects v Tilebox [2005] EWHC 281 (TCC) 104 Con LR 39, at paragraph 48, noting that he had only seen four reported cases where a clause has been struck down as a penalty, stated that " because the rule about penalties is an anomaly within the law of contract, the courts are predisposed, where possible, to uphold contractual terms which fix the level of damages for breach. This predisposition is even stronger in the case of commercial contracts freely entered into between parties of comparable bargaining powers ". Lewison J similarly stated in Meretz Investments NV v ACP Ltd [2007] Ch 197 at para 349 that " to characterise a clause as a penalty, with the consequence that the court will refuse to enforce it, is a blatant interference with freedom of contract, and should normally be reserved for cases of oppression ". I have referred in paragraph 27 above to the way in which in more modern times the concept of penalty, while remaining a rara avis, has, at least in principle, moved outside the original province of a clause providing for an extravagant assessment of (liquidated) damages. One development, to which I have referred, was to expand its operation, although in the event unsuccessfully, into what was otherwise a claim in debt. Another is so as to apply the concept to a contractual agreement for the transfer of property, as (although again unsuccessfully on the facts) in Else (1982) Ltd v Parkland Holdings Ltd [1994] 1 BCLC 130, where Evans LJ stated (at page 137) that " the common law rule against penalties can operate against a clause which provides for the transfer of property or other monies worth as distinct from the payment of money itself ". However the most relevant extension for the purposes of this case (and in particular by reference to Clause 5.1) is the extension of the doctrine of penalty to embrace not only a provision for the payment or transfer of money (or property), but a provision which on its face entitles the innocent party to withhold monies which it otherwise would be required to pay over. The courts have strayed into an area previously thought to be occupied only by the doctrine of forfeiture, thus " penal forfeiture ". This question was addressed in general terms in the Court of Appeal in The Fanti [1989] 1 Lloyds Rep 239, a case in which judgment was delivered on 16 July 1988. As happened more frequently in those days before the easy availability of recent and unreported cases electronically, another Court of Appeal decision, in Jobson v Johnson [1989] 1 WLR 1026, in which judgment was delivered on 25 May 1988 (to which I shall refer below) does not appear to have been cited. In The Fanti , Saville J at first instance had found that the clause in question was not a penalty clause because it did not require the contract breaker to pay money in the event of breach, but simply deprived the contract breaker of an entitlement to receive monies: he concluded that it was at best a forfeiture clause, in respect of which in some cases a party in default had an equitable right to seek relief against forfeiture. In the Court of Appeal, reliance was placed upon the decision of the House of Lords in Gilbert Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689, in which a clause disentitling a set-off was regarded by four of their Lordships (Lords Reid, Morris of Borth-y-Gest and Salmon, and Viscount Dilhorne) as penal, or a penalty or " a heavy penalising provision ". Bingham LJ, in the minority in the Court of Appeal in The Fanti interpreted the remarks of their Lordships in Gilbert Ash as obiter, since they related to a clause which in the event was not determinative of the issue, and he agreed with Saville J. He concluded that the provision was not a penalty clause, distinguishing it from forfeiture, and the need for the contract-breaker to seek relief, which would be unlikely to be granted in a commercial contract, and in any event had not been sought. Stuart Smith LJ, with whom O'Connor LJ agreed, thus forming the majority, was persuaded that the views of their Lordships in Gilbert Ash did " form part of the decision " but (at 262) in any event concluded that " in principle I can see no distinction between withholding or disentitling a person to a sum of money which is due to him and requiring him to pay a sum of money " and saw " no authority for the proposition that a forfeiture clause may not also be a penalty, if it has the necessary characteristics ". In the earlier Court of Appeal decision in ECGD v Universal Oil [1983] 1 Lloyds Law Rep 448, in which Gilbert Ash was cited (but again Jobson does not appear to have been) Waller LJ expressed - although obiter, because the clause was found not to be a penalty on the facts - a similar view to that of Stuart Smith LJ (though again it was not cited in The Fanti ) that: " If the effect of a provision in a contract between A and B is to entitle B to receive sums at the expense of A in the event of non-performance by A of one or more of his obligations under that contract, and those sums are not a genuine pre-estimate of the damage which is likely to be suffered by B in the event of such breach, then the proviso must, I think, prima face fall within the penalty area; it cannot make any difference whether B is to receive such sums by way of direct payment by A or by way of retention at A's expense. " In The General Trading Company (Holdings) Ltd v Richmond Corporation Ltd [2008] EWHC 1479 (Comm) Beatson J specifically addressed The Fanti (having been referred to Gilbert Ash and to Jobson , and another case, to which I shall refer, Workers Trust & Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573, but not to ECGD ) and he said (at 113): " The penalty rule has been seen to have application beyond the paradigm situation of a provision that requires the payment of a sum of money in the event of breach. It has been held to apply to a clause entitling the innocent party to the retransfer of the property which had previously been transferred to the contract breaker ( Jobson ...) and (see Workers Trust ...) to a clause which requires a contract breaker to forfeit a deposit or sum of money due or to become due to the other party in the event of breach. ... Whatever the position may be in a higher court, the decision in The Fanti ... that a clause entitling the innocent party to a breach of contract by the other party to withhold a payment otherwise due is subject to the penalty rule binds me. " Ms Smith accepts that I, like Beatson J, am bound by the Court of Appeal decision in The Fanti , by the majority decision of Stuart Smith and O'Conner LJ, rather than the minority view of Bingham LJ and the first instance decision of Saville J. However she points out and Mr Bloch accepts, two very significant factors arising from the apparent conclusion that the concept of penalty can be applied seamlessly to a situation of forfeiture: i) There is a very significant distinction between the concepts of penalty and of forfeiture. If the doctrine of penalty applies, then the contract-breaker is automatically relieved by the common law from compliance with the provision found to be a penalty. It is unenforceable, and the innocent party is left to sue for damages for breach of the underlying obligation. The concept of forfeiture is however different, and the consequences lie in equity. On the face of it, the forfeiture stands, and the contract-breaker loses the money (or property) in question. However the equitable remedy of the grant of relief from forfeiture then operates (if appropriate) to relieve the contract-breaker from forfeiture, but on terms which are within the discretion of the court relieving him. ii) The second factor is that it is well established (as indeed was referred to by Bingham LJ in his minority judgment in The Fanti ) that the applicability of the equitable jurisdiction in relation to relief from forfeiture is very limited indeed, possibly entirely absent in the field of commercial contracts (see for example Sport International Bussum v Inter-Footwear Limited [1984] 1WLR 776). It is certainly right that these matters were not considered by the majority of the Court of Appeal in The Fanti , but it is at this stage that, under Mr Bloch's guidance, I turn to consider Jobson , a decision of the Court of Appeal in which the leading judgments were given by those masters of the law of equity Dillon and Nicholls LJ, with whom, save as to remedy, Kerr LJ agreed. The clause in that case provided that, in default of payment of any instalment (on a share purchase) the defendant was obliged to transfer shares at a fixed price. There was a counterclaim for relief, which was struck out for non-compliance with court orders. The plaintiff had submitted at first instance that the clause was a penalty clause (which in the event the first instance judge found that it was) but that it created a binding obligation which the courts would enforce unless equitable relief were granted, which was not available because the counterclaim for relief had been struck out. The Defendant submitted that, notwithstanding the absence of the counterclaim for relief, the penalty clause could not be enforced. Both of the majority judgments recognised that (per Dillon LJ at 109B) " the appeal raises a narrow point of considerable difficulty, which only arises because of the unusual course these proceedings have taken ", and (per Nicholls LJ at 1038B–C) because the unusual circumstances had " made it necessary to grapple with problems concerning the effect of an admittedly 'penal' provision in a case where there is no extent application for relief from 'forfeiture' ". There was no appeal against the Judge's finding that the clause was a penalty clause, but in any event the Court reached a similar conclusion to that in The Fanti as to the fact that a penalty clause is not restricted to a provision requiring the payment of money as if it were liquidated damages. Dillon LJ said at 1034H: " Does it make any difference then, that the penalty in the present case is not a sum of money? In principle, a transaction must be just as objectionable and unconscionable in the eyes of equity if it requires a transfer of property by way of penalty on a default in paying money as if it requires a payment of an extra, or excessive, sum of money… There should be no distinction in principle between a clause which requires the defaulter, on making default in paying money, to transfer shares for no consideration, and a clause which in right circumstances requires the defaulter to sell shares to the creditor at an undervalue. In each case, the clause ought to be unenforceable in equity in so far as it is a penalty clause. " Dillon LJ extracted the principle from Lord Dunedin's earlier judgment in Public Works Commissioner v Hills " that a clause identified by the courts as a penalty clause cannot be enforced so as to enable a party to recover or retain more than his actual loss. " He concluded (at 1037A) that it was not open to the court to " decree specific performance of the sale of the shares to the plaintiff, but at a higher price than the £40,000, so as to recoup to the defendant what he has actually paid for the shares, since that would involve the court making a new contract between the parties. " He concluded however (at 1037F) that " by analogy to the power which the court has had for a very long time to direct an enquiry as to damages in a penalty case so as to ensure there was no enforcement beyond the plaintiffs actual loss ", alternative remedies could be offered to the innocent party, " but they cannot be forced on him. If neither is acceptable to him the appeal must, in my judgment, be allowed and the order for specific performance must be discharged, since otherwise the court would be lending its machinery to the enforcement of the penal effects of a clause which has been clearly identified as a penalty clause. But in that event...the plaintiff will be free to bring a fresh action for payment. " Nicholls LJ founded his judgment (at 1039H) on the fact that " today, when law and equity are administered concurrently in the same courts, and the rules of equity prevail whenever there is any conflict or variance between the rules of equity and the rules of the common law with reference to the same matter…, a penalty clause in a contract is, in practice, a dead letter. An obligation to make a money payment stipulated in terrorem will not be enforced beyond the sum which represents the actual loss of the party seeking payment ...or... beyond a sum recoverable as damages for breach of... obligation. ( For convenience I shall hereafter refer to that sum as "the actual loss of the innocent party )… Although in practice a penalty clause... is effectively a dead letter, it is important... to note that... the strict legal position is not that such a clause is simply struck out of the contract, as though with a blue pencil, so that the contract takes effect as if it had never been included therein. Strictly the legal position is that the clause remains in the contract and can be sued upon, but it will not be enforced by the court beyond the sum which represents, in the events which have happened, the actual loss of the party seeking payment ." He continued at 1041E as follows: " Accordingly, once a court becomes aware that the amount claimed by the plaintiff is a penalty arising on default of payment of a specific sum of money, the legal consequence which follows, as day follows night, is that the amount claimed will be scaled down by the court to a sum equal to the unpaid principal, with interest and costs. That consequence, albeit having its historical origin in equity, is not dependent upon the court exercising a discretion to grant or withhold relief having regard to all the circumstances. It is a consequence which for many years has followed automatically, regardless of the circumstances of the default. In this respect, as the law has developed, a distinction has arisen between the enforcement of penalty clauses in contracts and the enforcement of forfeiture clauses. A penalty clause will not be enforced beyond the sum which equals the actual loss of the innocent party. A forfeiture clause, of which a right of re-entry under a lease on non-payment of rent is the classic example, may also be penal in its effect. Such a clause frequently subjects the defaulting party in the event of non-payment of rent or breach of some other obligation, to a sanction which damnifies the defaulting party, and benefits the other party, to an extent far greater than the actual loss of the innocent party. For instance, the lease may be exceedingly valuable and the amount of unpaid rent may be small. But in such a case the court will lend its aid in the enforcement of the forfeiture, by making an order for possession, subject to any relief which in its discretion the court may grant to the party in default. Normally the granting of such relief is made conditional upon the payment of the rent with interest and costs. If that condition is not complied with, and subject to any further application by the tenant or other person in default for yet more time, the forfeiture provision will be enforced. Thus the innocent party is in a better position when seeking to enforce a forfeiture clause than when seeking to enforce a penalty clause in a contract. This is not the occasion to attempt to rationalise the distinction. One possible explanation is that the distinction is rooted in the different forms which the relief takes. In the case of a penalty clause in a contract, equity relieves by cutting down the extent to which the contractual obligation is enforceable: the "scaling down" exercise, as I have described it. In the case of forfeiture clauses equitable relief takes the form of relieving wholly against the contractual forfeiture provision, subject to compliance with conditions imposed by the court. Be that as it may, I see no reason why the court's ability to grant discretionary relief automatically granted in respect of a penalty clause if, exceptionally, a contractual provision has characteristics which enable a defendant to pray in aid both heads of relief. " He emphasised, as had Dillon LJ, that the Court could not make a new bargain for the parties, and referred to the difficulty of " scaling down " an obligation to transfer shares, but otherwise concluded that there could be no difference between an obligation to pay a stipulated sum of money arising on a default and an obligation to transfer specified property arising on a default. He agreed with the proposal of Dillon LJ to offer two alternatives to the innocent party for him to take up, if desired, both of which would involve sale or valuation of the shares (it is apparent that the shares were in fact seen as the only source whereby the debt to the innocent party could be satisfied.) The following propositions appear to me to arise as a result: i) The law as to penalties applies to the transfer of property as well as to the payment of money (see also paragraph 29 above), and to clauses which can also be treated as forfeiture clauses. ii) Penalty clauses cannot be enforced. It is difficult to see what Nicholls LJ meant at 1039H, referred to in paragraph 36 above, and at 1046H, by " the established equitable principle relating to penalty clauses, whereunder equity confines the sum recoverable under a penalty clause to the loss actually suffered by the innocent party by reason of the breach of contract ", because the ordinary principle at common law in the cases has been for the courts to refuse to enforce the penalty, but to leave the innocent party to sue on the underlying obligation i.e. not under the penalty clause itself. He plainly has in mind, as does Dillon LJ, that equity has a role to play in the enforcement of penalty clauses, both by way of the approach of the court to a penalty clause and in respect of the availability of relief. However iii) the Court cannot rewrite the contract. Jobson accordingly recognises in terms (especially per Nicholls LJ at 1039H) that equity has a role in relation to penalty clauses, and that the jurisdiction of the court is not limited either to enforcing on the one hand, or not enforcing on the other hand, the offending clause. In this case the Defendant has not sought relief, indeed not seeking permission to amend to do so even when the point was raised in argument. The court in Jobson was in a position to offer remedies to the plaintiff, which he could choose whether to accept, whose purpose was to enforce if so advised the effect of the penalty clause to a non-penal extent. I have referred in paragraph 32 above to Workers Trust & Merchant Bank Ltd , a decision of the Privy Council. This adds nothing, save for the reference by Lord Browne–Wilkinson, another expert in equity, to the fact (at 582D) that there is " clear authority that in the case of a sum paid to one party by another under the contract for security for the performance of that contract, a provision for its forfeiture in the event of non-performance is a penalty from which the court will give relief ". It is thus plain that the two concerns expressed in paragraph 33 above as to the impact of treating what is in fact a forfeiture as a penalty clause, not addressed in The Fanti , can in fact be addressed by reference to Jobson, and to a reconciliation of the authorities namely: i) There is an equitable jurisdiction applicable in the case of penalties, which can be operated not by upholding a forfeiture but granting relief, but by not enforcing the penalty to such extent as is equitable (although without rewriting the contract, save by the agreement of the innocent party). The extent to which a remedy of relief is available is unclear, given the absence of it both in Jobson and before me. ii) As to the apparent inconsistency between the very restricted availability of relief from forfeiture in commercial contracts and an ability for the court to exercise discretion in relation to a clause (including a forfeiture clause) which is concluded to fall within the concept of a penalty, that seems to me to be reconcilable by the clear and repeated authority (see paragraph 28 above) that, particularly in commercial contracts the court should very rarely interfere so as to descry a penalty clause. I turn to consider the two impugned clauses in this case, Clause 5.6 and 5.1, in their contractual context, but also in the factual context set out in paragraph 12 and 13 above. Both the clauses come into effect when, but only when, the Defendant is a Defaulting Shareholder, i.e. they deal with the consequences of Clause 11.2, which I have found not be in unreasonable restraint of trade. I have already decided that Cavendish was entitled to conclude (and after negotiations the parties agreed) that competition breach by this Defendant – even one where an initial solicitation might be, if it was, (and if it was discovered) unsuccessful, – would signify that the " wolf was in the fold " and be material. I am also satisfied that breaches of all or any of the sub-clauses of 11.2 would be such that (per Lord Parker) " the damage likely to accrue from each stipulation [would be] the same in kind ". The issue nevertheless is whether the consequences are penal. Clause 5.6 is submitted by Ms Smith not to be a candidate for a penalty clause at all. It certainly has nothing to do with being a " pre-estimate of damage ", but the ambit of the doctrine of penalty has, as discussed in the paragraphs above, so mutated that this no longer seems to me to be a requirement. The dispute is whether: i) Although a price for the transfer of shares, the price is so arrived at that it is, like in Jobson , an extravagant undervalue. ii) There is no commercial justification. iii) The purpose of the provision is to deter a breach. Before making a final decision I must set the clause alongside Clause 5.1, and take into account that there are two consequences to being a Defaulting Shareholder , under Clause 5.6 and Clause 5.1. It seems to me clear, and Mr Bloch did not vigorously contest this point, that it was manifestly sensible for the parties to agree for there to be a provision for ' decoupling ' a defaulting shareholder from Cavendish in the event of a breach. The put option did not arise for a considerable period, and the breach might – as indeed was the case – arise very early in the relationship, and it is obvious that the parties could not be left together, and that in particular the defaulter should not remain a minority shareholder. The issue relates to the valuation of the shares. It is of course plainly not anything like the same as the position in Jobson , where the £40,000 was fixed whatever the value of the shares or the timing of the transfer. Mr Bloch submits that the price fixed by the operation of Clause 5.1 for the purchase of the Defendant's proportion of the remaining 20% shareholding is an unfair undervalue, and that the clause is a penalty. His argument has two main thrusts. The first is the evidence of Mr Scott on behalf of the Claimant, to which I shall refer. But before doing so I must set this in context: i) The Defendant served no evidence and called no witnesses. ii) The Defendant did not cross examine Mr Scott, but allowed his evidence to be read. iii) The Defendant bears the onus of proof that the clause is a penalty. iv) Ms Smith points to what I said in E-Nik at paragraph 25. In that case the Defendant claimed clauses to be a penalty, which the Claimant asserted to be " commercially justifiable… not [to] amount to oppression, [to have been] negotiated and freely entered into between parties of equal bargaining power and not [to] amount to a provision in terrorem ", I found the latter, noting that " the Defendant has not produced any evidence to support a converse proposition ". I shall return to this below when dealing with Clause 5.1. Mr Scott's witness statement stated (at paragraph 37) that a Defaulting Shareholder " undermines the very thing that he is selling. He agrees that in such an event, he will receive a lower price for the purchase of his interest, as the Defaulting Shareholder price is calculated on the basis of the net asset value at the date of breach – i.e. a price which does not take into account any goodwill of the company ". Mr Bloch submitted that this shows that there was an intention to achieve a lower price, by excluding from the valuation goodwill, an essential and valuable ingredient of it (see, as to the calculation of the original consideration, paragraphs 4(i) and 14(ii) above). The Defendant was thus required to sell at an undervalue, and Mr Scott thus admits this. Mr Bloch also points out the different calculation of the value of the shares from that in Clause 15 which would result from the exercise of the put option by the Defendant, based upon multiples of the average OPAT, as set out in paragraph 7(vii) above: there is a cap of $75million. He recognises that this is a different kind of valuation, and one which is at the option of the Defendant, but he still points to the inevitable difference between a valuation based only on NAV and one which will be based upon a multiple of years' profits. This he submits is intended as a penal consequence to deter breach. Ms Smith submits that there is no question of the provision, or the valuation, constituting a penalty. She submits as follows: i) First and foremost the method of valuation to be adopted in Clause 5.6 (to be different from Clause 15) was fully negotiated, between very experienced commercial parties, using very experienced commercial solicitors. There was a level playing field. As set out in paragraph 13(iv) above, there was specific debate about this valuation. Although Lewis Silkin expressed this as being " a key issue for Joe" , they were plainly acting for both of the Sellers. The alternative basis put forward (there set out) was obviously unsustainable – involving some kind of method to " take due account " of representations by the purchaser as to the effect that the default would have had on the profits – and was not pursued. ii) There are many ways of valuing a company. NAV is one, and a multiple of OPAT is another, but the latter would not be appropriate where there was to be an inevitable impact upon the profits from the default which was to be the trigger for the valuation, and which would not be able to be assessed. The date of the calculation was crucial: a) The OPAT calculation (provided for by Clause 15), if to be adopted or adapted in some way for a Defaulting Shareholder valuation (not even suggested by Lewis Silkin) would take into account two years' profits prior to the valuation (during which time there would or might have been an effect on the profits of unchecked and undiscovered default) and two years in the future (similarly affected by the default). b) On the other hand the NAV valuation provided by Clause 5.6 was to be assessed at the date of the first default : i.e. it would ignore any impact of the breach on the Company. Thus it would be valuing the undamaged Company, and although there would not be any assessment of future profits/goodwill, it would take into account the year's trading profits prior to the default date. Mr Bloch points out the obligation under Clause 13.4 (set out in paragraph 7(iv) above) to distribute by way of dividend, but that is hedged about with the usual caveats, and depends upon the date of distribution of dividends. Ms Smith submits that (notwithstanding what Mr Scott says) it is by no means certain that a valuation on an NAV basis (including a pre-default year's profits) would necessarily be less than a valuation taken based on profits after two years' effect of a competitive breach and two further years to recover from it. In fact (perhaps with a glance at Lord Woolf's dictum in Phillips set out in paragraph 25 (ii) above) such is the low level of the OPAT for the purpose of calculation of the Interim and Final Payments of consideration, carried out by Cavendish against the event that their Clause 5.1 argument fails, that nothing will be shown to be due (evidence which the Defendant does not accept and has not had the opportunity to challenge). iii) In any event the NAV calculation under Clause 5.6 has the desired effect of an immediate clean break, rather than one depending upon a calculation of future OPATs. I am not persuaded that Clause 5.6 is a penalty clause, the onus being upon the Defendant: i) It serves a commercial purpose – to decouple the parties on a speedy and conventional basis. ii) I am not satisfied that its purpose is to deter, but rather it is to achieve that decoupling. iii) Mr Scott's evidence is in fact not to be ignored. As will become more significant in the case of Clause 5.1, part of the purpose is to adjust the consideration between the parties. Clause 5.6 relates to a valuation of the last 20% of the shares of a Company which were supposed to carry substantial goodwill; and the event of competition breach by the Defendant, which Cavendish was entitled - by what I have called Lord Dunedin's third proposition, in paragraph 25 above - to assess by reference to the " greatest loss that could conceivably be proved to have followed from the breach " could be said to have the consequence, as Mr Scott considers, of very substantial impact on the goodwill, such as not to render the adoption of a NAV valuation disproportionate. iv) It was in any event the subject matter of thorough negotiation. v) I do not consider it to have been shown to be oppressive. I turn to Clause 5.1. Mr Bloch submits that this clause cannot possibly be a genuine pre-estimate of loss. The only loss that could flow, at any rate during the period while the Defendant remained a director (which he was entitled to do while he remained a minority shareholder) would be derivative loss (see paragraph 8 above): i.e. loss suffered by Cavendish through the damage to its shareholding in the Company, which the Company would be entitled to recover (and in the event it has accepted the Part 36 offer in these proceedings, as appears in paragraph 6 above), and hence Cavendish could not. Any other loss is not simply difficult to prove (the fifth proposition in paragraph 25 above) but to identify. Ms Smith submits that if the clause has to be regarded as a genuine pre-estimate of loss, the loss in question is the substantial damage to the value of its investment in the Company, even if it were irrecoverable as a result of the decision in Prudential – indeed, all the more reason to cover it by an express provision if it cannot be recovered by a claim for damages: I threw out the question as to whether a loss that was otherwise statute-barred might be a similar analogy. There is however no authority for the proposition that a clause said, in order not to be a penalty, to amount to a genuine pre-estimate of loss can be justifiable as a genuine pre-estimate of irrecoverable loss . Diplock LJ in Robophone Facilities at 1446H referred to "a sum greater than the measure of damages to which he would be entitled in common law ", which suggests that the loss must be recoverable; but some comfort could be gained by the words of Lord Dunedin himself in Public Works Commissioner v Hills at 375, when he speaks of a " genuine pre-estimate of the creditor's probable or possible interest in the due performance of the principal obligation ". However, the reality is that, in the modern approach to the concept of penalty discussed above, there is no longer the need for the dichotomy between liquidated damages and genuine pre-estimate of loss, and so the relevant questions seem to me to be simply:- i) Was there a commercial justification? ii) Was the provision extravagant or oppressive? iii) Was the predominant purpose of the provision to deter breach? iv) If relevant, was the provision negotiated on a level playing field? Ms Smith submits that there is a plain commercial justification. This is to adjust the consideration. Cavendish agreed to pay a very substantial sum for goodwill. The NAV (including undistributed profits for the year) as per schedule 11 (see paragraph 14(ii) above) was $69, 744, 340, and for 47.4% of the Company Cavendish were paying (by the first and second payments) $63.5million, and then up to a cap of a further $82million. In the event of a competition breach – and particularly continued competition by the Defendant with Carat in breach of the Carat Clause – the consideration would be adjusted by cancellation of the last two payments, and that is what the parties agreed. Mr Bloch refers to the evidence of Mr Scott in paragraphs 38-40. This reads as follows: " 38. The provisions set clear restrictions on each Seller, explaining the type of behaviour which is absolutely prohibited and cannot be tolerated given WPP's very significant investment in the Group. [The Defendant] and Joe had of course also received substantial sums of money under the transaction, so restrictions of this nature are to be expected. 39. As I have explained above, provisions like these are negotiated and included in the contractual framework for every WPP acquisition as WPP must have a mechanism for protecting the investment it makes in any given business. This was particularly the case in this instance given the influence and standing of [the Defendant] and Joe within the Middle East advertising community. They were both figureheads for the THG Group and were key to the success of the business historically. It was therefore critical for WPP that it sought to ensure that they continued to support the business or, at the very least, not to act against its interests. It did so by including the terms I have referred to above. 40. I recall that the remedy was fully and specifically negotiated and agreed with Lewis Silkin, the lawyers for [the Defendant] and Joe, at the time in relation to the terms of clause 11.2, the definition of Defaulting Shareholder and, in the case of Joe, the restrictive covenants contained in his service agreement. " Mr Bloch submits that: i) The paragraphs appear in the section of the witness statement headed " The Defaulting Shareholder provisions of the [Agreement]". ii) The reference to provisions in the first sentence of paragraph 38, and certainly in the first sentence of paragraph 39, is intended to be to Clause 5, or at any rate to Clause 11.2 and Clause 5, and as a result the last sentence of paragraph 39 constitutes an admission that, taken together, they amount and are intended to amount to a deterrent. Ms Smith submits as follows: i) By reference to what I have said in paragraph 47 above, what Mr Bloch is doing is inappropriate. Although his client bears the onus, he called no evidence and did not cross-examine. He is seeking to interpret the paragraphs of the witness statement in a way favourable to him which, at the least, is not compelled by the words used. If he wanted to do that he could and should have cross-examined. ii) The provisions being referred to in paragraph 38 and 39 are the restrictive covenants in Clause 11.2, which do indeed impose an obligation, and set restrictions, and were negotiated for the reasons set out in paragraph 39; while paragraph 40 addresses " the remedy " in the event of breach. I do not regard un-cross-examined witness statements as statutes or documents to be construed, and ambiguities if any to be resolved. I am not prepared to carry out the exercise which Mr Bloch invites. If I have to do so, I prefer the interpretation of Ms Smith. I am satisfied that there was a commercial purpose, such as is asserted by Ms Smith, and the existence of detailed negotiations by experienced solicitors seems to me to negative oppression. The juxtaposition on the one hand of substantial delayed payment for goodwill and on the other hand a series of covenants which is intended to safeguard and protect that goodwill is of particular significance in this case. I also note as of importance that, because of the staged payments, if the breach only occurs, or is discovered, after the payment of the Interim Payment, then it will only be the Final Payment which will become irrecoverable. That suggests that, as is good sense, the earlier the default, the more damaging it is likely to be, and the more it detracts from the goodwill that was purchased; so that it is thus in those circumstances (which have in fact occurred) that the earlier Interim Payment also does not fall to be paid. If Clause 5.1 stood on its own, I do not conclude that it would be an extravagant consequence of the default, or such as to render the purpose uncommercial or suggest that, because of any such extravagance, the intention must be to deter. I now consider it together with Clause 5.6. Taking the two clauses together does not alter my conclusion: i) Clause 5.6 has a separate commercial purpose, as discussed above. ii) The effect of Clause 5.1 is to adjust the consideration in respect of the purchase of the first 47% of the shares, while Clause 5.6 seeks to have a similar impact in respect of the remaining 20% (or the Defendant's proportion of it) by valuing the shares on the NAV basis. I do not consider that there is any oppression by way of 'double counting'. However I must next filter in the fact that the genuine pre-estimate of irrecoverable loss or the adjusted consideration was on the basis of substantial loss of goodwill by reference to damage to Cavendish's shareholding in the Company. Yet not only is there no express provision in the Agreement that in the event of operation of the Defaulting Shareholder provisions the Company will not pursue the Defendant for damages in addition, but, in the event, by virtue of the Company's acceptance of the Part 36 offer, such damages have been paid and received, and have thereby compensated the Company and reduced the loss to the Claimant's shareholding. The payment accepted was in the sum of $500,000, but I take into account and understand the obvious explanation by Ms Smith that this figure was accepted for litigation reasons against a difficulty, if not impossibility, of proving (coupled with a reluctance to seek to prove) customer connection loss. Nevertheless that sum has been paid over and accepted, and Cavendish in addition relies upon Clause 5.1. I invited Mr Bloch to consider whether he wished to assert that this constituted some kind of election, but after overnight thought, he did not do so. I consider that this is 'double counting', and that, when taken together with Clause 5.1, it renders that clause a penalty, resulting in Cavendish receiving an extravagant return, by way of more than its conceivable or possible loss of value in the shareholding and more than an appropriate adjustment to consideration. I am armed with the benefit of the jurisdiction and discretion which the Court of Appeal decision in Jobson confirms that I have. In the light of my conclusions about Clause 5.1 standing on its own, it is clear to me that it would be quite inappropriate for me simply to strike it down and leave Cavendish to recover damages for its loss occasioned by breach of Clause 11.2, because it is clear that such loss would be largely irrecoverable. I did canvass with the parties during the course of the hearing the possibility of only enforcing Clause 5.1 in part, i.e, bearing in mind the guidance of Dillon and Nichols LJJ, not rewriting the clause but only enforcing it in part, by the use of a straightforward blue pencil, so as to delete reference to either the Interim Payment or the Final Payment. That, however, seems to me to be far too broad-brush and not to follow in any way from the nub of my conclusion, that it is the recovery of the loss by the Company which causes Clause 5.1 to be a penalty, and I would in any event be unable to determine which of the two payments to restore and why. In the circumstances it is quite clear to me that the result of my conclusions is that, since it is only the recovery by the Company which renders Clause 5.1 a penalty, I should, given my inability to re-write the contract so as to include such a clause as discussed in paragraph 61 above, invite the Claimant to agree, if it wishes, to give credit for the $500,000, so that it can enforce Clause 5.1. I give Cavendish, as did the Court of Appeal in Jobson , the opportunity to agree to repay the $500,000 as a term of my making a declaration that the Claimant is not liable to make payment under Clause 3 of the agreement by virtue of Clause 5.1 and ordering specific performance of Clause 5.6. The $500,000 should be added to the price given for payment of the shares, upon transfer of them. The Construction Issue There remains one issue, raised very belatedly by the Defendant in his very recent Reamended Defence and Counterclaim, as to the construction of Clause 5.6, which I set out in paragraph 9(iii) above. I have set out paragraphs 5.6 and paragraphs 5.7 in paragraph 7(iii) above. Mr Bloch's submission is that Cavendish must tender the correct or true Defaulting Shareholder Option Price ("DSOP") before the Defendant is obliged to sell or transfer his shares. It has become clear in the course of Mr Bloch's oral submissions that the suggestion is not that Cavendish can never obtain the shares or exercise its option, but that it must serve a fresh notice, only once the correct price has been ascertained: the motive being explained to be that the Defendant has thus in the interim not been obliged to sell or transfer the shares, and thus has remained entitled to any dividends in the meanwhile. Cavendish's case is that the notice was valid and effective, and if the Defendant has not transferred the shares until the price is calculated, he in any event held the shares on trust for Cavendish and had no right to any dividends. There is no provision in clause 5.6 such as would support the Defendant's case that Cavendish must specify the correct price in the notice: all that is required is a notice exercising such option . Mr Bloch relies upon the fact that the clause says that " the purchaser…shall buy and...seller shall sell...in consideration for the payment…of the " DSOP: relying on the words " in consideration ", he submits that there is no obligation to sell, and the obligation to transfer does not arise, until the consideration is paid. The proposition is in my judgment unarguable: i) As I have set out above there is no such wording as the Defendant needs, and in particular no requirement such as is specifically pleaded in the Reamended Defence and Counterclaim for a correct notice. The notice was good, just as was the invoice in E-Nik Ltd at paragraphs 33-37 which incorrectly claimed VAT. ii) This is a perfectly normal agreement for sale at a price to be calculated by a specified method. The contract is binding and certain. iii) The central point is that the information is in the hands of the Defendant. The DSOP cannot be correctly calculated until the date of the default, when the Defendant became a Defaulting Shareholder , is known (see paragraph 7(i) above). That knowledge, whatever Cavendish may guess or believe, is only known to the Defendant: and/or it must be resolved by a court. As set out in paragraph 7(ii) above, unless the Defendant seeks, within a limited timescale which I have given, and is granted, permission to amend his Reamended Defence and Counterclaim, so as to withdraw his present admission, that date is 28 February 2008. Although Cavendish served what was in my judgment a valid notice which did not include, because it could not, any calculation, on 13 December 2010, it subsequently served on 31 December 2010 a letter based on an estimated date of 1 April 2008, calculating the amount as $9,519,000. That figure will probably need to be recalculated. iv) Clause 5.7 makes it clear that alternative methods of payment can be worked out, after the DSOP is calculated, but in any event of course after there has already been a binding agreement for sale, as I conclude there to have been. Conclusion Accordingly, subject to the response of Cavendish to paragraphs 62 and 63 above, I am prepared to make the declaration sought, and in principle to order specific performance in relation to the Defendant's obligations under Clause 5.6, although the price cannot be finally calculated until resolution of the outstanding issue with regard to the date of default. BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII