LCM Litigation Fund Pty Ltd v Coope; Coope v LCM Litigation Fund Pty Ltd (No 2)

Until 31 March 2015, the defendant, Mr Patrick Coope, was one of three directors, and one of two joint managing directors of the plaintiff, LCM Litigation Fund Pty Ltd.

Mr Coope held the position of joint managing director pursuant to an employment contract (“the Employment Contract”) dated 11 February 2014, by which Mr Coope was appointed as joint managing director of LCM for five years commencing on 1 December 2013.

Clause 19.9(b) of the Employment Contract provided for termination of Mr Coope’s employment if he was “guilty of any serious misconduct”. On 31 March 2015, LCM purported to terminate Mr Coope’s employment as joint managing director on that basis. Earlier, on 26 February 2015, LCM had suspended Mr Coope from his employment as joint managing director pursuant to cl 20.1 of the Employment Contract (which provided that LCM could do so “where it [was] carrying out an investigation into an allegation of misconduct by” Mr Coope).

The principal matter for consideration in these proceedings is whether Mr Coope was in fact guilty of “serious misconduct” such as to warrant the termination of his employment.

There was no serious contest that, if LCM was not entitled to take this course, it repudiated its obligations under the Employment Contract, Mr Coope accepted that repudiation on 2 April 2015 and himself terminated the Employment Contract, and is now entitled to damages.

There is a dispute as to the quantum of damages to which Mr Coope would, in those circumstances, be entitled.

Issues agitated earlier in the proceedings concerning restraints on Mr Coope’s ability to contact LCM employees, use LCM confidential information and compete with LCM have now been resolved by agreement between the parties.

I have been greatly assisted by the submissions I have received from Mr Douglas QC, who appeared with Ms Fendekian for LCM, and Mr Clarke SC, who appeared with Mr Shariff for Mr Coope.

A good deal of what follows, especially as to uncontroversial background matters, is drawn, with gratitude, from those submissions.

LCM was established in 1997 by Mr Coope and others, and is engaged in the business of litigation funding. It was one of the first professional litigation funders in Australia. LCM meets all the costs of litigation funded by it and provides a secured indemnity to the parties that it funds in relation to adverse costs orders. In exchange for that funding and indemnity, LCM receives a percentage of any amount recovered from the litigation, together with repayment of all costs paid by it.

Mr Coope was LCM’s principal employee until late 2013, at which time Mr Patrick Moloney commenced employment as co-managing director. Mr Moloney had been a non-executive director of LCM since 2003, during which time he was also practising as a solicitor.

On or about 11 February 2014, both Mr Coope and Mr Moloney entered into identical contracts of employment which took effect from 1 December 2013. Those contracts contained cascading restraints against competition which, at their widest, prevented Mr Coope and Mr Moloney from being engaged in any competing industry throughout Australia for 12 months from their last date of employment with LCM (“however occurring”: cll 17 and 32).

At the same time, both Mr Coope and Mr Moloney acquired a 20 per cent share, via the “LCM Trust”, in LCM’s fee entitlements from a joint venture that LCM had with a third party, Vannin Capital Limited, a subsidiary of Vannin Capital PCC Limited.

The parties referred to Vannin Capital Limited as “Vannin Malta”. I will use that description in these reasons when it is necessary to refer specifically to that company. Otherwise, I will simply refer to “Vannin”.

Mr Coope said that he regarded LCM’s fee entitlements under its joint venture with Vannin (“the Vannin Joint Venture”) as LCM’s most valuable asset.

From February 2014, there were three directors of LCM; Dr David King (non-executive chairman), Mr Coope and Mr Moloney (co-managing directors).

The shareholders of LCM at the time that Mr Coope’s employment was terminated were:

Despite the termination of his employment as joint managing director, Mr Coope remains a director of LCM, as is his entitlement as a shareholder by reason of cl 41.5 of LCM’s constitution.

In order to fund its litigation projects, LCM relies on its own cash reserves, and capital raisings.

Since about mid 2013, LCM has also relied on funding from the Vannin Joint Venture. That funding was for projects valued in excess of $5 million and governed by a suite of documents executed by LCM and Vannin on or about 24 April 2013. The arrangements between LCM and Vannin were complex and not necessary to understand for the purpose of these proceedings.

The Vannin Joint Venture expired on 31 March 2015 (the same day that LCM purported to terminate Mr Coope’s employment as joint managing director) subject to the running off of uncompleted cases.

The serious misconduct that LCM relied upon to terminate Mr Coope’s employment arises from the circumstances in which:

I set out the detail of those circumstances later in these reasons.

The conclusion to which I have come is that Mr Coope did not engage in serious misconduct in relation to the Vannin or Wind Down Proposal, but did engage in serious misconduct in relation to the Separation Proposal.

It follows that LCM was entitled to terminate Mr Coope’s employment, and that Mr Coope is not entitled to damages.

Between May and July 2014, Mr Coope engaged in negotiations about a possible merger between Vannin and LCM with the executive chairman and majority shareholder of Vannin, Mr Daniel Craddock.

At the same time, LCM (principally through Mr Moloney) pursued a possible capital raising. The capital raising was successful; approximately $4 million was raised in June and July 2014. A further $1.3 million had been raised earlier in 2014. These capital raisings account for the private investors to whom I have referred.

The negotiations between Mr Coope and Mr Craddock were unsuccessful, principally because of their differing views as to LCM’s value.

Mr Coope kept Dr King informed of the progress of those negotiations, including the possibility that, if those negotiations were successful, and if a merger or some like arrangement could be negotiated (so that LCM and Vannin had an ongoing relationship beyond the conclusion of the Vannin Joint Venture), he might be employed by Vannin or have equity in one of the Vannin entities.

These matters did not concern Dr King, as is revealed by this exchange in cross-examination:

This material provides some background to what occurred in February 2015. However, as Mr Douglas pointed out in final submissions, it was clearly contemplated by Mr Coope, Mr Craddock and Dr King in the course of the 2014 negotiations that there would be some ongoing relationship between LCM and Vannin. Dr King’s position was that, provided an arrangement could be negotiated between LCM and Vannin for an ongoing association, and provided Mr Coope disclosed to LCM what his role in Vannin might be in that event, it was of no concern to Dr King what those arrangements actually were.

In January 2015, Mr Coope engaged in further negotiations with Mr Craddock as to the future business relationship between Vannin and LCM.

In the course of those negotiations, Mr Craddock made two proposals I will discuss below, being the Vannin or Wind Down Proposal to which I have referred and what Mr Craddock described as the “Hybrid Proposal”.

In the circumstances I discuss below, the LCM board considered each of those proposals in early February 2015. At that time, each of the directors of LCM considered that if LCM could not come to an arrangement with Vannin following the looming expiry of the Vannin Joint Venture on 31 March 2015, LCM would have to engage in a further capital raising.

In that context, it is important to note at this stage the following evidence that Mr Coope gave in one of his affidavits:

Mr Douglas did not challenge that evidence in cross-examination.

The evidence is consistent with emails that Mr Coope sent to Mr Craddock and Dr King in June and July 2014 in which he said, in effect, that he would disclose to LCM any arrangements he made with Mr Craddock concerning his personal situation before committing LCM to any deal.

In those circumstances, I accept Mr Coope’s evidence at [35]. Mr Coope’s avowed intention of disclosure was, however, as he said, limited to circumstances where LCM’s board “decided to pursue negotiations with Vannin in relation to the Wind Down Proposal”. The alleged serious misconduct of Mr Coope arising from what he communicated to his colleagues regarding the Vannin or Wind Down Proposal (referred to at [22(1)] above) arose in that circumstance. That arising from the Separation Proposal (referred to at [22(2)]) did not.

In November 2014, Mr Coope engaged in correspondence with Mr Craddock and Dr King to arrange a meeting between the three of them in London in January 2015.

On 18 January 2015, Mr Craddock sent Mr Coope an email saying he had made separate bookings for lunch in London on 21 January 2015 (for four people) and for dinner on the same evening (for two people).

Mr Craddock contemplated, as occurred, that he would attend the lunch with Mr Coope, Dr King and one of Vannin’s employees, and that he would attend the dinner with Mr Coope alone.

Mr Craddock’s email stated:

In cross-examination, Mr Craddock said he did not know in advance of the meeting of any matter that could not be discussed, and asked this question as he had not met Dr King before and did not know him.

Mr Craddock gave this evidence:

Mr Coope also denied having had any such discussions with Mr Craddock. I see no basis upon which I should reject that evidence.

On the same day, 18 January 2015, Mr Coope prepared a handwritten document called “Tasks for next capital raising”. The document listed some 24 such tasks including:

The remaining points on Mr Coope’s task list were mostly related either to a proposed capital raising and/or the ongoing management of LCM. Mr Coope was not asked any questions about this document in cross-examination. I accept Mr Clarke’s submission that this document suggests that Mr Coope’s state of mind as at 18 January 2015 was that a capital raising was likely to proceed. The document is inconsistent with Mr Coope having then made any decision to leave LCM or join Vannin separately to LCM; I accept that he had not.

The following day, 19 January 2015, Mr Coope sent Mr Craddock an email, in which he copied Dr King, attaching his “agenda” for the lunchtime meeting scheduled for 21 January 2015.

Relevantly, the agenda referred to:

Mr Coope’s email stated:

A short time later on 19 January 2015, Mr Coope replied to Mr Craddock’s 18 January 2015 enquiry as to what “can, and cannot be discussed” as follows:

In cross-examination Mr Coope said that there were two matters that he did not wish to discuss in Dr King’s presence (being the “personal” matters “best left for dinner”):

The cross-examination continued:

Mr Craddock gave this evidence concerning Mr Coope’s comment that “anything personal is best left for dinner”:

Mr Douglas put a similar proposition to Mr Coope as follows:

Thus, both Mr Coope and Mr Craddock denied discussing, at this time, the prospect of Mr Coope’s employment with Vannin in the event that negotiations for an ongoing commercial relationship between Vannin and LCM did not bear fruit.

Mr Douglas did not suggest to either Mr Coope or Mr Craddock that they had colluded to give the same evidence on this topic. That was quite proper of Mr Douglas as, no doubt, he had no basis to put any such proposition.

In the absence of any evidence pointing to the inherent improbability of the evidence given by both Mr Coope and Mr Craddock, I see no reason why I should not accept it.

The lunch meeting on 21 January 2015 was attended by Mr Coope, Dr King, Mr Craddock and the Vannin employee.

Amongst the matters discussed at the lunchtime meeting was the possibility of Vannin becoming a “cornerstone investor” in LCM. Mr Craddock rejected this possibility and said:

Mr Craddock also said he was not happy with LCM’s proposed capital raising. He said:

It is not clear from the evidence precisely what else was discussed at the lunchtime meeting. It did include discussion of the three options outlined by Mr Coope in his email of 19 January 2015 (extension of the Vannin Joint Venture, a possible merger, or Vannin becoming a cornerstone shareholder in LCM).

Whatever may have been the detail of those discussions, Dr King’s conclusion at the end of the lunch was that there was “no real prospect of a deal being struck with Vannin”.

My attention has not been directed to any evidence which suggests that either Mr Craddock or Mr Coope told Dr King that they proposed to meet for dinner on 21 January 2015.

Dr King said he did not recall whether he knew about the dinner.

As only Mr Coope and Mr Craddock were at the dinner, the only account of what happened is theirs.

Mr Coope’s account of what was said at the dinner is as follows:

In examination-in-chief Mr Craddock gave a similar account of the conversation:

In cross-examination, Mr Coope reiterated that he discussed with Mr Craddock at the dinner the possibility of acquiring a 20 per cent interest in Vannin Malta. As I discuss below, Mr Craddock mentioned such an interest in the context of the Vannin or Wind Down Proposal that he put to Mr Coope in an email of 27 January 2015. Mr Craddock’s recollection was that a possible 20 per cent interest in Vannin Malta for Mr Coope was not mentioned at the dinner meeting on 21 January 2015, but was first mentioned by Mr Craddock in his 27 January 2015 email.

In cross-examination, Mr Coope said that what he did discuss with Mr Craddock at the dinner meeting on 21 January 2015 was:

I see no basis to reject that evidence. It is consistent with Mr Craddock’s evidence that they discussed what could be done “between the two respective entities”. Again, Mr Craddock and Mr Coope, independently, gave a similar account of what happened. There was no suggestion in the evidence that they had put their heads together to ensure their evidence was congruent.

In those circumstances, I see nothing sinister in the fact that Mr Coope and Mr Craddock met separately from Dr King on this occasion. I see no basis to conclude that they were doing anything other than discussing what possible commercial arrangements could be negotiated between Vannin and LCM, and what salary and equity arrangements might be available to Mr Coope if some mutually satisfactory arrangement could be negotiated between Vannin and LCM.

I cannot see a basis to conclude, as Mr Douglas submitted, that Mr Coope “sought to isolate certain discussions with Mr Craddock, to the exclusion of Dr King”.

On 23 January 2015, Dr King and Mr Coope travelled to Amsterdam to meet with a potential future employee of LCM.

In one of his affidavits, Mr Coope gave this account of a conversation he had with Dr King while in Amsterdam:

In cross-examination, Mr Coope said that he held approximately 20 per cent of the trust that held the Vannin Joint Venture profits, and that this is what he was referring to when he said that “if there is a deal”, Mr Craddock “will give me the same deal I have now with LCM”.

Dr King accepted that his conversation in Amsterdam with Mr Coope was in substance what Mr Coope set out in his affidavit. He added:

That appears to be consistent with Mr Coope’s statement that his discussions with Mr Craddock concerning his “personal arrangements” were contingent on there being a deal (“if there is a deal”).

Thus, in substance, Mr Coope told Dr King that if an ongoing business relationship could be negotiated between Vannin and LCM, Mr Craddock was prepared to offer Mr Coope equity in one of the Vannin entities.

That suggests, consistently with Mr Coope’s recollection, that Mr Craddock had mentioned a possible 20 per cent equity for Mr Coope in Vannin Malta at the 21 January 2015 dinner.

It also suggests that, consistently with Mr Coope’s evidence, the only discussions that Mr Coope had had with Mr Craddock to this point concerning his personal position were in the context of some negotiated ongoing commercial relationship between Vannin and LCM.

At this time, it was Dr King’s understanding that the “cornerstone shareholder” option (referred to in Mr Coope’s email of 19 January 2015) would not eventuate, as Vannin was not interested in it. Dr King also understood that the “merger” proposal (also mentioned by Mr Coope in the same email) was not viable because of Mr Craddock’s views as to LCM’s value.

Dr King understood that Mr Craddock was intending to come back with a revision of the merger proposal that had been discussed by Mr Craddock and Mr Coope between May and July 2014. However, Dr King’s view was that such an option was unattractive to LCM because of LCM’s “changed landscape”; namely, LCM’s changed shareholding following the 2014 capital raising (which resulted in a number of arm’s length investors, the private investors referred to at [17(d)] above, acquiring a shareholding in LCM).

On 25 January 2015 Mr Craddock sent an email to Mr Coope stating:

In cross-examination, Mr Craddock said that the “solution we discussed” was a reference to the Vannin or Wind Down Proposal which, as I have mentioned, was included in Mr Craddock’s email of 27 January 2015. I will return to this email below.

Mr Craddock denied that the “solution we discussed” was one whereby Vannin would become a competitor of LCM.

Mr Craddock said that the Vannin or Wind Down Proposal was:

The cross-examination continued:

On 26 January 2015, Mr Coope replied to Mr Craddock’s enquiry (as to whether he would be “wasting [his] time”) as follows:

That response makes clear, in my opinion, that the “solution we discussed” referred to by Mr Craddock was not some private arrangement between Mr Craddock and Mr Coope but, rather, a proposal that Mr Coope intended to put to the other shareholders of LCM.

On 27 January 2015, Mr Craddock sent an email to Mr Coope which was marked “Confidential – FYEO [for your eyes only]”.

Mr Craddock said that he marked the email “FYEO” to ensure that Mr Coope did not use the proposal for the purpose of an LCM capital raising. Mr Craddock rejected as “nonsense” the suggestion put to him by Mr Douglas that he did not intend Mr Coope to reveal the email to his fellow directors. However that may be, Mr Coope did not show the email to Dr King or Mr Moloney.

The substance of Mr Craddock’s email of 27 January 2015 was as follows:

In cross-examination, Mr Craddock said that he regarded the Vannin or Wind Down Proposal as one where, in effect, Vannin acquired the assets of LCM, and the Hybrid Proposal (which he agreed had not previously been discussed with Mr Coope) as one where, in effect, Vannin would “own LCM outright”.

Following receipt of Mr Craddock’s 27 January 2015 email, Mr Coope telephoned him.

Mr Coope’s account of that conversation was as follows:

Mr Craddock’s recollection of the conversation was to the same effect:

Once again, Mr Coope and Mr Craddock, independently, gave a similar account of this conversation. The terms of the conversation show that Mr Coope was endeavouring to negotiate the best possible outcome for LCM. There is no suggestion in the conversation that Mr Coope might leave LCM and enter a separate venture with Vannin.

On 3 February 2015, Mr Coope sent an email to Mr Craddock in which he stated that he was:

Mr Craddock replied expressing disappointment in the lack of enthusiasm that he detected in Mr Coope’s 3 February 2015 email. Mr Coope responded on 4 February 2015:

Again, there is no suggestion here that Mr Coope was doing anything other than attending to LCM’s interests.

On 6 February 2015, Mr Coope circulated to Dr King and Mr Moloney a proposed agenda for a board meeting to be held on 9 February 2015, which included an item “Vannin proposals”.

A short time later, Mr Coope circulated to Dr King and Mr Moloney a document headed “[t]ransaction options discussed with Vannin and present position” (“the Transaction Options document”).

It is necessary to set out this document in full as it is at the heart of one of the bases upon which LCM contends that Mr Coope engaged in serious misconduct. The Transaction Options document was in the following terms:

In pars 1, 2 and 3 of the Transaction Options document, Mr Coope conveyed Vannin’s rejection of the options set out in Mr Coope’s email of 19 January 2015; that is, of an extension to the Vannin Joint Venture, a merger between Vannin and LCM, or Vannin becoming a cornerstone investor in LCM. Paragraphs 4 and 5 correspond with Mr Craddock’s Vannin or Wind Down Proposal and his Hybrid Proposal.

In final submissions, Mr Clarke stated:

The Transaction Options document was an “outline” of sorts. But it did descend to detail. And what is conspicuously absent from Mr Coope’s summary of the Vannin or Wind Down Proposal is any reference to Mr Craddock’s proposal that Mr Coope acquire a 20 per cent equity in Vannin Malta.

Mr Coope also circulated financial models as to the Vannin or Wind Down Proposal which showed that LCM would cease to employ staff after 31 March 2015 and that such salary costs (including those of Mr Coope and Mr Moloney) would be borne by Vannin under that proposal.

Dr King said that, prior to the 9 February 2015 board meeting, he did not give any of the options set out in Mr Coope’s document much consideration:

Dr King gave this evidence:

Mr Moloney gave evidence that, at this time, his preference was to conduct a capital raising rather than try to extend the Vannin Joint Venture. He said that, prior to the 9 February 2015 board meeting, he did not ask Mr Coope for any further details about the Vannin or Wind Down Proposal. Mr Moloney gave this evidence:

On 9 February 2015 Mr Coope, Dr King and Mr Moloney attended the board meeting of LCM.

Mr Coope gave the following evidence as to what was said at the meeting:

Dr King did not, in substance, disagree with Mr Coope’s account of the meeting. He said in his affidavit:

In cross-examination Dr King agreed that, at the meeting, there was no substantive discussion about the Vannin or Wind Down Proposal, and that because of the “new landscape at this time in February” (that is, the new shareholders following the 2014 capital raising) the “wind down model was really just not tenable”.

Dr King gave this evidence in cross-examination:

Mr Moloney gave similar evidence as to this aspect of the 9 February 2015 meeting in his cross-examination:

One of the bases upon which LCM contends that Mr Coope engaged in serious misconduct is that he failed to disclose to Dr King and Mr Moloney in the Transaction Options document or at the 9 February 2015 meeting that an element of the Vannin or Wind Down Proposal was that Mr Coope would become a 20 per cent shareholder in Vannin Malta.

Mr Douglas took the matter up with Mr Coope in cross-examination:

Later in his cross-examination, Mr Coope said:

As I have set out above at [35] to [36] above, Mr Coope gave unchallenged evidence that if the LCM board “decided to pursue negotiations with Vannin in relation to the Wind Down Proposal” it was his intention to disclose to the board “any deal I could negotiate with [Mr] Craddock in respect of my future employment arrangements with Vannin”.

Thus, in substance, Mr Coope’s position was that because of the lack of interest expressed by his fellow directors at the 9 February 2015 board meeting as to any of the options proposed by Mr Craddock in his 27 January 2015 email, the occasion did not arise for him to disclose to his fellow directors that, were the Vannin or Wind Down Proposal to proceed, he would be offered a 20 per cent stake in Vannin Malta.

As I have set out above, it was Mr Coope’s and Dr King’s recollection that at the 9 February 2015 board meeting, following the very brief discussion set out at [113] above, Dr King invited Mr Coope to submit the Separation Proposal.

It was Mr Moloney’s recollection that it was Mr Coope who raised the question of him “separating from LCM”.

It seems probable that Mr Coope’s and Dr King’s recollection is correct.

So far as the evidence reveals, it was only in the face of Dr King’s suggestion “why don’t you leave” and request for a “proposal by Wednesday” (11 February 2015) that Mr Coope turned his mind to the possibility of joining Vannin independently of any ongoing business relationship between Vannin and LCM.

The next day, 10 February 2015, Mr Coope sent an email to Mr Craddock saying that Dr King and Mr Moloney had not expressed “much interest” in Mr Craddock’s proposals and added:

On 11 February 2015, Mr Coope and Mr Craddock had a conversation.

Mr Coope’s account of the conversation was as follows:

Mr Craddock’s account of the conversation was as follows:

Once again, Mr Coope and Mr Craddock’s recollection of their conversation, given independently, was to very similar effect.

Mr Coope made clear to Mr Craddock that he could not commit to employment with Vannin unless and until he could “do a deal with LCM to separate”. However, I do not accept Mr Clarke’s submission that this shows that Mr Coope was telling Mr Craddock that he would not come to an arrangement with Mr Craddock unless LCM approved that arrangement. There is no suggestion in the evidence that Mr Coope proposed to tell Dr King or Mr Moloney anything about his planned proposal to Vannin. What Mr Coope was saying was that he needed Dr King’s (that is, LCM’s) agreement to the Separation Proposal he was planning to put to Dr King/LCM “before I can do anything with you”.

On 12 February 2015, Mr Coope sent an employment proposal (“the Employment Proposal”) to Mr Craddock and the Separation Proposal to Dr King and Mr Moloney.

The essence of the Employment Proposal was that Mr Coope would:

Mr Coope’s Employment Proposal also included provisions for his salary, annual leave and other like matters.

In substance, Mr Coope proposed that he head up Vannin Malta’s operations in Australia, free of competition from Vannin Capital PCC, and compete with LCM in the litigation funding market in Australia. Mr Craddock’s response, received shortly after, was in substance to agree with Mr Coope’s proposal.

The essence of the Separation Proposal that Mr Coope sent to Dr King and Mr Moloney was that he would:

Mr Coope also proposed swapping his shares in LCM “for the corresponding commercial interest in the LCM Trust”, acquisition by LCM of Mr Coope’s shares in a related company (Litigation Insurance Pty Ltd), and that all Mr Coope’s long service and annual leave entitlements be paid out.

Mr Douglas described the Separation Proposal as one where Mr Coope was “setting himself up to compete” with LCM.

Mr Coope, in cross-examination, said that he thought it was “obvious”, indeed “blindingly obvious”, from the Separation Proposal that he was proposing to compete with LCM.

In his affidavit, Dr King said:

In cross-examination, Dr King said that he understood from the Separation Proposal that Mr Coope proposed to stay in the litigation funding industry. Dr King also said he understood that Mr Coope did not himself have the funds to fund litigation (see Mr Coope’s proposal at [137(e)] above) and that it was probable that Vannin would be the funder of any business conducted by Mr Coope. Dr King said it became clear to him, prior to 26 February 2015 (the date of Mr Coope’s suspension), that for the Separation Proposal to work, it was likely that Vannin would have to agree.

Mr Moloney also said that he expected someone would have to “back” Mr Coope if Mr Coope was to implement the Separation Proposal (specifically the element set out at [137(e)]). Mr Moloney understood that Mr Coope did not have sufficient personal resources to fund new cases, but did not “recall coming to a view that [the backer] was Vannin”. Mr Moloney said that it was obvious that Mr Coope would be staying in the litigation funding industry and competing with LCM.

Mr Coope agreed that if the Separation Proposal had been accepted he would have joined Vannin Malta, as the head of Vannin Malta in Australia, to compete directly with LCM.

The complaint that LCM makes about Mr Coope, and the basis upon which, so far as concerns the Separation Proposal, LCM contends that Mr Coope engaged in serious misconduct, is that Mr Coope failed to disclose to his fellow board members that, simultaneously with making the Separation Proposal, he was proposing to Vannin that he:

On 16 February 2015, Mr Moloney prepared a document setting out his reaction to the Separation Proposal. In that document, Mr Moloney stated that he could see some benefit to LCM accepting the proposal, especially so far as concerned Mr Coope’s offer to manage all Vannin Joint Venture projects after 31 March 2015 at no cost to LCM. In that regard, Mr Moloney noted:

Having received no response to the Separation Proposal, Mr Coope sent a number of follow up emails to Dr King. Ultimately, on 24 February 2015 Dr King replied stating:

Dr King suggested that it would be “better” to await receipt of Mr Moloney’s separation proposal (that, at the 9 February 2015 board meeting, Dr King had suggested Mr Moloney also submit) and then “deal with all the matters together”.

On the same day, Mr Coope replied saying that he was surprised at Dr King’s comments and argued that the Separation Proposal was “value accretive for LCM and its shareholders”. Mr Coope stated:

In the meantime, on 23 February 2015 Mr Moloney accessed Mr Coope’s email transmissions and viewed some of the email correspondence between Mr Coope and Mr Craddock set out above, together with Mr Coope’s Employment Proposal to Mr Craddock.

Mr Moloney drew certain conclusions from these communications and requisitioned a board meeting for 26 February 2015. He did not give Mr Coope notice of that meeting.

On 26 February 2015 Dr King and Mr Moloney attended the board meeting requisitioned by Mr Moloney.

Later that day, LCM commenced these proceedings and obtained ex parte orders restraining Mr Coope from, amongst other things, negotiating or entering into any agreement with Vannin, disclosing any confidential information of LCM or soliciting or approaching any employee of LCM.

As I have mentioned, on 26 February 2015 LCM also suspended Mr Coope from his employment, purportedly pursuant to cl 20.1 of the Employment Contract. On 31 March 2015, the board of LCM, comprising Dr King and Mr Moloney, resolved summarily to terminate Mr Coope’s employment pursuant to cl 19.9 of the Employment Contract on the basis of serious misconduct (see [3] above).

On 2 April 2015, Mr Coope, through his solicitors, informed LCM that Mr Coope regarded LCM’s actions of 31 March 2015 as a repudiation of its obligations under the Employment Contract and that Mr Coope elected to treat the Employment Contract as being at an end.

“Serious misconduct” is not defined in the Employment Contract. However, the expression has received consideration in the authorities.

What must be established is conduct that is “so seriously in breach of the contract that by standards of fairness and justice the employer should not be bound to continue the employment” (North v Television Corporation Ltd (1976) 11 ALR 599 at 608 to 609 per Smithers and Evatt JJ).

Mr Douglas did not cavil with the following summary of the relevant principles in Mr Clarke’s closing submissions:

In final submissions, Mr Douglas agreed that LCM’s case that Mr Coope engaged in serious misconduct came down to these matters:

I will deal with each matter in turn.

Mr Coope did not, in my opinion, provide an adequate explanation for his failure to mention, in the Transaction Options document, that an element of Mr Craddock’s Vannin or Wind Down Proposal was that Mr Coope would acquire a 20 per cent shareholding in Vannin Malta.

It would have been easy for Mr Coope to do so.

Mr Coope accepted that his potential interest in Vannin Malta was a “material” matter for LCM and its board to consider “if this proposal were to go ahead” or “if there was a transaction” (see [119] above). He thus agreed that if the proposal were to have gone ahead, he would have had to reveal the 20 per cent interest which he omitted from his 6 February 2015 document.

However, as I have said, Mr Coope’s unchallenged evidence was that he would have done so. He said, and I accept, that if the LCM board decided to pursue negotiations with Vannin concerning the Vannin or Wind Down Proposal, rather than proceed with a further capital raising, it was his intention to disclose to the LCM board “any deal I could negotiate with [Mr] Craddock in respect of my future employment arrangements” (see [35] above). And Mr Coope had mentioned to Dr King, in the Amsterdam conversation, that Mr Craddock had told him that, in the context of a proposal concerning the ongoing business relationship between LCM and Vannin, he would “give me the same deal I have now with LCM” (see [75] above).

For the reasons I have set out above, I am satisfied that, at the time Mr Coope provided Dr King and Mr Moloney with his Transaction Options document, he had made no decision to negotiate with Mr Craddock a position at Vannin Malta in the absence of an ongoing relationship between LCM and Vannin. The circumstances I have set out at [47] and [81] above suggest to me that, as Mr Coope contended, he did not give consideration to employment with Vannin separately from any ongoing relationship between LCM and Vannin until he was invited by Dr King to submit the Separation Proposal.

At the board meeting of 9 February 2015, Mr Coope did not advocate that LCM accept the Vannin or Wind Down Proposal. Indeed, he argued against its acceptance and urged that LCM proceed with the capital raising favoured by Mr Moloney (see [113] above).

Prior to the 9 February 2015 board meeting, Dr King was not enamoured of any future business relationship with Vannin. The idea of any such business relationship was dealt with peremptorily at the board meeting and dismissed out of hand. To adopt Mr Clarke’s language, the discussion was “shut down” without giving Mr Coope any opportunity, or cause, to elaborate on what he had written in his 6 February 2015 Transaction Options document.

In those circumstances, my conclusion is that, as at 9 February 2015, the point had not been reached where, in order to discharge his obligations as a director of LCM under ss 181 or 182 of the Corporations Act 2001 (Cth) (“the Act”) or to avoid any conflict between his personal interest in advancing his own position and his duty to act in the interest of LCM, he was obliged to disclose what he stood to gain (that is, a 20 per cent shareholding in Vannin Malta) if the matter went further.

Nor had the occasion arisen for Mr Coope to make any disclosure to LCM by reason of cl 4.1(c) of the Employment Contract, which obliged Mr Coope to:

Any potential detriment to LCM which might otherwise have arisen by reason of Mr Coope having a 20 per cent shareholding in Vannin Malta upon implementation of the Vannin or Wind Down Proposal ceased to be of any moment in light of the board’s decisive, and unanimous rejection of that proposal.

For those reasons, my conclusion is that Mr Coope did not thereby engage in serious misconduct.

When putting the Separation Proposal to LCM, Mr Coope did not inform his fellow directors that, simultaneously, he was putting the Employment Proposal to Mr Craddock. As I have said, the central elements of the Employment Proposal were that, forthwith upon the cessation of his employment as managing director of LCM, Mr Coope would become the managing director and a 20 per cent shareholder of Vannin Malta, and Vannin Malta would compete against LCM in the Australian (and Asian) litigation funding industry free of competition from Vannin itself.

Mr Coope’s Separation Proposal was not put to Dr King and Mr Moloney on a “take it or leave it” basis. His proposal was headed “for discussion purposes only – not an offer capable of acceptance”.

Mr Coope’s position was that, having been invited to put the Separation Proposal to Dr King, he was justified in acting exclusively in his own interests in so doing.

However, as Mr Douglas put to Mr Coope in cross-examination, Mr Coope remained at this stage one of the two joint managing directors of LCM, and the director at the “interface” of LCM’s dealings with Vannin. Mr Coope therefore remained bound to comply with his obligations under the Employment Contract (including under cl 4.1(c); see [169] above) and with his statutory obligations under ss 181 and 182 of the Act.

Mr Coope agreed that what he was asking for was “an unrestricted right to compete with LCM”.

Mr Coope said that he believed it was “blindingly obvious” from the terms of the Separation Proposal that he intended to compete with LCM.

As I set out above, Dr King did understand that Mr Coope would stay in the litigation funding industry, very likely with Vannin’s agreement and financial backing so far as concerned managing Vannin Joint Venture projects after 31 March 2015, and that Mr Coope “may have negotiated some type of arrangement” to “work for Vannin” (see [141] and [142] above). Dr King later came to think that Mr Coope “actually [had] some arrangement with Vannin”.

Mr Coope had also told Dr King at the 23 January 2012 meeting in Amsterdam that Mr Craddock would give him “the same deal I have now with LCM” (see [75] above). However, as Mr Coope then said to Dr King, this was only “if there [was] a deal” between LCM and Vannin. Mr Coope’s Separation Proposal was put, and considered, in the context of there not being any such deal.

What was not obvious to Dr King was that not only did Mr Coope propose to compete with LCM, work in some capacity for Vannin and have financial assistance from Vannin for the Vannin Joint Venture run off, he was also proposing to become Vannin Malta’s managing director in Australia and Asia so that Vannin Malta (without competition from its parent company) could compete with LCM in Australia and Asia.

Dr King said that he did not “infer” from the Separation Proposal that Mr Coope “would be working as the head of Vannin in Australia, in direct competition with LCM”. Dr King said:

During cross-examination, Mr Coope agreed that, at the time he put his Separation Proposal, it would have been “disastrous” for the prospects of LCM’s proposed 2015 capital raising for him to leave LCM, join Vannin and set up a business in competition with LCM. But this is just what Mr Coope was proposing to do. And he did not tell his fellow LCM directors.

As I have mentioned, cl 4.1(c) of Mr Coope’s Employment Contract obliged him to bring to the LCM board’s attention “any significant matters of which you become aware that would be of detriment” to LCM.

Mr Coope’s potential appointment as managing director of Vannin Malta in the circumstances proposed by Mr Coope to Mr Craddock was, in my opinion, a “significant” matter which was very likely, as Mr Coope must have been aware, to be of detriment to LCM; indeed, “disastrous”, to use the word with which Mr Coope agreed.

Clause 4.1(c) of the Employment Contract was therefore enlivened and obliged Mr Coope to bring to the attention of the LCM board what he was proposing to Mr Craddock. His failure to do so was a breach of cl 4.1(c).

There was also a conflict between Mr Coope’s interest in negotiating a platform from which he could compete with LCM on the one hand, and his continuing duties, as joint managing director of LCM, to promote LCM’s interests on the other.

As a director of LCM, Mr Coope was in a fiduciary relationship with LCM and subject to a duty not to place himself in a position where his personal interest and duty to LCM conflicted. The obligations imposed on a fiduciary are proscriptive (for example Breen v Williams [1996] HCA 57; 186 CLR 71 per Gaudron and McHugh JJ at 113), and do not include a positive obligation of disclosure. However, disclosure may be the only way to avoid breach, by obtaining the informed consent of the party (here LCM) to whom the duty is owed (for example Blackmagic Design Pty Ltd v Overliese [2011] FCAFC 24 at [105] to [108] per Besanko J).

Here, my opinion is that in order to eschew the conflict of interest in which Mr Coope found himself, it was necessary that he obtain LCM’s consent not only to the terms of his Separation Proposal, but also to the undisclosed circumstance that, the very next day after he proposed to leave LCM, he proposed to head up its current major funder and joint venturer as a competitor. He could only do that by disclosing to the LCM board that, simultaneously with making the Separation Proposal to LCM, he had made the Employment Proposal to Mr Craddock.

Mr Coope’s failure to do so, and his breach of cl 4.1(c) of the Employment Contract, in all probability also amounted to a breach by him of his statutory duties to act in good faith in the best interests of LCM (s 181 of the Act) and not improperly use his position as joint managing director to gain an advantage for himself (s 182 of the Act). However, this aspect of the matter was barely developed by Mr Douglas. In view of the conclusions to which I have come concerning cl 4.1(c), it is not necessary for me to express any final view on this aspect.

In my opinion, what might have been “obvious” from Mr Coope’s Separation Proposal is beside the point. It was not for Mr Coope’s fellow directors to deduce from Mr Coope’s Separation Proposal its full implications, absent simultaneous disclosure by Mr Coope of the Employment Proposal.

It follows from these conclusions that Mr Coope engaged in serious misconduct, such as to warrant LCM terminating the Employment Contract. His conduct was “repugnant to the relationship of employee and employer”, “incompatible with the fulfilment of” his duty to LCM and “involved an opposition, or conflict between his interest and his duty” to LCM (see authorities at [158] above).

It follows that LCM did not itself repudiate the Employment Contract and that it has no liability to pay damages to Mr Coope. It is therefore not necessary to examine the arguments which arose in relation to the question of damages. However, in deference to the submissions put by counsel, I will do so, albeit briefly.

By his cross-claim, Mr Coope contended that LCM was obliged to pay him the salary that, but for LCM’s termination of his employment, he would have been paid for the unexpired term of his Employment Contract: that is, from April 2015 to November 2018.

The Employment Contract made no provision for any payment in lieu of salary in the event that Mr Coope’s employment was terminated during the course of the contract term.

In effect, Mr Coope’s claim was for damages in the amount that he would otherwise have earned under the Employment Contract.

LCM contended that, assuming it was not entitled to terminate Mr Coope’s Employment Contract, Mr Coope was not entitled to recover such damages for two reasons.

First, Mr Coope was, Mr Douglas submitted, obliged to mitigate his damages, presumably by seeking employment elsewhere. However, that matter was not pleaded by LCM and was only raised by Mr Douglas in oral submission in reply (at p 301 of a 305 page transcript). Mr Coope had no opportunity to deal with such a contention. He may well have sought to adduce evidence to answer it. In those circumstances, I would not have been prepared to entertain that submission.

Second, LCM contended that such a payment would be a benefit regulated by Pt 2D.2 of the Act and that:

Section 200B of the Act provides that, relevantly, a company must not give a person holding a managerial or executive office a “benefit in connection with [that] person’s…retirement” unless there is “member approval” for the purpose of s 200E for the giving of the benefit.

It is common ground that there was no such “member approval” for a payment to Mr Coope of the kind he seeks in these proceedings.

However, s 200F(1)(aa) provides that s 200B “does not apply to…a benefit given under an order of a court”. An award of damages for breach of contract is, in my opinion, a “benefit given under an order of a court”. Thus, on the face of it, s 200F(1)(aa) would have been engaged, and would have had the effect that s 200B did not apply.

That is not a surprising result. There is no reason why the legislature would provide that the shareholders of a company should in advance agree that, if the company repudiates its obligations to an employee in a managerial or executive position, that employee should thereby be entitled to recover damages. No doubt that is why s 200F(1)(aa) states (perhaps unnecessarily, bearing in mind that s 200B is directed to benefits given to the relevant person by the company itself) that s 200B(1) does not apply to a “benefit given under an order of a court”.

Mr Douglas drew attention to s 200F(2), which provides that s 200B(1) does not apply:

Mr Douglas submitted that if s 200F(1)(aa) was engaged, s 200F(2) was also engaged, so as to limit the amount of Mr Coope’s recovery. Mr Douglas submitted that the relevant limitation under s 220F(2) was to an amount equal to Mr Coope’s average annual base salary.

The structure of s 200F makes clear that ss 200F(1) and (2) are directed to different circumstances. Section 200F(1) is directed to a circumstance where the relevant person receives a benefit by reason of an act external to the company (for example, an industrial instrument (ss 200F(1)(a)) or an order of a court (ss 200F(1)(aa)).

In my opinion, s 200F(2) deals with an entirely different circumstance; namely, a benefit that is given to the relevant person by the company which benefit could be described as a “genuine payment by way of damages for breach of contract”.

For example, if the Employment Contract had stated that, were LCM to terminate Mr Coope’s employment without cause, Mr Coope would be entitled to payment of such amount as would compensate him for the loss he thereby suffered, s 200F(2) would be engaged and would operate to provide a cap on the amount payable, such cap to be determined in accordance with ss 200F(3) and (4).

There would be no reason for s 200F(2) separately to create a circumstance to which s 200B does not apply, if s 200F(2) was directed to the same kind of “benefit” the subject of s 200F(1).

For those reasons, had I concluded that Mr Coope was entitled to damages, I would not have accepted either of Mr Douglas’s submissions.

I invite the parties to confer and agree on the orders, including as to costs, necessary to give effect to these reasons.

For the reasons set out in my judgment of 7 August 2015 in these proceedings (LCM Litigation Fund Pty Ltd v Coope; Coope v LCM Litigation Fund Pty Ltd (No 3) [2015] NSWSC 1156) I have determined that the answer given by Mr Coope to the question set out at [182] was “I don’t agree with that” and not “I agree with that” (as was recorded in the transcript, without objection from either party, at the time I delivered this judgment of 24 July 2015).

Accordingly, this judgment should be read as if [182] was omitted and the words “indeed, ‘disastrous’, to use the word with which Mr Coope agreed” in [184] were omitted.

As I explained in my judgment of 7 August 2015, those omissions do not cause me to change my decision concerning Mr Coope’s serious misconduct concerning the Separation Proposal.