Hopper v Campbell

BATHURST CJ: I agree with the orders proposed by Meagher JA and with his Honour’s reasons.

MEAGHER JA:

The appellant brought proceedings under s 1321 of the Corporations Act 2001 (Cth) appealing that rejection. The primary judge (Black J) dismissed those appeals: Re MF Global Australia Ltd (in liq); Hopper v Campbell in his capacity as liquidator of MF Global Australia Ltd (in liq) [2015] NSWSC 1409. The appeal to this Court is brought from the order dismissing those proceedings and the order that the appellant pay the respondents’ costs on an ordinary basis until 1 August 2014 and thereafter on an indemnity basis. His Honour published separate reasons for the making of that costs order: Re MF Global Australia Ltd (in liq); Hopper v Campbell in his capacity as liquidator of MF Global Australia Ltd (in liq) [2015] NSWSC 1583. That costs order is not the subject of a separate appeal.

MFGA was part of an international group of companies providing financial services and products. The ultimate holding company was MF Global Holdings Ltd (MFGH), a company incorporated in Delaware in the United States. In February 2011 the appellant was employed as head of MFGA’s Australian agricultural commodities trading desk, earning a salary of $250,000 per annum, plus a bonus paid quarterly. That bonus was equal to 50% of the net revenue generated by that trading and was distributed among the staff of that trading desk as determined by the appellant.

At a meeting in Sydney on 18 February 2011 between the appellant, Mr Corzine, the Chairman and Chief Executive of MFGH, and Mr Fay, the Managing Director of MFGA, there was discussion concerning a change of role for the appellant which would have involved his working as a proprietary trader (one who traded on account of the MFGH group, as distinct from its clients). That trading was to be undertaken within the Principal Strategies Group (PSG) of the MF Global group managed out of its New York office.

The appellant’s case in support of the amounts claimed in the proofs of debt was that an agreement was made at this meeting whereby he was to continue to be employed by MFGA but to cease working on the agricultural commodities desk and to commence working as a proprietary trader within the PSG, for a term of two years, with a guaranteed income of at least $1 million per year.

A week or so after the meeting of 18 February 2011 the appellant commenced proprietary trading in Sydney. He did so taking directions and instructions from the PSG (headed by Munir Javeri) until, in the circumstances described below, he was directed to stop trading on 2 November 2011. During short periods in 2011, the appellant conducted that trading from the group’s New York office. Between March and October negotiations proceeded between the appellant and MFGH’s global head of human resources (Thomas Connolly) as to the terms on which he might be employed as a proprietary trader by one of the group’s United States’ subsidiaries. Two draft letters of agreement were prepared. They were dated 6 May and 20 May 2011.

On 1 November 2011 MFGH announced that it, and its finance subsidiary, MF Global Finance USA Inc, had filed a voluntary petition for relief under chapter 11 of title 11 of the United States Bankruptcy Code. In consequence, on 1 November 2011, the respondents were appointed administrators of MFGA pursuant to s 436A of the Corporations Act.

During the period between March and November 2011 the appellant was paid by MFGA on a basis that was consistent with the discussion that occurred at the February meeting. He received monthly payments equivalent to an annual salary of $250,000 and, in August 2011 a payment for the March to June 2011 quarter of $174,972 (which as paid was intended to be the first of quarterly payments of $187,500).

Each of the proofs claimed amounts said to be due to the appellant upon the termination of his employment with effect on 18 January 2012. The liquidators allowed an amount of $385,702 (omitting cents) in respect of the first proof, and rejected the second proof in whole.

Before the primary judge, and by reference to the terms of the agreement which was alleged to have been made at the meeting on 18 February 2011, the appellant claimed to be entitled to the following amounts upon termination of his employment:

The primary judge rejected the appellant’s claim that there was an agreement made in February 2011 which entitled the appellant to any of the amounts described above. (That agreement as pleaded is set out in [20] below).

The appellant does not challenge that conclusion. Instead in this Court he contends for a more limited agreement under which from late February 2011 he undertook proprietary trading as an employee of MFGA in return for a salary calculated at an annual rate of $1 million and an annual bonus equal to 20% of the trading profit over $5 million generated from that trading.

In his written submissions, the appellant puts the argument for that more limited contract in two ways. First, it is said that at the February 2011 meeting an agreement was struck that he would commence his new role as proprietary trader immediately, on a salary of $1 million paid by MFGA with an additional entitlement of 20% of the profits he generated over $5 million. Alternatively, it is said that by the conduct of the parties following that meeting, it was agreed that the appellant would change his employment role to proprietary trading, both from Sydney and New York, and that in return MFGA would pay him a salary of $1 million.

On the basis of one or other of these agreements, the appellant presses his claims to the following amounts (which do not include all of the amounts claimed before the primary judge):

The second of the ways in which the argument for a more limited contract is made does not include as a term that the appellant was entitled to a bonus or profit share calculated by reference to the profit made from the proprietary trading.

The appellant contends on appeal that the primary judge erred in not addressing and finding for him on the basis of one or other of these agreements. In response, the liquidators submit that this more limited agreement was neither pleaded nor argued, nor dealt with by the primary judge, and that it cannot be raised for the first time on appeal.

Accordingly the following issues arise:

As appears from Judgment [73]-[80] the issue ultimately dealt with by the primary judge was whether the appellant was entitled to the disputed items in the proofs of debt described in [11] above. In relation to the appeal from the liquidators’ decision to reject those proofs, the specific question for the primary judge was whether each of the amounts claimed was an enforceable liability of MFGA: Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332 at 340-341 (Brennan and Dawson JJ).

The basis upon which the appellant alleged that he was entitled to each of those payments was pleaded in paras 10 to 14 of the statement of claim. Those paragraphs provided:

The liquidators denied that an agreement was made in the terms pleaded in para 10 (or on those terms as “clarified and confirmed” as alleged in para 14) and said that if such an agreement was made, MFGA was not a party to it.

In their outline of submissions, served before the commencement of the hearing, the liquidators maintained that the appellant’s claim as pleaded must fail if the Court was not satisfied that there was express agreement as to each of the terms alleged in para 10 of the statement of claim.

At the commencement of the hearing on 17 July 2015 the appellant sought leave to amend to plead in the alternative, by para 14A, that:

In its terms that proposed amendment did not contend for an agreement other than in the terms pleaded in paras 10 and 14 of the statement of claim. In other words the conduct of the parties after February 2011 was relied on as evidence of a contract in the same terms but formed subsequently. In making that application, the appellant’s counsel stated:

Towards the end of his oral argument, the appellant’s counsel described the proposed para 14(a) as a conclusion arising from facts already pleaded. That conclusion was that “the contract on which the plaintiff claims was formed in the alternative by not just what was said on 18 February, but what happened thereafter”.

The liquidators opposed the amendment application. They submitted:

In the course of argument, the primary judge indicated that the price of an amendment was likely to be an adjournment. In reply, the appellant’s counsel said if that was so “then we would seek to proceed without the amendment”. At the conclusion of the argument (and after the liquidators’ counsel had made clear that if the amendment was pressed they would seek an order that the hearing be vacated), the primary judge delivered short reasons in which he stated that he would have granted leave to amend, had the appellant sought it, but on terms that the proceedings be adjourned. The primary judge also made the following observation with respect to the case that remained open to the appellant without the amendment:

In concluding, the primary judge also observed that the pleading included “a significant number of pleaded facts that go to the matters which, it seems to me, the amendment was intended to address”.

At Judgment [7] the primary judge made reference to the application for the proposed amendment:

The distinction there made describes the appellant’s case as one based on the agreement pleaded in paras 10 and 14 of the statement of claim either formed at the meeting in February 2011, or as a result of what was said at that meeting and the subsequent conduct of the parties. That claim would not include an agreement in those terms made by subsequent conduct alone or an agreement made in different terms and by such subsequent conduct.

At Judgment [59] having described the contract relied on as that “set out in paragraphs 10 and 14 of [the appellant’s] Statement of Claim” the primary judge recorded the following contention as to how that pleaded contract supported the money claims described in [11] above:

The primary judge was not satisfied that such an agreement was made, either as a result of what was said at the meeting on 18 February 2011, or by reason of the conduct of the parties, including their conduct at that meeting as well as after that date. That later conduct included the appellant’s working as a proprietary trader and the making of salary payments by MFGA in accordance with the amounts referred to by Mr Corzine: Judgment at [60]-[61], [63].

Referring to the payments made by MFGA to the appellant, the primary judge considered at Judgment [62]:

The agreement pleaded in para 10 of the statement of claim included that the appellant would commence in the new position working from Australia and investigate and consider relocating to New York, and that he would be employed as a proprietary trader for a fixed period of two years commencing on 1 April 2011. The primary judge was not satisfied that such an agreement was made as a result of what happened at the meeting on 18 February 2011 or struck at that meeting and subsequently clarified and confirmed by the conduct of the parties between July and October 2011 (para 14). His reasons for not being so satisfied included that the appellant’s case, that it was agreed that he should undertake the proprietary trading from Australia, was not supported by Mr Fay’s evidence, and was inconsistent with subsequent correspondence concerning the question from where he would undertake that trading. That correspondence did not treat this subject as having been “agreed”: Judgment at [21].

His Honour also considered it “inconceivable” that the parties, and particularly the appellant, were to be taken objectively to have intended to be contractually bound before these matters were resolved. He observed at Judgment at [22]:

Addressing the appellant’s argument based on that agreement as “clarified and confirmed” by subsequent conduct the primary judge concluded at Judgment [64]:

His Honour’s reference to the appellant’s reliance on the parties’ subsequent dealings as “establishing” a contract perhaps goes further than the pleaded case and responds to a case which the appellant sought to make by his amendment. Whilst that may be so, his Honour was not addressing the appellant’s limited contract which was alleged to have been made in circumstances where the parties were expecting to make a further contract containing, by consent, additional terms in substitution for that limited contract; and accordingly was what McLelland J described in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 at 628 as being “a fourth class of case additional to the three mentioned in Masters v Cameron [(1954) 91 CLR 353] as recognised by Knox CJ, Rich J and Dixon J in Sinclair, Scott & Co v Naughton (1929) 43 CLR 310 at 317”.

The appellant does not challenge the primary judge’s rejection of his case that there was an agreement on the terms pleaded in paras 10 and 14 of the statement of claim. In his submissions in reply it is accepted “that it is unlikely that the parties would have been bound to a two year agreement for the new role without the question of location being determined” and that “on the facts as found by the primary judge the claim of a two year agreement, with the location to be Sydney and the various protections … alleged, has not been made out”.

Instead the appellant contends that having rejected his claim to an enforceable agreement on those terms pleaded, the primary judge should have held that the absence of consensus as to all of the terms of that agreement did not mean that he had not established the more limited agreement that he was employed by MFGA to be a proprietary trader, in return for remuneration of A$1 million per annum.

The appellant submits, somewhat boldly, that his more limited case was within the case pleaded and argued for and, for that reason, that it ought have been dealt with by the primary judge. It is said that agreement was pleaded in the statement of claim by paras 10(a), 10(b), to the extent that it identifies an annual salary, 10(c), to the extent only that it describes the bonus entitlement, 10(i), 11, 14(a) and 14(d). That is so only in the sense that the same or similar terms to those now relied on were pleaded as some but not all of the terms of a two year employment agreement between the appellant and MFGA commencing on 1 March 2011.

However the agreement now contended for (which may or may not include an arrangement as to the payment of a profit share in relation to the proprietary trading) is not for such a fixed term and does not address the possibility of the appellant relocating to New York or his being employed by another and United States based entity within the MF Global group.

It is an agreement under which MFGA is said to have been bound to employ the appellant as a proprietary trader in another entity of the group for an indefinite period and to pay him a salary equal to $1 million per annum. It is also contended that the parties expected either to make a further contract in substitution for that agreement which contained additional terms or that their contract would be replaced by one between the appellant and another entity within the group, in the event that he decided to move to New York. (A further possibility, it seems, was that no further agreement would be reached in which event presumably the indefinite period arrangement was to come to an end.)

As the foregoing discussion makes plain, the existence of such an agreement was not pleaded in the proceedings before, or dealt with by, the primary judge. There remains the appellant’s argument that such a case was made by his closing argument. This question is, in part, relevant to whether the appellant is able to make this case for the first time on appeal. That question is dealt with below. However it has been emphasised that in considering whether a particular argument or case was made at trial “no narrow or technical view should be taken” and that it is necessary “to look to the actual conduct of the proceedings”: Water Board v Moustakas (1988) 180 CLR 491 at 497 (Mason CJ, Wilson, Brennan and Dawson JJ).

In his outline of final submissions it was said that the terms of the contract that affected the “monetary amounts” the appellant claimed included that his base or non-discretionary salary was “$1 million per annum”, that this amount was guaranteed for two years from 1 April 2011, and that he was entitled to a bonus of 20% on profits he made over $5 million. In the context of addressing when that contract was made – either at the meeting in February 2011 or following and by reason of that meeting and subsequent conduct – it was submitted that it was open to the Court “to find that Hopper’s contract with MFGA included some but not all of the terms alleged in the statement of claim”.

In the course of argument, and in an exchange made with reference to this last submission, the appellant’s counsel argued that the Court might not find that the terms of the agreement included that pleaded in para 10(f), concerning the payment of a bonus in respect of proprietary trading undertaken prior to 1 April 2011. In response the primary judge commented:

Counsel for the liquidators responded to that observation:

The appellant’s counsel did not reply suggesting that it was open to the primary judge to find that there was an agreement which was not for a term of two years and under which his client was not entitled to a guaranteed salary of $1 million per year or a bonus equal to 20% of the profits generated over $5 million in each of those years. In that state of affairs it was not open to the primary judge to find that there was a more limited agreement as now contended and his Honour did not err in not addressing such a case. For that reason grounds 1 to 4 should be rejected.

The principles by reference to which this question is to be decided are not controversial. A point “cannot be raised for the first time upon appeal when it could possibly have been met by calling evidence below”. However, when “all the facts have been established beyond controversy or where the point is one of construction or of law, then a Court of Appeal may find it expedient and in the interests of justice to entertain the point, but otherwise the rule is strictly applied”: Moustakas at 497. See also Zheng v Cai (2009) 239 CLR 446; [2009] HCA 52 at [16].

The liquidators submit that they would be prejudiced if the appellant was permitted to argue for his more limited contract on appeal. They submit that argument raises factual issues not raised by the appellant’s pleaded case and that it would have been open to them to lead evidence, including by cross-examining Mr Fay and further cross-examining the appellant, with respect to those issues. In response the appellant says this position is “untenable” because all of the terms of that more limited contract are terms of the pleaded agreement with the result that the same issues arise, albeit only in relation to the terms of that contract.

There are two difficulties for this submission of the appellant. Each shows that additional issues, which could possibly be met by evidence, arise on his more limited contract case. The first difficulty is that the more limited contract contended for does not represent the only available legal characterisation of the relationship between MFGA and the appellant which continued whilst negotiations proceeded between him and Mr Connolly, representing one or more of the United States based entities in the group.

One possible legal characterisation, adverted to by the primary judge (at Judgment [60]), was that the appellant continued to be employed by MFGA “on the basis on which he had previously been employed” and that under a separate and temporary arrangement MFGA agreed to pay him the guaranteed bonus that he would receive if the contract being negotiated was already in place. Another possibility was that the appellant continued to be employed by MFGA on those existing terms and at the same time was party to an arrangement with MFGA and MFGH under which his services as a proprietary trader were provided to MFGH in return for payments from MFGA equivalent to an annual salary of $250,000 and bonus of $750,000, so long as he generated a profit from that proprietary trading.

Whether there was a temporary arrangement made on one of these bases, or on some other basis, was contestable between the parties and could have been the subject of further evidence, including from Mr Fay. There would then have arisen a question as to the characterisation of the quarterly payments equal to an annual amount of $750,000, and whether they formed part of the appellant’s “ordinary” pay as a continuing employee of MFGA. There also may have been a question as to whether MFGA or the appellant had ceased providing his services as a proprietary trader to MFGH by mid November 2011, when he was given notice of termination.

The second difficulty for the appellant’s argument, already apparent in the discussion above, is that his more limited contract case, considered alone, also raises questions as to the characterisation of those quarterly payments, and as to whether he remained entitled to them at the time his employment was terminated by notice. MFGH and its finance subsidiary filed for chapter 11 bankruptcy on 1 November 2011 and on 2 November the appellant was instructed by the PSG that there should be “no trading”. A question arises as to whether from that point in time the interim arrangement, under which his services as a proprietary trader were provided, continued to be binding and have effect.

A similar issue did not arise on the appellant’s pleaded case because he was entitled to continue to be paid at the rate of $1 million per year for the two year period irrespective of whether he was in fact undertaking proprietary trading within the PSG. Nor could there be any question as to the characterisation of part of that payment as an incentive or bonus, it being part of his annual salary of $1 million.

Taking account of these matters, it was well open to the liquidators, in the event that the more limited contract case had been made at first instance, to both cross-examine the appellant and Mr Fay and, perhaps, tender other documentary evidence addressing the additional issues referred to above. For these reasons the appellant should not be permitted to make that argument for the first time on appeal.

The questions raised by grounds 5, 6, 7 and 8 do not arise because they depend on the appellant being permitted to argue for his more limited contract.

The appeal should be dismissed with costs.

PAYNE JA: I agree with Meagher JA.