Thomson and another v S G Australia Limited and another

Thomson and another v S G Australia Limited and another - [2008] NSWIRComm 107 - NSWIRComm 2008 case summary — Zoe

Appeal - Leave to appeal - Notice of Contention - Unfair contract - Employer/employee relationship terminated - Complex foreign exchange transactions - Whether trial judge erred by failing to find that the failure of the first respondent to draft contractual provisions so as to reflect discussions between the parties was "deliberate and intentional" - Whether trial judge failed to take into account a draft contract of employment which was produced by the first respondent late in the proceedings at first instance thereby depriving the appellants of the opportunity to properly conduct their case leading to a miscarriage of justice - Whether trial judge erred in determining the intention of the parties as to when revenue was earned for the purpose of calculating bonuses - Whether there was any unfairness in applying certain contractual provisions relating to the earning of bonuses - Leave to appeal granted - Held trial judge erred in one respect by failing to take into account a material consideration in calculating revenue earned for the purpose of a bonus calculation - To that extent only appeal upheld CATCHWORDS: Unfair contract - Appeal - Employer/employee relationship terminated - Complex foreign exchange transactions - Whether trial judge erred by failing to find that the failure of the first respondent to draft contractual provisions so as to reflect discussions between the parties was "deliberate and intentional" - Whether trial judge failed to take into account a draft contract of employment which was produced by the first respondent late in the proceedings at first instance thereby depriving the appellants of the opportunity to properly conduct their case leading to a miscarriage of justice - Whether trial judge erred in determining the intention of the parties as to when revenue was earned for the purpose of calculating bonuses - Whether there was any unfairness in applying certain contractual provisions relating to the earning of bonuses - Leave to appeal granted - Held trial judge erred in one respect by failing to take into account a material consideration in calculating revenue earned for the purpose of a bonus calculation - To that extent only appeal upheld

[12]

1 This matter concerns an application by Michael Thomson ('the first appellant') and his consulting firm, Bengoal Pty Ltd ('the second appellant') for leave to appeal and, if leave is granted, to appeal from three decisions of Marks J given in 2006 in relation to claims by the appellants that contracts entered into by them with SG Australia Limited ('SGAL') were unfair within the meaning of s 106 of the Industrial Relations Act 1996. 2 Mr Thomson was employed as "Associate Director FX Sales within Financial Markets" by the first respondent, SGAL, a financial institution conducting business in Australia, which was wholly owned by the second respondent, Société Generale ('SG'), an international financial institution with headquarters in Paris. The second appellant was a company wholly owned by Mr Thomson through which the first appellant operated a consultancy business that gave advice and developed and implemented foreign currency risk management strategies for third parties. At the time Mr Thomson entered into an employment contract with SGAL, he and Bengoal entered into a Deed with SGAL whereby it was agreed that Bengoal would not engage in business of a type the same or similar to that conducted by SGAL for so long as Mr Thomson was employed by SGAL. 3 Mr Thomson's employment with SGAL commenced on 21 February 2001 and ended on 6 March 2002, when the first respondent terminated the employment for reasons related to the first appellant's conduct. The appellants subsequently sought relief under the unfair contract provisions of the Industrial Relations Act, not only in respect of the circumstances associated with the termination of Mr Thomson's employment, but also in connection with certain entitlements to remuneration claimed by the appellants to be due and owing from foreign exchange transactions pursuant to the contract and arrangements which they had with SGAL. 4 In the first of the three judgments under appeal ('first judgment'), given on 24 March 2006 (Thomson and anor v Societe Generale Australia Limited and anor [2006] NSWIRComm 24), Marks J relevantly determined that: · the termination of Mr Thomson's employment did not give rise to any unfairness within the meaning of s 106 of the Industrial Relations Act; · there were inconsistencies between, on the one hand, the language used in the written contract of employment between the first appellant and SGAL and, on the other hand, the intention of the parties in relation to the terms of the contract, thereby giving rise to unfairness; · the conduct of SGAL in seeking to apply the provisions of the contract's special conditions clause did not reflect the intention of the parties and was also relevantly unfair; and · the contract of employment should be varied to eliminate the unfairness. 5 Consequently, orders were made in favour of Mr Thomson in relation to a number of foreign exchange transactions, making adjustments to the benefits owing to him arising from those transactions. These adjustments, in money terms, amounted to a further $1,337,536 being payable to Mr Thomson. Importantly, however, no unfairness was found by his Honour in relation to aspects (which we shall later describe) of SGAL's treatment of transactions involving certain clients, namely, Newcrest Mining, Sons of Gwalia, Wambo Mining, Aurion Gold and South Coal. It is these transactions that lie at the heart of the appeal. 6 In the second judgment under appeal ('second judgment'), given by his Honour on 14 July 2006 (Michael Thomson & anor v Societe Generale Australia Limited & anor (No. 2) [2006] NSWIRComm 227), Marks J dealt with a notice of motion by the appellants seeking orders for the re-opening of evidence "as a consequence of the late production of a draft contract" that became exhibit 26 in the proceedings before the trial judge. His Honour dismissed the motion. 7 In a third judgment under appeal ('third judgment'), given on 15 December 2006 (Thomson & anor v Societe Generale Australia Limited & anor (No 3) [2006] NSWIRComm 397), his Honour dealt, under the slip rule, with an issue overlooked in his first judgment in relation to the Newcrest transaction and decided that revenue of $500,000 generated by a "swaps transaction" should be counted as revenue for the purpose of calculating Mr Thomson's entitlement to remuneration under the special conditions of his contract of employment. His Honour also dealt with another issue in connection with the Newcrest transaction, namely, whether a certain proportion (25 per cent) of the revenue generated by the Newcrest foreign exchange transaction, which was not taken into account for the purpose of calculating Mr Thomson's entitlement under the special conditions clause of the contract, should be taken into account. His Honour decided the 25 per cent should not be taken into account. APPEAL GROUNDS 8 There were 22 grounds of appeal and they may be summarised as follows: (1) The first three grounds of appeal related to an alleged "deliberate" and "intentional" act by the first respondent in drafting the contract of employment so as to "deprive" the first appellant of the "benefits" that he would "otherwise have received" under that contract of employment. In particular, the appellants contended that: (a) the trial judge erred by failing to find that the failure of the first respondent to draft the Special Conditions clause so as to reflect discussions between the parties was "deliberate and intentional"; (b) the trial judge failed to consider the question whether the first respondent drafted the Special Conditions clause "deliberately" and "intentionally" so as to not reflect the discussions between the parties; and (c) the trial judge, had he considered the question whether the first respondent drafted the special conditions clause "deliberately" and "intentionally" so as to not reflect the discussions between the parties, would have found that the failure of the first respondent was "intentional and deliberate". (2) The fourth ground of appeal related to the alleged failure by the trial judge to take into account a draft contract of employment (Exhibit 26) which was produced by the first respondent late in trial. (3) The fifth ground of appeal related to an alleged deprivation by the respondents, through the late production of the draft contract of employment (Exhibit 26), of the opportunity for the appellants to properly conduct their case, which allegedly led to a miscarriage of justice. (4) The sixth, seventh, eighth and ninth grounds of appeal related to an alleged error by the trial judge in determining the intention of the parties on the provision of a benefit under the Special Conditions clause for transactions concluded by 31 December 2001. In particular, the appellants challenged the inclusion of the date "31 December 2001" in subclause (ii) of the Special Conditions clause on the basis that the parties did not agree to such a date prior to execution of the contract of employment. (5) The tenth ground of appeal related to an alleged error in failing to find that the revenue of US$4,793,000 from the Newcrest Transaction was earned by the Financial Markets division of the first respondent in the period ending 31 December 2001. (6) The eleventh and twelfth grounds of appeal related to an alleged failure by the trial judge to find that the "deferral" of revenue from the Newcrest Transaction was made with the "intention" of "depriving" the first appellant of the benefit that he would have otherwise received from the Newcrest Transaction. (7) The thirteenth, fourteenth and fifteenth grounds of appeal related to alleged failures by the trial judge to find that the "provisioning" (or amortisation) of some of the revenue from the Newcrest Transaction was unfair. (8) The sixteenth ground of appeal related to an alleged error by the trial judge in deducting US$1,198,250 (rather than US$550,000) from the revenues for the Newcrest Transaction to take into account the sell down which formed part of the Newcrest Transaction. (9) The seventeenth, eighteenth and nineteenth grounds of appeal related to alleged errors in failing to find alleged "manipulation" of the Sons of Gwalia Transaction with the "intention" of "depriving" the first appellant of the benefits to which he was otherwise entitled. (10) The twentieth ground of appeal related to alleged unfairness in applying the Special Conditions clause (especially the date of "31 December 2001") to the Sons of Gwalia Transaction, due to the inclusion of the date allegedly not reflecting the intention of the parties. (11) The twenty-first ground of appeal related to alleged unfairness in applying the Special Conditions clause to the Wambo, Aurion Gold and South Coal Transactions, due to an alleged "intention" on the part of the first respondent to "deprive" the first appellant of the benefits that he was otherwise entitled to receive from such transactions. (12) The twenty-second ground of appeal related to alleged unfairness in applying the Special Conditions clause (especially the date of "31 December 2001") to the Wambo, Aurion Gold and South Coal Transactions, due to the inclusion of the date allegedly not reflecting the intention of the parties.

[23]

[118] The language used in the contract is, in my opinion, inconsistent with the intention of the parties as disclosed in the evidence to which I have referred and, to the extent that that language does not reflect the intention of the parties, the contractual provision is, in my opinion, unfair and should be varied accordingly so as to remove any unfairness. In addition, the conduct of SGAL in seeking to apply the provisions of the special conditions in a manner which does not reflect the intention of the parties is also relevantly unfair. That conduct is illustrated by the evidence of Mr Harvey as to the manner in which the special conditions should be applied, including the attempted use of GPO. Perhaps it might be said that Mr Thomson should have made inquiries about what was meant by the use of the terms "return on equity" and "credit charges" but in my opinion his failure to do so, given the context in which the discussions were occurring, does not preclude the court from making a finding of unfairness in the manner indicated. 16 The appellant contended, however, that Marks J did not go far enough and that his Honour erred in failing to find that the failure by SGAL to draft special conditions (i) and (ii) of the contract of employment so as to accurately reflect what had been agreed by the parties prior to execution of the contract was deliberate and intentional on the part of SGAL. Further, that his Honour failed to consider the question of whether the failure by SGAL to draft special conditions (i) and (ii) of the contract of employment so as to accurately reflect what had been agreed by the parties prior to execution of the contract was deliberate and intentional on the part of SGAL. 17 It should be made clear that what the appellant was contending was that the first respondent, through its officers, deliberately and intentionally set out to deprive Mr Thomson of benefits he was otherwise entitled to receive from certain foreign exchange transactions. Not only that, but it was submitted on appeal that the objective of officers and agents of the first respondent was to enrich themselves at Mr Thomson's expense. Senior counsel for the appellant submitted that there was not only an intention to deprive Mr Thomson of his benefits but also that: [I]f Mr Thomson did not receive his contractual entitlement it then meant the profit would go into the discretionary bonus pool which would be increased. And so we have an environment where the other individuals in the bank were working towards one goal, to ensure that their bonus was as large possible and they didn't care about Mr Thomson's entitlement but meant Mr Thomson got nothing and their bonuses were increased. That is something that they were anxious to achieve. 18 In the course of putting the appellants' case on appeal, counsel eschewed the use of such injurious terms as "fraudulent misrepresentation" or "deceit" in describing the first respondent's conduct. However, on any lexical analysis the appellant was contending that the first respondent acted for the wholly improper purpose of intentionally depriving Mr Thomson of benefits under his contract of employment in order to enrich other employees - a serious allegation that clearly has the potential, if accepted as proven, to impugn the reputation of the first respondent and its officers involved in the events that led to these proceedings. In Briginshaw v Briginshaw (1938) 60 CLR 336, Dixon J stated at 361 - 362: The truth is that, when the law requires the proof of any fact, the tribunal must feel an actual persuasion of its occurrence or existence before it can be found. It cannot be found as a result of a mere mechanical comparison of probabilities independently of any belief in its reality. No doubt an opinion that a state of facts exists may be held according to indefinite gradations of certainty; and this has led to attempts to define exactly the certainty required by the law for various purposes. Fortunately, however, at common law no third standard of persuasion was definitely developed. Except upon criminal issues to be proved by the prosecution, it is enough that the affirmative of an allegation is made out to the reasonable satisfaction of the tribunal. But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters "reasonable satisfaction" should not be produced by inexact proofs, indefinite testimony, or indirect inferences.

[25]

20 Having regard, first, to the pleadings, the only reference in the appellants' further amended summons for relief that may be interpreted as imputing improper motives to the first respondent was the allegation put in the alternative that the contract was unfair because the Special Conditions clause did not accurately reflect the first appellant's understanding of the true nature of the agreement between the first appellant and the first respondent, which understanding "had been induced as a result of the misrepresentations of the 1st respondent, and its officers agents and employees…". There was no allegation that the misrepresentation was fraudulent, so that it was not alleged the first respondent or its officers, agents and employees knew a misrepresentation to be untrue or made a misrepresentation recklessly, that is, not caring whether it was true or false. This is to be contrasted with the appellant's contention on appeal that there was a "deliberate" and "intentional" act by the first respondent in drafting the contract of employment so as to deprive the first appellant of the "benefits" that he would "otherwise have received" under the employment contract. 21 The appellants' opening address before the trial judge is similarly bare of any direct allegations that there was a "deliberate" and "intentional" act by the first respondent in drafting the contract of employment so as to deprive the first appellant of his benefits under the contract. The relevant submission put by Mr T Blackburn SC for the appellants in opening was as follows: Against that background of, it would seem, nothing like approval from Paris to employ Mr Thomson on the terms that he was employed, his contract was signed. It's not entirely clear what the upshot of that was internally. We've apparently not got all the document we're going to get. But, at the end of the evidence we will be inviting your Honour to effectively find - this is the submission I will be making to you - that in consequence of this foul up, which it certainly was, the respondents have been trying to run away from this agreement ever since, where Mr Harvey in his subsequent affidavit evidence says, "Oh no, the intention of the special conditions was only to cover deals which were offered to SG, but SG wasn't interested in." We say that that response to our claim is contrary to the most elementary notions of proper construction of the agreement. But it also seems to be Mr Harvey falling in behind the original understanding of his masters in Paris. 22 At first instance the appellants did not cross-examine witnesses called by the respondents on the basis of alleged 'deliberateness' in the drafting of the special conditions clause. The appellants say this was not so and that Mr Harvey was relevantly cross-examined in the following terms: Q. Now, sir, you had told us that you have drafted and settled the two special conditions? A. Yes

[36]

26 In relation to Mr Harvey's cross-examination, it is also noteworthy that he was not cross-examined in respect of a number of phrases that were inserted by him into the Special Conditions clause (for example, "net broking fees" and "do not require credit lines or capital") with a view to establishing that Mr Harvey inserted the phrases for the purpose of ensuring that the first appellant was deprived of benefits otherwise to be provided. Nor was it put to Mr Harvey in cross-examination that the reasons he enunciated in his affidavit in chief for including the phrases in the Special Conditions clause were false. 27 It was contended by the appellants that there was evidence before the trial judge that it was the first respondent's intention in drafting the special conditions to ensure that Mr Thomson's entitlements were no greater than what he would have received under the discretionary bonus pool. Putting aside for the moment what has been referred to in the proceedings as the pivotally important Exhibit 26 (a draft letter of offer to Mr Thomson dated 5 February 2001), the evidence relied upon by the appellants was, firstly, a statement of Mr Thurgarland that the contract of employment was drafted "so you could drive a truck through it". 28 In his evidence Mr Thurgarland said when he made the truck comment he and Mr Thomson had been drinking that day and both were in an unhappy frame of mind. Mr Thurgarland said the comment was not true but that he said it because Mr Thomson was going on and on about his contract and he became annoyed with him. Mr Thurgarland, of course, did not draft the Special Conditions clause; that was Mr Harvey, who denied he had drafted the clause ambiguously or flexibly and denied saying to Mr Thurgarland that the clause was drafted "so you could drive a truck through it" or uttering any similar sentiment. Having regard to the whole of the evidence regarding Mr Thurgarland's truck comment, of itself it falls well short of proving any alleged deliberateness on the part of the first respondent to deprive the first appellant of benefits. 29 The next piece of evidence relied upon by the appellants was an acknowledgement by Mr Harvey that approval of the second respondent was required to offer a guaranteed or fixed bonus, as the second respondent was opposed to formula based bonuses. It was submitted by the appellants in this regard that the evidence, that the respondents had a general policy of not allowing formula based bonuses for new staff, was the first step in establishing that the requisite intention of SGAL was a fact in issue in the trial. It may be that this evidence was relevant to the question of intention, but of itself it could not establish that the first respondent intentionally set out to deprive the first appellant of benefits under his contract by deliberately framing the Special Conditions clause to achieve that end. Moreover, the evidence was relied upon not in the context of Mr Harvey constructing the special conditions clause from the outset to deprive Mr Thomson of his benefits, but rather in the context of Mr Harvey having defied Head Office and then seeking to retrieve the situation by construing the contract of employment in a way that would meet the second respondent's requirements regarding bonus; that is, by having Mr Thomson's bonus arrangement "accommodated within the existing dealing room bonus pool formula". 30 The next matter referred to by the appellants in support of the proposition that deliberateness was in issue at the trial, was the statement of the first appellant of his wish for a foreign exchange transaction to be booked "up front" and the denial by Mr Harvey in response to the statement that he had any intention of depriving the first appellant of his entitlement under the Special Conditions clause. The statement by the first appellant and Mr Harvey's response were in the context of the booking of revenue for the Newcrest Transaction undertaken in August 2001. In relation to that Transaction, the first respondent had deferred part of the revenue from it over its term so that the revenue was not regarded as all being earned before 31 December 2001 (the cut-off date in special condition (ii) of the employment contract for bonus earnings) thereby, the first appellant claimed, depriving him of his specific performance benefit under special condition (ii). 31 Deliberateness was an issue at the trial in two ways. The first was in the terms we have already discussed. That is, Mr Harvey having drafted the Special Condition clause in terms contrary to the second respondent's instructions and Mr Thomson having signed off on its terms, Mr Harvey then sought to retrieve the situation by retrospectively interpreting the special conditions to Mr Thomson's disadvantage in order to adhere to the second respondent's requirement that Mr Thomson's proposed bonus fee structure had to be "accommodated within the existing dealing room bonus pool formula". However, this is, as we have said, quite a different proposition to the one put on appeal, namely, that Mr Harvey drafted the special conditions clause from the outset with the deliberate intention of depriving Mr Thomson of his benefits. The second way deliberateness arose at the trial was after the appellants became aware of Exhibit 26, an issue we are yet to deal with. 32 Returning to the Newcrest Transaction, if the appellants' contention is that Mr Harvey in some way anticipated in February 2001 such an unusual type of transaction as the Newcrest Transaction, and deliberately inserted the cut-off date of 31 December 2001 in order to deprive Mr Thomson of revenue from such a transaction, then we consider the contention is far-fetched. Such a proposition was never put to Mr Harvey in cross-examination. Moreover, it requires, in effect, a finding that the first respondent intended to disadvantage other employees (including Mr Harvey) in order to disadvantage the first appellant. 33 The appellants also submitted that evidence of deliberateness being an issue at trial was a conversation between the first appellant and Mr Thurgarland in which the first appellant asserted that the accrual of the profits over the life of the Newcrest Transaction was "an attempt to avoid paying him" under the special conditions clause. This conversation also occurred in August 2001 and could not be regarded as evidence that Mr Harvey drafted the Special Conditions clause with the intention of depriving Mr Thomson of his benefits.

[39]

37 Exhibit 26 was produced as a consequence of a call by the appellants' counsel in the course of the cross-examination of Ms Charlotte Gee, the first respondent's Director of Human Resources. Ms Gee was subject to cross-examination on the document. No other witness for the respondent was cross-examined about the document. 38 Exhibit 26 was a copy of a draft offer of employment addressed to Mr Thomson dated 5 February 2001, but which was actually drafted by Ms Gee and Mr Thurgarland on 20 February 2001 and which contained the following provisions under the heading "Special Conditions": SGAL recognises that you have existing transactions with specific clients that will be mutually agreed between you, Martin Thurgarland and John Harvey. In relation to these specified clients only, you will be entitled for a period of six months from your commencement date, a performance benefit equal to 50% of net revenues which are both generated by you and earnt by SGAL Financial Markets from the specified clients. Net revenues are to be calculated in good faith by SG and will reflect deductions for SGAL's charges for credit and required return on equity usage. In relation to net revenues generated by you from non Specified Clients, you shall be entitled to receive total benefits (being total package cost plus performance benefit) equal to 15% of those net revenues less SGAL's charges for credit and required return on equity usage. 39 Early on 21 February 2001 Ms Gee took the typed special conditions of the draft letter to Mr Thurgarland. The typed special conditions of the draft letter have handwritten notations on them, which appear to be in the hand of Mr Thurgarland. Immediately after meeting with Mr Thurgarland, Ms Gee had a meeting with Mr Harvey. At that meeting Mr Harvey wrote out in his own hand, on the back of the first page of the draft letter, a new set of special conditions. Mr Harvey then gave these handwritten notes to Ms Gee for her to type up. They were then typed up and incorporated (with minor variations) into the contract under the sub-heading "Special Conditions". Ms Gee then gave the amended contract back to Mr Harvey who reviewed it. She said she recalled that this all took place before 10.00 am on 21 February 2001. The special conditions as drafted by Mr Harvey, with minor variations, were ultimately inserted into the contract that Mr Thomson signed on 21 February 2001. Those special conditions are set out earlier in this judgment. 40 To be clear, Exhibit 26 contained the handwritten notations of Mr Thurgarland and the draft of the special conditions in Mr Harvey's handwriting on the back of the first page of the draft letter. 41 Mr Raine of counsel for the appellants raised the issue of Exhibit 26 again in the written submissions constituting his submissions-in-chief at first instance. It is apparent that as a consequence of Exhibit 26 the appellants' submissions changed somewhat from those put in opening, with allegations now being made that Mr Harvey "deliberately" chose words in the special conditions clause "to disentitle" Mr Thomson, that "the contract was intentionally drafted so that a truck could be driven through it", that "the words were included deliberately to prevent…" Mr Thomson getting his entitlement, and that the changes made by Mr Harvey to the draft contract "were deliberately misleading (sic) couched in misleading language". 42 However, an examination of the appellants' submissions at first instance shows that "deliberateness" was not asserted in any coherent or focused manner; it was not such as to represent a whole new line of attack based wholly on the proposition that SGAL drafted the contract of employment with the intention that the express terms of special conditions (i) and (ii) would operate so as to deprive Mr Thomson of the benefits he would otherwise have received, but rather was advanced to give emphasis to the contentions that had already formed part of the appellants' case to this point. For instance, in their submissions-in-chief the appellants submitted: Whether or not the words chosen by JGH [Mr Harvey] were deliberately chosen so as to not cause alarm to MRT [Mr Thomson] or to make him think that there was anything markedly inconsistent with that which had been agreed in discussion, is, it is submitted, not necessary to consider.

[40]

Further: [W]hy the words were chosen and then changed and why they were then changed by JGH [Mr Harvey] into the clauses incorporated in the employment contract is now impossible to say with any accuracy. 43 In relation to this last submission the appellants contended in their reply on appeal that the submission: …was only made in the context of whether the special conditions (i) and (ii) of the contract were unfair within S106. In that sense the question was an objective one and the intention of SGAL in drafting the special conditions was accordingly not strictly relevant. That did not mean that the intention was not relevant to other issues in the proceedings as was plainly the case. 44 Whilst the submission may have been made in the context of whether the contract was unfair and that intention was not relevant (although this is not readily apparent), it does not detract from the fact that it is now contended as a ground of appeal that SGAL drafted the contract of employment with the intention that the express terms of special conditions (i) and (ii) would operate so as to deprive Mr Thomson of the benefits he would otherwise have received and that the trial judge erred in failing to take into account Exhibit 26. This is clearly at odds with a submission that it was impossible to say with any accuracy why Mr Harvey framed the special conditions in the way he did. 45 Further, whilst the appellants contended at first instance, in the context of making submissions on the relevance of Exhibit 26, that Mr Harvey "deliberately" chose words in the special conditions clause "to disentitle" Mr Thomson, it was also submitted that Mr Harvey's motivation: …was to fall into line with his masters in Paris because he had, when he employed MRT [Mr Thomson], employed him on terms which had not been approved by those masters, and his actions had been an attempt to retrieve that situation, without regard to the unfairness of attempting to construe and operate MRT's contract in that fashion. 46 To contend, on the one hand, that Mr Harvey "deliberately" chose words in the special conditions clause "to disentitle" Mr Thomson and that this was evident from Exhibit 26 and, on the other hand, that Mr Harvey drafted the special conditions without approval and then later sought to retrieve the situation by construing the words of the special conditions in such a way as to fall in line with Head Office instructions, is a patently inconsistent proposition. 47 Whilst it may be accepted the appellants considered themselves to be in a difficult position, their submission asserting Mr Harvey "deliberately" chose words in the special conditions clause "to disentitle" Mr Thomson and that this was evident from Exhibit 26, was such a late shift in their position and so different from the case pleaded and opened it would have been unacceptably prejudicial to the respondents for the trial judge to countenance it. 48 More significantly, however, the new line of argument was not, in our opinion, underpinned by the cogent evidence necessary to support allegations amounting to deceit or deceptive conduct constituted by the drafting of the special conditions clause to deprive Mr Thomson of his benefits in order for officers of the first respondent to enrich themselves. This is understandably so given that the appellants' case up to the time they received Exhibit 26 was quite different. There was no evidence from Mr Harvey, Mr Thurgarland or Ms Gee (including by cross examination) on the reason or reasons for the changes to the special conditions clause; much was left to innuendo. In particular, there was no evidence that could be regarded as meeting the civil standard of proof (let alone meeting the standard as explained in Briginshaw) that Mr Harvey set out to draft the special conditions to achieve a result that would have the effect of depriving Mr Thomson of benefits he would otherwise have been entitled to and thereby enrich himself - Mr Harvey - and other officers of the first respondent. Most importantly, persons accused of improper conduct amounting to deceit were given no opportunity of responding to such grave allegations. 49 Further, the appellants' submission regarding deliberateness was seriously undermined by concessions to the effect that it was impossible to say with any accuracy why Mr Harvey changed the special conditions in the way he did.

[74]

HIS HONOUR: Okay. 56 There was no response or reaction by counsel for the appellants to his Honour's ruling and this exchange between the trial judge and Mr Hodgkinson appears to be the last mention of Exhibit 26 in the course of the trial. Then, in his first judgment, Marks J referred to the Exhibit at [76] - [77] in the following terms: [76] I should refer also to the fact that a draft of the special conditions was not discovered to be in existence and was not made available to the applicants' solicitors until very late in the proceedings. The draft consists of typed material which has been struck out using blue ball-point pen. There appears on the back of the previous page some handwritten material in pencil which is identical to the words used in the contract of employment as signed by the parties. The printed material in dealing with what became special condition (i) refers to: "…a performance benefit equal to 50% of net revenues which are both generated by you and earnt by SGAL Financial Markets from the specified clients…Net revenues are to be calculated in good faith by SG and will reflect deductions for SGAL's charges for credit and required return on equity usage". With respect to the material which became special condition (ii) there is a reference to "…net revenues generated by you from non-specified clients" and an entitlement "…to receive total benefits 'being total package costs plus performance benefit' equal to 15% of those net revenues less SGAL's charges for credit and required return on equity usage". [77] This language is relevantly modified in the blue ball-point pen variation so that it refers to net revenues from "your normal day to day activities with clients both existing and prospective to SGAL". The applicants' counsel complained that he was denied an opportunity of cross-examining Mr Harvey and another witness on this draft document. However, no application was made to recall Mr Harvey for this purpose. There may or may not be anything of significance in this draft, which would impact upon the conclusion which I have reached with respect to the meaning of the special conditions and the manner in which they should be applied. In my opinion it would be unsafe to rely on any of the material in this draft, particularly by reference to the variations which have been made, in the absence of any specific evidence about it, the circumstances in which the drafts were created and the reasons for the changes which were made, culminating in the existing wording. I observe, however, as a matter of coincidence only, that there is a reference in the typed material to the manner in which net revenues are to be calculated which is similar to the conclusion which I have reached as to the manner in which the special condition should be applied as a matter of fairness, for the reasons which I have advanced elsewhere in these reasons for judgment. 57 On 1 June 2006, subsequent to his Honour's first judgment, the appellants, in an endeavour to overcome the deficiencies in their evidence regarding deliberateness, filed a notice of motion seeking orders for the re-opening of evidence "as a consequence of the late production of a draft contract", which was Exhibit 26 in the proceedings. At [5] of his second judgment, Marks J enumerated the reasons advanced on behalf of the appellants in support of the orders sought in the notice of motion: (1) The judgment of 24 March 2006 was not a final judgment. In order to deal fairly with the applicants' claims it would be necessary to consider the circumstances in which the draft contract was produced to the Court at the end of the hearing and to allow this matter to be pursued by way of evidence.

[88]

(2) The applicants are to pay the respondents' costs of the motion in an amount assessed, in default of agreement. (3) Otherwise, the proceedings are stood over in the manner referred to in Order (2) of my reasons for judgment of 21 March 2006. 60 We do not consider Marks J erred in dismissing the appellants' application to re-open the proceedings to admit further evidence. Further, we do not consider the appellants have demonstrated any relevant error in the exercise of his Honour's discretion in this respect. It was plainly the case that having heard his Honour state unequivocally on 24 October 2005 that he would not have regard to Exhibit 26, the appellants needed to make an election whether to seek leave to further cross-examine witnesses, particularly Mr Harvey, or to call additional witnesses. In that respect, it should have been obvious to the appellants that the trial judge was not intending to have any regard to either their oral or written submissions regarding the implications of Exhibit 26 and their contentions that it pointed to a deliberate decision by the first respondent to draft the contract of employment in such a way as to deprive Mr Thomson of benefits to which he would otherwise have been entitled. No attempt was made by the appellants to seek leave to adduce further evidence either by cross-examination or otherwise. It was clearly open to the appellants to make application by way of notice of motion, if necessary, to recall witnesses or call further witnesses. This was not done. 61 The appellants decided not to press further for leave to adduce new evidence at the trial because they "assumed that the late disclosure of the draft provision of the contract of employment would have obviously resulted in the Court taking that matter into account in favour of the applicants and, in some way would have impacted upon the outcome of the proceedings." But that is an untenable submission when the trial judge put the parties on notice that he would not have regard to Exhibit 26. 62 Moreover, the trial judge was not satisfied, nor are we, that the re-opening, in the manner sought by the appellants, would have had any impact on the ultimate finding of unfairness. It is not certain that any re-opening may have led to evidence that established deceit or fraud on the part of the first respondent. The ultimate finding of unfairness (see [118] of the first judgment) was that the Special Conditions clause did not, in certain respects, reflect the intention of the parties. We are unable to see how that finding could be affected by "deliberateness" or otherwise. There was no suggestion that compensation would have been calculated differently if "deliberateness" had been established. 63 It was contended for the appellants (the fifth ground of appeal) that Mr Thomson had been deprived of the opportunity of properly conducting his case by reason of SGAL's failure to produce to him Exhibit 26 at the outset of the proceedings and thus resulted in a miscarriage of justice. We consider it is most regrettable this evidence was not produced in a timely manner. However, there is not a sufficient basis to find the respondents improperly suppressed the document. Further, as we have already found, the opportunity existed for the appellants to take steps to seek leave to call additional evidence but the appellants did not avail themselves of that opportunity. Accordingly, a submission that Mr Thomson was deprived of the opportunity of properly conducting his case is not sustainable and there was, consequently, no miscarriage of justice. 64 The position, then, may be summarised as follows: (a) consistent with their pleadings and opening address, the appellants conducted their case at first instance on the basis that the first respondent had made a mistake in allowing the first appellant to sign the contract of employment prior to obtaining approval from the second respondent and that, thereafter, the first respondent endeavoured to construe the contract of employment in a way that would meet the second respondent's requirements regarding bonus; (b) after seeing Exhibit 26, which only came to light late in the proceedings, the appellants sought to adjust their case to include the proposition that Mr Harvey "deliberately" chose words in the special conditions clause "to disentitle" Mr Thomson and that this was evident from Exhibit 26. However, the manner in which the appellants developed that contention in closing submissions at the trial was different to the contentions developed on appeal; (c) submissions to the effect that Mr Harvey "deliberately" chose words in the special conditions clause "to disentitle" Mr Thomson was such a late shift in their position and so different from the case pleaded and opened it would have been unacceptably prejudicial to the respondents for the trial judge to countenance it. More significantly, the new line of argument was not underpinned by the cogent evidence necessary to support allegations amounting to deceit or deceptive conduct constituted by the drafting of the special conditions to deprive Mr Thomson of his benefits in order for officers of the first respondent to enrich themselves; (d) importantly, persons accused of improper conduct amounting to deceit were given no opportunity of responding to such grave allegations; (e) in any event, the trial judge took the view that to rely on anything in Exhibit 26 was unsafe, because there was "not sufficient evidentiary material about the document and about the author and about the circumstances in which the change was made…"; (f) following the handing down of the first judgment the appellants, in an endeavour to overcome the deficiencies in their evidence regarding deliberateness, filed a notice of motion seeking orders for the re-opening of evidence "as a consequence of the late production of a draft contract", which was Exhibit 26 in the proceedings; (g) the motion was dismissed by Marks J on several grounds including that: prior to the completion of the hearing of the evidence the appellants had an opportunity to seek the orders that they sought in the motion but did not take that opportunity; that the appellants made a deliberate and tactical decision with respect to Exhibit 26 and the consequences of it not being the subject of further evidence at the time of the hearing; and there was no certainty the re-opening would have had any impact on the ultimate finding of unfairness; (h) Marks J did not err in dismissing the appellants' application to re-open the proceedings to admit further evidence; and (i) SGAL's failure to produce Exhibit 26 at the outset of the proceedings did not thereby result in a miscarriage of justice. 65 Given that: (a) the case below was pleaded and opened, and evidence adduced, on a basis distinctly different to the central proposition on appeal that SGAL drafted the contract of employment with the intention that the express terms of special conditions (i) and (ii) would operate so as to deprive Mr Thomson of the benefits he would otherwise have received, (b) at first instance there was not sufficient evidence of the necessary quality to support the appellants' assertion that Mr Harvey "deliberately" chose words in the special conditions clause "to disentitle" Mr Thomson and that this was evident from Exhibit 26, (c) the trial judge did not err in refusing to re-open proceedings to allow the appellants to adduce further evidence as a consequence of the late production of Exhibit 26, (d) the appellants' submission that Mr Thomson was deprived of the opportunity of properly conducting his case is not sustainable and there was, consequently, no miscarriage of justice,

[90]

67 It was submitted for the appellants that the trial judge erred by failing to find that it was not a term of the agreement reached between Mr Thomson and SGAL prior to the execution of the contract of employment that the benefits under special condition (ii) would be only payable in respect of transactions entered into by 31 December 2001. 68 The contract of employment provided that special condition (ii) would "apply for the period ending 31 December 2001". It was submitted this provision was contrary to what had been previously discussed and agreed upon between Mr Thomson and SGAL. Reference was made to the trial judge's finding at [118] that, to the extent to which the language used in the contract of employment did not reflect the intention of the parties as discussed and agreed between them, then that contractual provision was unfair and should be varied so as to remove such unfairness. 69 Accordingly, it was submitted, the provision in the contract of employment that limited the benefits under special condition (ii) to be payable only in respect of transactions entered into by 31 December 2001 was unfair because it did not accurately reflect what had been agreed to by the parties. The contract, it was contended, should be varied to remove that unfairness. 70 Even if it were to be accepted that in the pre-contractual negotiations between Mr Thomson and the representatives of the first respondent that it had not been specifically agreed there would be a time limitation placed upon the benefits payable to Mr Thomson under special condition (ii) and that there had been no discussion or agreement that the benefits under special condition (ii) would only be payable in respect of transactions entered into by 31 December 2001, it is apparent on the evidence that: on 21 February 2001, at some time between 9.30 am and 11.00 am, the first appellant signed the contract of employment containing special condition (ii); that day was the first time the first appellant had seen the special conditions clause; the first appellant read the clause in about three minutes and then signed the contract. It is also apparent, however, that the first appellant developed an understanding of the meaning of the special conditions clause at the time he signed the contract; the first appellant did not ask any questions about, nor seek any explanation of, the special conditions clause; and the first appellant did not suggest that the terms of the contract of employment were unclear or ambiguous. 71 The appellants contended that the final contract of employment was executed in circumstances of some urgency. However, Ms Gee and Mr Rahilly, the first respondent's company secretary, informed Mr Thomson that he did not need to sign the contract of employment at the time it was presented to him and that he could take it away and review it. 72 In the circumstances described, Mr Thomson had every opportunity to read and understand the terms of the special conditions. The words "apply for the period ending 31 December 2001" are straightforward; they contain no ambiguity. Mr Thomson was a very experienced and knowledgeable individual, including in relation to the matters addressed in the special conditions clause. It strains credulity to believe that Mr Thomson did not understand what he was signing. We are not at all convinced that there is any substance to appeal grounds six to nine. 73 The fact that the parties did not agree on the date prior to the execution of the contract of employment does not mean that it was not part of the contract of employment. Further, the fact that the parties did not agree the date prior to the execution of the contract of employment does not mean that the inclusion of the date at the point of execution was unfair for the purposes of section 106 of the Act, especially given the circumstances in which Mr Thomson signed the contract. We are unable to see why Mr Thomson should not be held to the bargain he struck with the first respondent on 21 February 2001 in respect of 31 December 2001. 74 We are strengthened in this view by the following, namely, that: (a) the first appellant never raised in a direct manner with the first respondent that the inclusion of 31 December 2001 in special condition (ii) was an error or not intended; (b) the first appellant never complained to Mr Harvey or to Mr Thurgarland over the inclusion of the date when he was informed on 5 October 2001 that the special conditions clause was unlikely to be extended to 2002; (c) whilst the appellants in their further amended summons sought a variation to extend the operation of the special conditions clause to transactions completed by 30 June 2002, it is to be noted that the variation still included a reference to 31 December 2001 ("negotiations have commenced prior to 31 December 2001, provided that those transactions are entered into the books by 30 June 2002"), that certain transactions were deemed to be covered by the variation and that no ground alleging unfairness in the summons specifically covered the inclusion of the date of 31 December 2001; (d) the appellants did not complain about the inclusion of the date in subclause (ii) in their opening address; (e) the first appellant did not complain in his affidavits over the inclusion of the date; (f) the appellants did not challenge the inclusion of the date in their submissions in chief or in their submissions in reply; and (g) the first appellant read the contract of employment prior to signing it on 21 February 2001 and he confirmed that its terms were consistent with his understanding of the discussions that he had with Mr Thurgarland prior to signing the contract of employment. 75 Connected with their submissions regarding 31 December 2001 was the appellants' contention that the trial judge ought to have found that the parties intended that the benefits under subclause (ii) of the special conditions clause would be payable in respect of transactions entered after 31 December 2001. However, we agree with the respondents that there was no evidence by the first appellant that he had such an intention, or that it was his understanding that subclause (ii) was to operate in that way, and there was no evidence by the first respondent that it had such an intention. In any event, the contract of employment referred expressly to the second subclause applying only until 31 December 2001 and the first appellant signed that contract thereby plainly signifying his acceptance of the second subclause only operating until 31 December 2001. 76 We find that appeal grounds six to nine have not been made out. Newcrest Transaction

[91]

77 The appellants submitted that the trial judge erred by failing to find that SGAL Financial Markets had earned the revenue (US$4,793,000) from the Newcrest foreign exchange transactions in the period ending 31 December 2001. 78 The appellants claimed that Mr Thomson was entitled to have his bonus in relation to the Newcrest Transaction calculated on the whole of what was said to be the revenue earned from those transactions, being an amount of US$4,793,000 because it was this amount that was "booked" by the first respondent on 10 August 2001. It was contended that the standard practice and usual accounting method of SGAL was for the income from foreign exchange transactions to be earned at the time the transactions were entered into and that the current accounting policy of SGAL was for the profit to be taken at the time the transactions were entered into. It was further submitted that the proper construction of special condition (ii) did not require the revenue from the Newcrest foreign exchange transactions to have been earned by SGAL Financial Markets during the period ending 31 December 2001; that special condition (ii) only required the transactions to have been completed by that time. 79 Before going to the first judgment and his Honour's treatment of the Newcrest Transaction it is necessary to understand, in basic terms, what occurred in relation to the Transaction. As part of the application by the first respondent to the second respondent for approval to undertake the Newcrest Transaction, the risk for the Newcrest Transaction was to be shared between the Financial Markets division and the Commodities division (known as "CTY") of the first respondent. As part of the application for approval, the revenue from the foreign exchange aspects of the Newcrest Transaction was to be shared equally between the Financial Markets division and the Commodities division. As a result, 50 per cent of the revenue (making allowance for certain deductions that we will explain shortly) from the Newcrest Transaction was allocated to the Commodities Division. As a consequence, Mr Thomson's bonus was calculated only on the share of the revenue allocated to the Financial Markets division. 80 The trial judge found, however, that Mr Thomson was entitled to have his bonus calculated on the amount of revenue that included that share allocated to the Commodities division. At [142] his Honour stated: [142] The respondents contended that so much of the revenue from the Newcrest FX transactions as was generated from that part of the risk assumed by CTY did not represent revenue earned by SGAL financial markets, and therefore should be excluded from consideration under special condition (ii). Such a contention is, however, contrary to the understanding reached between Mr Thomson and representatives of SGAL when the contract of employment was negotiated. As Mr Thurgarland put it in his email set out above, the concept was that the income and associated bonus be retained by the "deal originators". The fact that SGAL chose to allocate the risk elsewhere within its organisation does not create, in my opinion any disentitlement by Mr Thomson to the inclusion of all of the revenue for the purpose of the calculation of his bonus under special condition (ii). The situation would have been different if SGAL had laid off part of its risk to another financial institution. This conduct by SGAL in seeking to rely on the words used in the special condition so as to exclude part of this transaction was unfair. It will be recalled that the respondents, in their Notice of Contention, challenged the correctness of this aspect of his Honour's first judgment. 81 Notwithstanding his Honour's decision that the revenue of both the Financial Markets division and Commodities division should be combined for the purpose of calculating Mr Thomson's bonus, the trial judge did not accept that the full amount of US$4,793,000 was to be the basis for such a calculation. His Honour appears to have accepted the respondents' argument that 25 per cent of the US$4,793,000 (US$1,198,250) was not earned by the Financial Markets division by 31 December 2001 as 25 per cent of the risk of the Newcrest Transaction was, as a condition of approval for the Newcrest Transaction proceeding, to be assumed by another financial institution (a "sell down") and, until that sell down occurred (including a payment to the financial institution to assume the 25 per cent risk of the Newcrest Transaction), that portion of income was not earned. 82 Further, his Honour appears to have accepted the respondents' argument that an additional part of the US$4,793,000 (US$1,742,047) was not earned by the Financial Markets division by 31 December 2001 as, due to the "out of the money" nature of a component of the Newcrest Transaction, the revenue attributable to that component was considered, in effect, as a loan and the subject of a "provision" (calculated at two per cent of the total exposure) but was to be recognised as revenue earned by the Financial Markets division in subsequent years. 83 His Honour's primary finding on this question is not entirely clear. He found: [143] Whilst the deferral of some of the income from the Newcrest FX transactions might justly be seen by Mr Thomson to have been manifestly unfair, given the circumstances in which that decision was taken and its general application to all persons affected by it I do not find that that decision either was unfair for the purpose of s 106. 84 His Honour appears to have accepted that the net revenue from the Newcrest Transaction earned by the Financial Markets division of the first respondent was US$1,852,703 (that is, US$4,793,000 less US$1,198,250 less US$1,742,047). As a result, the total benefit awarded to the first appellant pursuant to subclause (ii) in respect of the Newcrest Transaction was A$619,686. 85 There was an issue in the appeal connected to the amount of US$1,198,250 that arose under the sixteenth ground of appeal. It was pleaded that the trial judge erred in deducting that amount from the revenues for the Newcrest Transaction to take into account the sell down that formed part of the Transaction. It was submitted that the amount that should have been deducted was US$550,000. 86 Another issue arising from the respondents' Notice of Contention was whether the "Swaps" revenues of the Newcrest Transaction were revenues that the first appellant produced for the purposes of the second subclause of the special conditions clause. In his third judgment, Marks J determined that the net revenues generated by the first appellant from the Newcrest Transaction included the revenues from the Swaps component of the Newcrest Transaction. In doing so, the trial judge focused on whether the Swaps component was an integral component of a foreign exchange transaction and concluded that the Swaps component was so integral. 87 In relation to the Swaps component, the respondents contended on appeal that the trial judge failed to consider whether the first appellant generated the revenue from the Swaps component. It was submitted that given the Swaps component was structured by another employee of the second respondent (a matter not put in issue by the appellants), the trial judge should have concluded that the first appellant did not generate the revenue from the Swaps component and so such revenue was not to be considered in determining the benefit under subclause (ii). The Swaps profit was $500,000 and in respect of that revenue the first appellant received $75,000 (as part of the $619,865 awarded to him at first instance).

[92]

88 It may be seen that on appeal there are four issues relating to the Newcrest Transaction: (i) whether his Honour was correct in regarding the allocation of revenue to the Commodities division as revenue for the purpose of the second subclause of the special conditions; (ii) whether his Honour was correct in not regarding the deferred revenue from the Transaction as revenue for the purpose of the second subclause of the special conditions; (iii) whether his Honour erred in deducting US$1,198,250 instead of US$550,000 from the revenue for the Newcrest Transaction to take into account the sell down that formed part of the Transaction; and (iv) whether his Honour was correct in regarding the Swaps profit as revenue for the purpose of subclause (ii) of the special conditions. 89 As to the first issue, the rationale for his Honour's decision was that the conduct by SGAL in seeking to rely on the words used in the special condition so as to exclude part of the Transaction was unfair because it was contrary to the understanding reached between Mr Thomson and representatives of SGAL when the contract of employment was negotiated. In that respect, we note the following matters: (i) prior to February 2001, Mr Harvey did not inform Mr Thomson that if part of a profit on a foreign exchange transaction was to be booked to another part of the Bank, then Mr Thomson's bonus would not be calculated on that part of the transaction so booked; (ii) Mr Harvey conceded that the position as understood by Mr Thomson was that he would be entitled to be remunerated regardless of where the profit on the transaction had been booked by SGAL; (iii) Mr Thurgarland did not tell Mr Thomson at any time between 30 January and 21 February 2001 that the income from any foreign exchange transaction would be in part booked to a different business unit in the Bank; (iv) the evidence as a whole supported Mr Thomson's understanding that if he was involved in a foreign exchange transaction, then all of the revenue generated by that transaction would be counted for the purpose of the application of the special condition; (v) Mr Thomson was under the impression that there would be no sharing or apportionment of revenue to any other division; and (vi) the contention that SGAL was entitled to allocate the profit of a foreign exchange transaction to another division was contrary to the understanding reached between Mr Thomson and the representatives of SGAL when the contract of employment was negotiated. 90 Whilst there is room for legitimate debate about whether the whole of the revenue was generated by Mr Thomson and whether the revenue was earned by the Financial Markets division (we note the significant contribution of employees in the Commodities division to the Transaction), in the context of determining whether there was any unfairness, on balance it was open to his Honour to arrive at the conclusion that he did. Accordingly, we do not consider his Honour erred by including the revenue allocated to the Commodities division as revenue for the purpose of the second subclause of the special conditions. 91 As to the second issue, it is difficult to understand the basis of his Honour's decision in his first judgment on the deferral issue. The trial judge made no finding as to the circumstances in which the decision to defer was taken or the precise way in which other persons were affected by its general application. However, there is some elucidation of his Honour's thinking in the third judgment that we will come to shortly.

[93]

92 In relation to the second issue, part of the deferred revenue was the amount of US$1,198,250. A condition of the credit approval of the Newcrest Transaction was that 25 per cent of the Transaction (US$1,198,250) had to be sold down to another bank. As at 31 December 2001, the payment to be made to another bank by the first respondent (to enable the other bank to assume 25 per cent of the risk of the Newcrest Transaction) was not known. The sell down did not occur until 18 February 2002. As at 31 December 2001, the first respondent had set aside in its accounts 25 per cent of the revenue from the Transaction to cover the potential payment. It was envisaged that, in respect of 2002, the difference between the provision (US$1,198,250) and the actual payment to the other bank would be recognised as revenue and would be included in the bonus pool for the Financial Markets division to which all persons employed at the relevant time could participate. 93 We note the submission by the appellants that no one from SGAL told Mr Thomson at any time prior to the execution of the contract of employment that income from foreign exchange transactions would be deferred. However, it does not appear to us on the evidence that there was an agreement, or even an understanding between the parties, that all of the revenue generated by a transaction would be counted for the purpose of the application of the special condition, regardless of whether part or all of it was deferred until after 31 December 2001. 94 In those circumstances, it is necessary to consider what was expressly agreed in the contract and, in doing so, whether it could be said that the revenue from the Transaction (US$4,793,000) had been earned by the Financial Markets division by 31 December 2001 when 25 per cent of that amount was required to be set aside to cover a potential payment to another bank and when it was not known until February 2002 what payment would be required to be paid to the other bank. 95 In one sense, the revenue of US$4,793,000 was "earnt" by the bank in August 2001 when it was confirmed with SGAL that the "Newcrest Income" would be US$4,793,000 and when a request was made on 10 August 2001 for the necessary journal entry to be made in relation to this amount. In another sense, this amount of revenue was not "earnt" because it was a condition for approval of the Transaction that 25 per cent was required to be sold down to another bank by the first respondent and a payment had to be made to the other bank to enable it to assume 25 per cent of the risk of the Transaction. Thus, it was always known that part of the US$4,793,000 was earmarked to be paid out and that SGAL would never have the benefit of the full amount. 96 It does not seem to us that it could be said that US$4,793,000 was earned by the Financial Markets division in the period up to 31 December 2001 in circumstances where it was a pre-condition to earning the revenue from the Transaction that a proportion of it was required to be directed to a third party and SGAL was never going to have at its disposal the full amount to deal with as it pleased. Accordingly, whilst it is not clear from the first judgment what led his Honour to conclude that deferral of some of the income from the Newcrest Transaction was not unfair, such a conclusion may have been reached on the basis we have discussed in relation to the treatment of the US $1,198,250 amount. Judgments under challenge on appeal may be sustained on a different basis or approach than those relied upon in the reasons for judgment given at first instance.

[94]

97 It is convenient at this point to deal with the issue of whether the trial judge erred in deducting US$1,198,250 instead of US$550,000 from the revenues for the Newcrest Transaction to take into account the sell down. In his third judgment Marks J stated at [10] and [11]: [10] Another issue related to the extent of the revenue generated by the Newcrest transaction. As at 31 December 2001, SGAL had determined that it would not take into account all of the revenue generated by the foreign exchange transaction. This was because it was a condition of approval within the bank to undertake that transaction that the bank would sell off some part of the transaction to a third party financial institution. In this way, 25% of the revenue from the transaction was not taken into account for any purpose by the bank for the year ended 31 December 2001 including any entitlement to bonus by any employee that might arise with respect to that transaction. It was, of course, the intention that any revenue so deferred to the next year would be taken into account in that year for the purpose of determining bonuses. On that basis, if Mr Thomson had remained an employee of SGAL, he would have participated in entitlement to be included within the bonus allocation, albeit not on the same basis as applied pursuant to the special conditions. [11] There is no suggestion that SGAL connived at such a result for the purpose of disentitling Mr Thomson from any monies payable under the special conditions and the evidence supports the fact that the revenue was not taken into account by SGAL for its own purposes until some time in February 2002. As it transpired, SGAL did not lose all of the 25% revenue set aside because it was able to sell off that part of the transaction on a more profitable basis. Nevertheless, the fact that this occurred does not, in my opinion, warrant any other approach. Accordingly, I find that only 75% of the revenue generated by the Newcrest foreign exchange transaction should be taken into account for the purpose of calculating Mr Thomson's entitlement under the special conditions. 98 It is apparent that his Honour took the view that the amount of US$1,198,250 (25 per cent of the revenue) was not taken into account by SGAL for its own purposes until February 2002. And although SGAL did not lose all of that revenue - only US$550,000 - his Honour considered only 75 per cent of the revenue generated by the Newcrest Transaction should be taken into account for the purpose of calculating Mr Thomson's entitlement under the special conditions.

[95]

99 The question is whether his Honour erred in that Mr Thomson should have been entitled to have the difference between US$1,198,250 and US$550,000 (US$648,250) taken into account for the purpose of the bonus calculation under special condition (ii), given that the actual amount paid by SGAL to Standard Bank for the sell down was US$550,000. Whilst it must be acknowledged that the first appellant freely agreed to the cut-off date of 31 December 2001 in making the contract with the first respondent, and thereby accepted that net revenue earned by the Financial Markets division after that date would not be taken into account in calculating his bonus under special condition (ii), the fact is that the first respondent did earn the US$648,250 from the Newcrest Transaction. But for the sell down not being finalised until February 2002 that amount would have been taken into account for the purpose of making the bonus calculation under special condition (ii). 100 In the context of a determination as to fairness it is open to take this view: given that the first respondent was able to take the benefit of the $648,000 in relation to a transaction that was entered into its accounts in August 2001 - although not realised until February 2002 - Mr Thomson should be entitled to the benefit of that amount. This view is reinforced by the fact that a transaction of the nature of the Newcrest Transaction was not specifically in the parties' contemplation at the time the contract was negotiated and executed. Thus, it was reasonable to expect that if the first respondent was to receive the benefit of revenue from a transaction executed before 31 December 2001 the benefit should also flow to Mr Thomson. 101 However, this is not the view taken by Marks J who considered that although SGAL did not lose all of the 25 per cent provision, that this did not warrant crediting Mr Thomson with the difference between the amount of the provision (US$1,198,250) and what the sell down ultimately cost SGAL (US$550,000).

[97]

103 We turn to the amount of US$1,742,047 that was deducted from the revenue figure of US$4,793,000 and, therefore, was also not included for the purpose of special condition (ii). Our view about this is straightforward. We do not accept that there is evidence to support the proposition that the respondents intentionally deprived the first appellant of benefits under the contract to which he would otherwise have been entitled to. In that light, we have considered the unusual "out of the money" nature of the transaction and the special accounting arrangements that were necessary to be put in place by the first respondent. The first respondent, consistent with Special Condition (ii), applied charges for credit to the Newcrest Transaction of two per cent of the assessed credit exposure. The relevant credit exposure was US$15,322,109. The annual charge for credit usage was US$306,442.18. The Transaction had a final maturity date of seven years. The net present value of the total credit charge for the Transaction was US$1,724,047. 104 Thus, the position was that the total revenue from the Newcrest Transaction prior to the sell down was US$4,793,000 and after the provision for the sell down it was $3,594,750. Following the deduction of the appropriate credit charge of US$1,724,047, the net revenue after the provision for the sell down was US$1,870,703. The fifty per cent portion of the net revenue attributable to the Financial Markets Division was US$935,352. 105 The credit charges were appropriate in our view and consistent with special condition (ii). There was no error by the trial judge in his finding at [143] of the first judgment. 106 The fourth issue relating to the Newcrest Transaction is whether his Honour was correct in regarding the Swaps profit as revenue for the purpose of subclause (ii) of the special conditions. We have considered the submissions of the parties in relation to this matter and the relevant evidence. The currency swap transactions were an integral part of a foreign exchange transaction. On this basis his Honour concluded, notwithstanding that he understood the respondents' submission that the Swaps component was "structured" by another employee, that Mr Thomson was entitled to have the Swaps profit arising from the foreign exchange transaction counted as revenue for the purpose of special condition (ii). We take no different view. 107 We find that appeal ground 10 was not made out. We find that appeal ground 16 was made out. 108 The eleventh and twelfth grounds of appeal related to the alleged failure of the trial judge to find that the "deferral" of revenue from the Newcrest Transaction was made with the "intention" of "depriving" the first appellant of the benefit that he would have otherwise received from the Newcrest Transaction. We have already largely addressed this contention. There is no evidentiary basis, in our opinion, to support it. Further, as the respondent submitted, such a claim: (a) requires (effectively) a finding that the evidence of Mr Farr Jones concerning the directive of the Second Respondent on the deferral of revenue was false and a sham (bearing in mind that the Appellants did not cross examine Mr Farr Jones on that issue and, in any event, had informed the trial judge that Mr Farr Jones was a " reasonably reliable witness ";

[103]

113 The seventeenth, eighteenth and nineteenth grounds of appeal relate to alleged errors in failing to find alleged "manipulation" of the Sons of Gwalia Transaction with the "intention" of "depriving" the first appellant of the benefits to which he was otherwise entitled. 114 More specifically, it was submitted for the appellants that the trial judge should have found that SGAL had delayed the completion of the Sons of Gwalia Transactions so as to deprive Mr Thomson of the benefits that were otherwise payable to him under special condition (ii). Further, that the trial judge should have reviewed the evidence relating to the finalisation of the Sons of Gwalia Transactions in light of the evidence establishing that it was the intention of SGAL to ensure that the benefits payable to Mr Thomson would be no greater than what he would otherwise have received under the dealing room bonus pool formula. 115 In his first judgment the trial judge found there was no unfairness in connection with the Sons of Gwalia Transaction. His Honour stated: [148] The circumstances surrounding the completion of this transaction were the subject of a great deal of oral and documentary evidence. In particular, SGAL's chief executive officer, Mr Eric Dhoste, was cross-examined extensively on the circumstances surrounding the delay in completion. I am satisfied that the narration of events which I have set out above accurately records the various circumstances leading up to the completion of the transaction. I am satisfied that there is no evidence of any conspiracy between any persons within the first and second respondents' organisations or within Sons of Gwalia to bring about a deferral of the completion of the transaction so as to deprive Mr Thomson of entitlement to have any of the revenues generated by the transaction included within his bonus entitlement under special condition (ii). Certainly, some of the persons involved were aware that Mr Thomson had a great deal to lose if the transaction was not completed by 31 December 2001. Nevertheless, this was not, in my opinion a motivating factor. [149] As with many conditions of this kind, the cut-off date of 31 December 2001 was one fixed by discussion between the parties. That date and the circumstances in which it was agreed as being an applicable cut-off date do not in my opinion create any relevant unfairness for the purpose of s 106 when applied to any of the transactions the subject of these proceedings, and in particular to the Sons of Gwalia transaction. A date having been fixed, and there being no indication of any manipulation of the transaction so as to deprive Mr Thomson of entitlement to any remuneration, no relevant unfairness results. Whilst one might sympathise with Mr Thomson in terms of disappointment and in terms of his own perception of the result of what occurred as being "unfair", what might be perceived by him to be unfair does not necessarily create circumstances which would justify a finding of unfairness for the purpose of s 106. 116 We have reviewed the evidence relating to this Transaction and have had regard to the submissions of the parties in the appeal. We do not consider the appellants have shown that the factual finding by the trial judge - that there was no manipulation over the timing of the Sons of Gwalia Transaction - was wrong or that the finding was not reasonably open on the evidence. The appellants have also not shown on the evidence that it was the intention of the first respondent to ensure that the benefits payable to the first appellant under the special conditions clause would be no greater than what he would have otherwise received under the dealing room bonus pool. 117 The Transaction was a complex one. It took many months to develop and evolved with different requirements and factors arising from time to time. The Transaction was at all times subject to credit approval by the second respondent in Paris. When approved, the Transaction was subject to what was described in the evidence as "onerous" conditions, and which Sons of Gwalia had to consider and accept. Whilst SGAL obtained from SG formal approval of the final credit application for the Transaction on 28 December 2001 the Transaction was subject to the documentation being finalised and this was not able to be completed until early 2002. 118 Additionally, we note the evidence of Mr Harvey denying that he took steps to slow down the credit approval process for the Sons of Gwalia Transaction so that it was completed after 31 December 2001; the evidence of Mr Harvey that it was the "usual practice" or the "standard practice" of the first respondent to require completion of the documentation prior to execution of the transaction and the sell-down component of the Newcrest Transaction to Standard Bank was not undertaken until legal documentation was completed; the evidence of Mr Dhoste who denied that he delayed the approval of the Sons of Gwalia Transaction, particularly to deny the first appellant an entitlement under the special conditions clause; the evidence of Mr Thurgarland who denied that the timing of the Transaction was designed to affect the bonus of the first appellant; and the evidence of Mr Farr-Jones who denied there was a deliberate delay in the finalisation and execution of the documentation or that the transaction could have been executed before the finalisation and execution of the documentation and that the finalisation and execution of documentation took longer than originally anticipated due to the need to prepare, negotiate and agree upon terms and conditions. 119 Further, Mr Pearce, the Treasurer for Sons of Gwalia (who was not required for cross-examination and whose evidence was thus unchallenged), denied that the timing of the Transaction was put over to 2002 and denied that the finalisation and execution of the legal documentation was deliberately delayed. As the respondents submitted, Mr Pearce stated that, from the perspective of Sons of Gwalia, the obtaining of credit approval late in December 2001 did not entail that the Transaction could be executed immediately but that the documentation needed to be finalised before it could proceed. Mr Pearce also stated that Sons of Gwalia was not prepared to execute the Sons of Gwalia Transaction without the terms and conditions of the Transaction being agreed between the parties. Mr Pearce further stated that, until that occurred, the CEO of the company would not and did not agree that it could go ahead. 120 On the evidence we would have come to no different conclusion to that of his Honour in [148] - [149] of his first judgment. We find that appeal grounds 17, 18 and 19 were not made out. 121 The twentieth ground of appeal related to alleged unfairness in applying the special conditions clause (especially the date of "31 December 2001") to the Sons of Gwalia Transaction, due to the inclusion of the date allegedly not reflecting the intention of the parties. We have already addressed the issue of 31 December 2001 and there is no need to elaborate on our findings in the context of the Sons of Gwalia Transaction. We find that appeal ground 20 was not made out. Wambo, Aurion Gold and South Coal Transactions

At a glance

Court

Decision date

Before

Source

Judgment (106 paragraphs)

Parties

Cases Cited (5)