Mirador International LLC v MF Global UK Ltd

This is an appeal by MF Global UK Ltd (“MFG”) (formerly Man Financial Ltd) against the order of His Honour Judge Mackie Q.C. directing that an account be taken of sums due to the respondent, Mirador International LLC (“Mirador”), under an Introducing Broker Agreement (“the Agreement”) in respect of trading carried out by a new customer of MFG, Dante Lido.

The background to the Agreement is of some importance. The following description is taken largely from paragraphs 9-19 of the judgment below.

MFG is a large cash and derivatives broker-dealer based at Sugar Quay in the City of London. The principal behind Mirador is Mr. Raymond Hachem, a foreign exchange dealer working in London. Over the years Mr. Hachem attracted a number of clients and formed a small team of dealers to help him meet their requirements. It is common in the foreign exchange and other financial markets for a small team to operate from the premises of a broker, in effect as a business within a business, placing their clients’ business with that broker. Individual members of the team may have close relationships with particular clients, but they work as a group and share the rewards.

In formal terms the members of the team are employed by the broker and receive a comparatively low basic salary by City standards. However, they receive commission on the business conducted by their clients with the broker, which can be expected to exceed their salaries to a significant degree. The cost of their salaries and other benefits are deducted by the broker from the commissions generated by the team, so that they are in financial terms self-employed. The team share the commission earned on their clients’ trading in whatever way they may agree. Since their function is to introduce new clients to their employer a team of this kind is referred to as an “introducing broker”.

In order to give effect to the terms agreed between the team and the broker an introducing broker agreement (“IBA”) is sometimes entered into between the broker and a company which is to act as the introducing broker. In such cases the team acts on behalf of the company to introduce new clients to the broker. Commission is payable to the company as the introducing broker and is distributed to the members of the team in accordance with whatever arrangements are agreed between them. Apparently it is not uncommon for an offshore company to act as the introducing broker in order to minimise liability to UK tax.

In January 2001 Mr. Hachem and his team joined a broker called IFX Markets Ltd (“IFX”). In order to implement the commission arrangements a company incorporated in Nevis called Byblos International Fund LLC (“Byblos”) entered into an IBA with IFX under which it agreed to act as introducing broker in return for the payment of commission. There were three members of the team working with Mr. Hachem: Ms. Ruth Elmer, who traded foreign exchange and managed clients, her brother, Mr. Ian Elmer, who was responsible for CFD (contracts for differences) trading and Mr. Jason Xenophontos whose experience lay in foreign exchange and money market dealing.

By the middle of 2003 developments at IFX had led Mr Hachem and his team to seek a move to another firm. On 25^th July Mr. Hachem met Mr. Kevin Davies and Mr. Christopher Smith of MFG to explore the possibility of moving the team to MFG. They discussed Mr. Hachem’s portfolio of clients, the structure of his business and the terms of the IBA between Byblos and IFX. Following negotiations MFG wrote to Mr. Hachem on 4^th August 2003 offering him a position. The letter set out the terms on which MFG was proposing that he should be employed. It contained references to the team, but no reference to Byblos or to any other company that might act as an introducing broker. It did, however, set out in some detail the basis on which fees in respect of introductions would be paid.

The next day MFG made offers of employment to Ms. Elmer, Mr. Elmer and Mr. Xenophontos as part of the broader arrangements which were intended to lead in due course to the signing of an IBA.

It must have been implicit in the discussions between Mr. Hachem and the representatives of MFG, if indeed it was not mentioned expressly, that he wished to put in place an arrangement similar to that involving Byblos which existed with IFX. At any rate, the judge found that it was agreed that there would be a corporate vehicle of some kind. No doubt for that reason on 6^th August 2003 MFG sent Byblos a pack comprising a draft IBA, a prospective client questionnaire and a procedure manual. At about the same time Mr. Elmer accepted the offer of employment with MFG and on 11^th August he started work, his initial duties being to prepare prospective client assessments. He made one such assessment for a Swiss bank in which he identified the introducing broker as Byblos. On 19^th August 2003 Mr. Elmer completed a client assessment for Dante Lido stating that the client was to trade, amongst other things, foreign exchange and CFDs. MFG wrote to Dante Lido enclosing an account opening document which stated that the business had been introduced by Byblos.

Some days later MFG appears to have been told that Mirador (a company also incorporated in Nevis) rather than Byblos was to be the introducing broker under the IBA, but the position does not appear to have been entirely settled, because shortly afterwards Mr. Hachem received and amended a draft IBA which named MFG and Byblos as parties without changing the name of the company.

Mirador was incorporated on 5^th September 2003 and Mr. Hachem was appointed its manager. On 10^th September 2003 Mr. Hachem resigned from IFX and on 16th September MFG sent him an amended draft letter setting out the terms on which it was willing to offer him employment. In the event Mr. Hachem did not accept any of the offers of employment made to him by MFG.

The IBA was executed on 3^rd October 2003. The parties are expressed to be MFG and Mirador, which is described as the “Introducing Broker” or “IB”. The Introduction, which performs the function of a preamble, states that

“The IB has agreed to introduce potential customers to [MFG] in accordance with the terms of this Agreement.”

and the operative part of the agreement itself includes the following terms:

“2 IB’s Responsibilities

Throughout the duration of the IB’s appointment:

Promote [MFG]

a.

The IB will promote and develop the business of [MFG] by introducing financially responsible and capable Customers to [MFG] . . .

3

Introducing Potential Customers to [MFG]

a.

The IB will take all reasonable steps to ensure that any potential Customer to [MFG] is not under any restriction which would prevent the potential Customer opening, operating and maintaining an account with [MFG].

b.

[MFG] shall not be under any obligation to accept any potential Customer introduced by the IB

. . .

5

[MFG’s] Obligations to the IB

Throughout the duration of the IB’s appointment:

. . .

b.

[MFG] shall pay the IB the fees, commissions and/or rebates set out in Schedule A to this Agreement as may be amended from time to time.

. . .

6

IB’s Warranties

a.

The IB warrants and represents to [MFG] with the intention that [MFG] will rely on these representations and warranties in entering into this Agreement and on the basis that they are repeated each time the IB introduces a Customer to [MFG] as follows:-

i.

that (where applicable) the IB is duly incorporated or registered and validly exists under the laws of its place of incorporation and domicile (if different);

. . .

7

Duration and Termination

a.

The IB’s appointment shall commence on the date of this Agreement or such other date as the parties may agree and shall continue until terminated on the earlier of:-

i the expiration of sixty days’ notice of termination given by one party to the other . . .

8

Consequences of Termination

. . .

c.

. . . [MFG] undertakes to continue to pay to the IB any Sums of Money due to the IB, under the terms described in Schedule A, on all accounts already introduced to [MFG], either by the IB or by one of the IB’s clients of contacts, and for as long as such accounts continue to trade with [MFG].

. . .

12

Whole Agreement

This Agreement contains the whole agreement between the parties and supersedes any prior written or oral agreement between them in relation to its subject matter. . .

15

Interpretation

. . .

b.

In this Agreement the expression ‘IB’ means the individual, company or other organisation with whom [MFG] is contracting and a ‘Customer’ means any individual or body of persons, whether or not incorporated, introduced by the IB to [MFG] whether or not accepted by [MFG] as a Customer . . . ”

The dispute

In the event, on 29^th January 2004 MFG gave notice to terminate the Agreement. A dispute then arose over whether Mirador was entitled to receive commission on transactions carried out by Dante Lido with MFG. MFG said that it was not, because Dante Lido had not been introduced by Mirador under the terms of the Agreement, or indeed at all. Proceedings were commenced in July 2009. In the claim form Mirador and Mr. Hachem were both named as claimants, the claim being described as one for

“damages for breach of and/or orders for the performance of an agreement made with the defendant between 25^th July and 4^th August 2003 and/or of a written agreement between [Mirador] and the defendant dated 3^rd October 2003.”

However, before particulars of claim were served the claim form was amended to remove Mr. Hachem as a party, leaving Mirador as the only claimant.

The particulars of claim alleged that Dante Lido had opened an account with MFG in August 2003 on Mr. Hachem’s instructions. MFG denied that. It said in its defence that Dante Lido had opened an account with it on or about 3^rd October, having been introduced by Mr. Xenophontos on his own behalf following his move from IFX to MFG in August and September 2003. It also denied that on the true construction of the Agreement Mirador had any claim arising out of events that had occurred before it had become effective.

The judge found on the basis of Mr. Xenophontos’ own evidence that he had introduced Dante Lido to MFG as a member of Mr. Hachem’s team. The question then, as he put it, was whether an account which had been literally introduced to MFG before 3rd October 2003 should nonetheless be viewed as one of the “accounts already introduced to [MFG]” by Mirador or one of its clients or contacts within the meaning of clause 8c.

In order to set the language of the Agreement in its proper context the judge made the following additional findings [paragraph 43]:

“The background available to both parties (that is to say Mirador and [MFG]) was that an IBA was to be entered into to give effect to the movement by Mr Hachem and his team from the structure within which they operated at IFX to the same or very similar arrangement at [MFG]. For that broad commercial objective to be achieved it was necessary for legally binding contracts to be entered into, an IBA and various contracts of employment. The introduction of Mr Hachem’s clients was obviously a major attraction of the deal to Man. Preservation by Mr Hachem of his client following and protection from poaching was obviously important to him. I disregard the question of whether Clause 8(c) was specially tailored or part of a standard draft. The parties opted for a process of implementation that did not involve close co-ordination of the various agreements and which started without any of them having been entered into. While the IBA is a relatively formal agreement it was not negotiated between lawyers and the procedure adopted was less methodical than those one often sees in similar transactions.”

As to the question he had posed himself, the judge said [paragraph 43]:

“ . . . it seems to me obvious that in the context in which the agreement was being entered into both parties would have read “accounts already introduced to Man” as including those introduced by the team to Man in the expectation of both that they would be customers of Mirador. It would be equally obvious that the parties could not have intended to draw a distinction between customers introduced as part of the transition process on 2^nd October and those introduced on 4^th October.”

Mr. Christopher Hancock Q.C. for MFG submitted that the construction adopted by the judge did not fairly reflect the language of the Agreement read as a whole, particularly having regard to the fact that Mirador was seeking to recover commission based on an introduction that had been made before the Agreement had been entered into and at a time when Mirador itself did not exist. Mr. Paul Darling Q.C. for Mirador supported the judge’s construction of clause 8c., which he submitted was justified by the background to the Agreement and the commercial objective of the parties to which the judge had referred.

It now well established that the meaning of a contract is to be determined by reference to what a reasonable person with all the relevant background knowledge available to both parties would have understood it to mean at the time it was made: see Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 W.L.R. 896, Bank of Credit and Commerce International S.A. v Ali [2002] 1 A.C. 251 and Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101. Sometimes it is apparent from the background to the contract that the language chosen by the parties is less apt than it might be to express their intention and in such cases, provided the parties’ intention can be ascertained with reasonable confidence, the court will give effect to it despite an infelicitous choice of language. That is more easily achieved if the parties have contracted in an informal manner. However, where the parties have made their agreement in writing, one starts from the presumption that the written instrument, given its ordinary meaning, correctly embodies their intention. As Lord Hoffmann said in ICS Ltd v West Bromwich Building Society at page 913:

“The “rule” that words should be given their “natural and ordinary meaning” reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. ”

One consequence, as he said in BCCI v Ali at page 269, is that the primary source for understanding what the parties meant is their language interpreted in accordance with conventional usage.

The Agreement in the present case is, as the judge recognised, of a relatively formal nature, even if it was not negotiated between lawyers. In my view the proper place to begin, therefore, is the language which the parties chose to use.

The Agreement is expressed to be made between Mirador and MFG and its commercial objective is reflected in the paragraph headed “Introduction”, namely, the introduction of potential customers to MFG. By clause 7 Mirador’s appointment was expressed to commence on the date of the execution of the agreement (the parties having agreed no other date) and by clause 2 Mirador undertook certain obligations that were to be performed throughout the period of its appointment. For its part, by clause 5 MFG undertook certain obligations to Mirador, the principal obligation being to pay the fees set out in Schedule A. All these provisions are prospective, in the sense that they define the parties’ obligations to each other during the currency of the agreement which itself began with the appointment of Mirador as introducing broker on 3^rd October 2003. They do not seek to deal with any matters that may have occurred before that date.

It is in this context that clause 8 falls to be construed. On its face it deals with the consequences of termination of the agreement. Paragraphs 8a. and b. provide for the termination of Mirador’s appointment, the cessation of its activities under the agreement and the revocation of its right to hold itself out as linked to MFG in the ways described in clause 2c. Paragraph 8c. makes it clear that, despite all that, MFG will continue to pay fees that may accrue to Mirador on accounts already introduced. Since Schedule A provides for fees to be paid on business conducted by customers with MFG, they may be earned after the termination of Mirador’s appointment. The purpose of clause 8c. is to provide explicitly for the payment of fees on trading carried on by customers introduced by Mirador to continue after the termination of its position as an introducing broker and for as long as such trading might continue.

The judge held that the words

“on all accounts already introduced to [MFG], either by [Mirador] or by one of [Mirador’s] clients or contacts”

in clause 8c. were apt to include customers introduced by Mr. Hachem or one of his team before Mirador’s appointment became effective, and indeed before Mirador itself had even been incorporated. Judging simply by the language of the clause, I find that difficult to accept for two reasons. The first is that the expression “accounts already introduced” read in the context of the rest of clause 8 and the agreement as a whole, naturally refers to customers who, at the date of termination, had been introduced by Mirador during the currency of the agreement and in accordance with its terms. In clause 8c. the word “accounts” must mean accounts of customers already introduced, both because Mirador’s obligation was to introduce customers, not accounts, and because it is customers, not accounts, who may continue to trade with MFG. It is true that in general terms the word “already” means “in the past”, but the period of the past to which it is intended to refer depends on the context in which it is found. In this case that context points clearly to the period between the commencement of Mirador’s appointment and its termination.

The second reason is that the language of clause 8 is concerned with accounts introduced by Mirador or by one of its clients or contacts. The words “or by one of its clients or contacts” may extend the categories of persons by whom qualifying introductions can have been made, but that does not detract from the fact that those introductions must have been made during the currency of Mirador’s appointment and in a broad sense on its behalf. They are not apt to cover introductions made before Mirador came into existence, since if anyone made an introduction before that date he could not have been a client or contact of Mirador at the time. The point is reinforced by the terms of clauses 3(a) and 6, each of which imposes certain obligations on Mirador in relation to the potential customer and its own status at the time of making the introduction. I quite accept that, if these words had been found in the context of a clause whose purpose was to give Mirador a right to recover fees in respect of customers introduced before it had been incorporated, they could bear the meaning which the judge gave them, but they are not. If the parties had intended the agreement to provide for Mirador to receive fees on trading carried out by customers who had been introduced to MFG before the agreement became effective, that would surely have been provided for in express terms in clause 5. The only other possibility is to construe the reference to “clients and contacts” as including persons who, although they did not fall within either description at the time the introduction was made, had become clients or contacts by the time the Agreement was terminated, but that would be to strain the language beyond breaking point. In my view there is no ambiguity about clause 8c.; it is reasonably capable of only one meaning.

It follows that in order to decide whether Mirador is entitled to be paid fees on Dante Lido’s trading it is important to identify when and by whom Dante Lido was introduced to MFG, and that in turn makes it necessary to decide what constitutes an introduction for the purposes of Mirador’s becoming entitled to receive payment under clause 5b.

Clause 5 itself does not answer that question; it assumes that an introduction has been made and that the customer has traded with MFG, thereby generating revenue for MFG in the form of commission. Although it was part of Mirador’s function to introduce to MFG customers who were potential trading partners, it is clear from clause 3b. that MFG was not obliged to accept any customer introduced by Mirador. It is also clear from clause 5, however, that if a customer introduced by Mirador was accepted and embarked on a trading relationship with MFG, Mirador would become entitled to receive fees as set out in Schedule A. Taken together these provisions point firmly to the conclusion that for the purposes of the Agreement an introduction occurred when Mirador introduced to MFG a person of sufficient financial standing for MFG to initiate formal investigations into the possibility of accepting him as a customer.

Mr. Elmer started work with MFG on 11^th August 2003. One of his tasks was to prepare assessments of prospective clients. About a week later on 19^th August 2003 he completed a client assessment in respect of Dante Lido, which identified Byblos as the introducing broker, and later the same day MFG wrote to Dante Lido enclosing an account opening document. By that time Dante Lido had been introduced to MFG in the sense in which that expression is used in the Agreement. No further steps were required to complete the introduction. On the face of it, therefore, Dante Lido was not introduced to MFG by Mirador and nothing that Mirador did after its appointment as an introducing broker amounted to an introduction for the purposes of the Agreement.

Nonetheless, Mr. Darling Q.C. on behalf of Mirador submitted that when proper account is taken of the background to the Agreement it is necessary, in order to give effect to the intention of the parties, to construe clause 8c. as giving it the right (presumably during the currency of the Agreement as well as after its termination) to recover fees in respect of trading by customers who had been introduced by one of its clients or contacts (among whom are to be numbered Mr. Hachem and members of his team) at any time in the past.

The judge found that Dante Lido had been introduced to MFG by a member of Mr. Hachem’s team at a time when the negotiations for their transfer to MFG had yet to be completed. As one can see from the documents, the indications at that time were that Byblos would become the vehicle for the team, but the precise identity of the company was of no concern to MFG. It was no doubt understood on both sides that Mr. Hachem’s team would be paid the appropriate fees for the introduction of any new customer, whether that took place before or after the formalities were put in place by the execution of an IBA (indeed the scale of fees had been set out in MFG’s letter of 4^th August 2003 offering him employment), but no one seems to have given any thought to how that was to be provided for. One possibility would have been to leave it to Mr. Hachem or his team to make a claim for payment in respect of any such introductions in a personal capacity on the basis of an express or implied contract. Another would have been to include in the Agreement a clause giving Mirador the right to recover fees in respect of any introductions made by the team before its appointment had become effective. However, although the Agreement was intended to be the definitive record of the parties’ agreement (see clause 12), such a clause is notable by its absence. Hence Mirador’s need to rely on clause 8c.

As in many cases of this kind, the court must be careful to observe the distinction between construing the language used by the parties in the way that a reasonable person in their position and with their knowledge of the background would have understood it and imposing on the language a meaning that it cannot reasonably bear in order to produce a result which, however sensible it may appear, is not that for which the parties have themselves provided. The intention of the parties is a matter to be ascertained objectively from the terms of the agreement read in its context. In Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 W.L.R. 1988 Lord Hoffmann put the matter in this way:

“16.

. . . The court has no power to improve upon the instrument which it is called upon to construe, whether it be a contract, a statute or articles of association. It cannot introduce terms to make it fairer or more reasonable. It is concerned only to discover what the instrument means. However, that meaning is not necessarily or always what the authors or parties to the document would have intended. It is the meaning which the instrument would convey to a reasonable person having all the background knowledge which would reasonably be available to the audience to whom the instrument is addressed: see Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912–913. It is this objective meaning which is conventionally called the intention of the parties, or the intention of Parliament, or the intention of whatever person or body was or is deemed to have been the author of the instrument.”

In the present case the parties to the Agreement are Mirador and MFG and in order to ascertain their intention it is necessary to examine the words they used in the context of the commercial background. The question in the present case is not simply one of the meaning of clause 8c.; it concerns the identity of the person who is entitled to be paid fees for introducing Dante Lido to MFG. The possibility that that might be Mr. Hachem was recognised at an earlier stage by the fact that he was originally a claimant in these proceedings, although he had ceased to be one by the time the particulars of claim were served. The question remains, however, whether the Agreement, read in its context, would have been understood by a reasonable person with full knowledge of the background to mean that Mirador was entitled to be paid for introductions made to MFG before the Agreement had been signed.

Notwithstanding the background to the Agreement, I am unable to accept that clause 8c. discloses an intention that Mirador, rather than Mr. Hachem and his team personally, should be entitled to recover fees due in respect of the introduction of Dante Lido. In the first place, the clause deals only with what is to happen on termination of the Agreement, an event which no one can have thought was imminent at the time when it was signed. If the parties had intended that Mirador was to have a right to payment for introductions made before the Agreement had been signed, it would surely have been the subject of a specific provision rather than one linked, as clause 8c. is, to the termination arrangements. I have already made the point that clause 8c. naturally looks to introductions made by or on behalf of Mirador during the currency of the Agreement. The argument on behalf of Mirador has to be, therefore, that the parties’ knowledge of the introduction of Dante Lido to MFG in mid-August by a member of Mr. Hachem’s team, together with the knowledge that he and MFG both knew that a corporate vehicle would be used to implement any agreement that might eventually be reached, is sufficient to lead a reasonable person to understand clause 8c. as meaning that Mirador, rather than Mr. Hachem, was entitled to be paid for any earlier introductions. That seems to me to be very difficult, if only because the reference to accounts introduced by one of the IB’s clients or contacts cannot sensibly be understood as referring to introductions made before Mirador came into existence by persons who at the time were therefore neither its clients nor its contacts. In my view clause 8c. is not ambiguous, as the judge thought, because, placed in its proper context of the rest of the Agreement, it does not admit of two equally plausible meanings.

For these reasons I have reached the conclusion that the Agreement does not confer on Mirador a right to be paid by MFG for introductions that took place before it became effective and, since I am of the view that the introduction of Dante Lido occurred in mid-August 2003, I do not think that Mirador is entitled to claim payment in respect of its trading. Contrary to the view expressed by the judge, I do not think that to construe the Agreement in this way produces an absurd result. It does not mean that Mr. Hachem and his team were not entitled to any fees for introducing Dante Lido, simply that the right to recover such fees was not vested in Mirador. The fact that a claim by someone other than Mirador may have become time-barred as a result of the failure to pursue it during the limitation period is irrelevant.

I would therefore allow the appeal.

We are all agreed that the correct interpretation of a contract is the meaning that would be given to it by a reasonable reader having all the background knowledge of the parties. I propose to start, therefore, with the judge’s findings of fact about the background.

It is common in the foreign exchange and other financial markets for a small team to operate from the premises of a larger broker as a sort of business within a business. Individual members may have close relationships with particular clients but they work together and share the rewards between them (§ 9). Mr Hachem built up a team of this kind. The profits generated by the team would be paid to an offshore vehicle company (§ 10). This company is labelled the Introducing Broker. The offshore vehicle company enters into an Introducing Broker Agreement (an IBA) with the brokerage house. When he made contact with MFG Mr Hachem and his team were working at IFX Markets Ltd; and the Introducing Broker was a Nevis company called Byblos Ltd (§ 9). In 2003 Mr Hachem and his team were looking to move from IFX. In July 2003 Mr Hachem had lunch with the President and Executive Chairman of MFG in furtherance of that quest. At the lunch Mr Hachem disclosed details of his clients, the structure of his business and the IBA then in place. It was clear from the lunch that Mr Hachem and his team would move over to MFG using the same or a similar structure as had operated at IFX with the identity of the IB to be arranged (§ 33).

On 4 August 2003 MFG offered Mr Hachem a job as Divisional Director. On the following day MFG offered jobs to three members of Mr Hachem’s team. These offers were part of broader arrangements which were to lead to the IBA between the parties (§ 15). At that time MFG were under the impression that Byblos would remain the Introducing Broker; but on about 21 August Mr Seaman, who was MFG’s Compliance Director, was informed that the Introducing Broker would be Mirador (§ 15). In fact Mirador was not yet incorporated. It was incorporated on 5 September 2003 (§ 16). But it seems that MFG did not finally know that Mirador was to be the Introducing Broker until 11 or 12 September 2003 (§ 32). The identity of Mirador as IB was not of importance to MFG (§ 34). On 3 October 2003 Mirador and MFG entered into an IBA.

Mr Elmer, one of Mr Hachem’s team had in fact started work for MFG on 11 August. His initial duties included preparing prospective client assessments. One of the client assessments he prepared on 19 August was for Dante Lido. MFG wrote to Dante Lido enclosing an account opening document, referring to the matter having been introduced by Byblos. This seems to have been written two or three days before Mr Seaman had been told that the Introducing Broker would be Mirador. Mr Elmer’s activities were giving effect to what had been agreed. The parties proceeded as though the deal was going ahead. (§ 34). On 3 October 2003 Dante Lido’s foreign exchange account with MFG was opened (§ 36).

From these findings, the following are in my judgment the most important:

The question is whether Mirador is entitled to claim commission on transactions effected by Dante Lido through MFG’s brokerage. That depends on the terms of the IBA, to which I now turn.

Clause 7 of the IBA says that Mirador’s appointment “shall commence on the date of this Agreement or such other date as the parties may agree”. There is no evidence that the parties agreed any other date; and thus Mirador’s appointment began on 3 October 2003. Mirador’s obligations under the IBA are contained principally in clauses 2 and 3. Before addressing those clauses in detail it is necessary to refer to the contractual definition of “Customer” in clause 15. That says that:

“…’Customer’ means any individual or body of persons, whether or not incorporated, introduced by the IB to [MFG] whether or not accepted by [MFG] as a Customer.”

There is an obvious tension in this definition, in which the second part appears to contradict the first. Mr Hancock QC, appearing for MFG, submitted (no doubt rightly) that the second time that the word “Customer” appears, it should not have begun with a capital letter; and that it means something different from the defined term. Be that as it may, clause 2 of the IBA imposes obligations on Mirador “throughout the duration of the IB’s appointment.” These duties include a duty to promote and develop MFG’s business “by introducing financially responsible and capable Customers to MFG which meet MFG’s standards for fully disclosed customers as notified to the IB from time to time”. Clause 3 deals with the introduction of “potential Customers”. Given that the definition of “Customer” includes those who are not accepted by MFG as Customers, it is not easy to see what the word “potential” adds. Clause 3 b says that MFG does not have “any obligation to accept any potential Customer introduced by the IB.” The same point applies. I make these points to show that the use of language in the contract is not precise and is not always internally consistent.

These obligations detail what Mirador was to do. They do not, however, set out the trigger point for Mirador’s remuneration. Indeed because of the definition of “Customer” and the use of the phrase “potential Customer”, together with MFG’s right to reject as a Customer a person introduced by the IB, it is clear that merely to fulfil its contractual obligation does not entitle Mirador to any payment. The trigger point for remuneration must be found elsewhere. It is found in clauses 5 and 8 of the IBA.

Clause 5 also applies throughout the duration of the IB’s appointment. Under clause 5 a MFG must pay the IB fees commissions and rebates as set out in Schedule A. Schedule A sets out the measure of commission and also specifies certain deductions that MFG is entitled to make. These include:

“100% of all employment costs associated with any staff who are employed specifically by [MFG] to service accounts introduced by the Introducing Broker, each to be agreed on a case by case basis collectively known as “the team””

Thus clause 5 a, by cross-reference to Schedule A, introduces the concept of “accounts” introduced by the IB. Given that there is a contractual definition of “Customer” and that the word “Customer” is used many times in the IBA, sometimes with varying meanings, it is a fair inference that the word “account” was meant to mean something else.

Clause 5 b deals with the mechanics of payment. It says that no sum will be credited to the IB’s commission account with MFG “unless and until [MFG] have actually received the fees and commissions due from a Customer in relation to transactions carried out for or on behalf of that Customer.” On the face of it, this deals with the time at which the IB will be paid, rather than for what it is to be paid. But Mr Hancock said that this clause also defined (and limited) what Mirador was entitled to be paid for. He said that this clause showed that Mirador was only entitled to be paid commission on transactions carried out for a “Customer” as defined; that is someone introduced by Mirador. Moreover, since MFG’s obligation to make payments under clause 5 is an obligation to make payments “throughout the duration of the IB’s appointment” it could not apply to introductions which preceded the making of the IBA; and, a fortiori, could not apply to introductions made before Mirador was even incorporated.

Clause 8 c is part of a clause principally concerned with the consequences of termination. It provides:

“Notwithstanding the above, [MFG] undertakes to continue to pay IB any sums of money due to the IB, under the terms described in Schedule A, on all accounts already introduced to [MFG], either by the IB or by one of the IB's clients or contacts, and as for as long as such accounts continue to trade with [MFG].”

Like Schedule A this clause also defines Mirador’s entitlement by reference to accounts introduced to MFG, rather than Customers introduced. In addition it begins with the words “notwithstanding the above”. It is therefore intended to override something earlier in the IBA. There are two further respects in which it widens MFG’s obligations. First it extends not only to accounts introduced by the IB, but also to accounts introduced by “one of the IB's clients or contacts”. So entitlement under this clause does not depend on an introduction (of anything or anyone) by Mirador itself. Second, it applies to accounts “already” introduced to MFG. It was common ground that “already” meant at some time before termination of the agreement. But Mr Hancock argues that “already” meant not just before termination of the agreement: it also meant after the inception of the agreement. This is not in accordance with my understanding of the ordinary usage of “already.” In normal usage it simply denotes that one event has occurred before another. The team were Mirador’s contacts, and there is nothing in the clause that says when they had to have been Mirador’s contacts. If one also takes the words “account” and “already” literally it is the plain meaning of the clause. This interpretation is powerfully supported by the judge’s findings of fact about the commercial background and the overall objective and implementation of the team’s move to MFG. (Although not cited to us, it is an approach similar to that adopted by Scott J in Hambros Bank Executor & Trustee Co Ltd v Superdrug Stores Ltd [1985] 1 EGLR 99). In addition I find it difficult to see how an “account” can be “introduced” before it comes into existence. The Dante Lido account came into existence after the incorporation of Mirador and after the IBA was signed. Accordingly, I would also accept the point taken by Mirador in its Respondent’s Notice, namely that on the facts Dante Lido’s account was not introduced to MFG before either the incorporation of Mirador or the inception of the IBA.

Mr Hancock said that if the parties had meant to include Dante Lido’s transactions among those for which Mirador was entitled to be remunerated they would not have tucked it away in a clause whose primary purpose was to deal with post-termination events.

In some circumstances this would be a fair point. But on Mr Hancock’s own interpretation the scope of the accounts for which Mirador was entitled to be remunerated was tucked away in a clause whose primary purpose was to deal with the timing and mechanics of payment. Moreover, the difficulties in applying the contractual definition of “Customer” to the various clauses in the IBA in which it appears show that this is not a precisely drafted contract. Furthermore, there is what one must assume to have been a deliberate change of focus from “Customer” to “accounts”, which also ties in with the deductions permitted under Schedule A.

The judge concluded (§ 43):

“But it seems to me obvious that in the context in which the agreement was being entered into both parties would have read "accounts already introduced to Man" as including those introduced by the team to Man in the expectation of both that they would be customers of Mirador. It would be equally obvious that the parties could not have intended to draw a distinction between customers introduced as part of the transition process on 2 October and those introduced on 4 October. Had the agreement continued to operate it is inconceivable that Man would have suggested or Mirador accepted that commission should be payable in respect of the teams clients introduced after 3 October but not those whom it had brought on board before hand.”

I have no doubt that this is the commercially preferable result; and in my judgment it is a permissible reading of clause 8 c. Whether this is described as choosing the more commercially sensible of rival interpretations of express terms (Rainy Sky SA v Kookmin Bank [2011] UKSC 50 [2011] 1 WLR 2900) or implying a term (Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10 [2009] 1 WLR 1988) does not seem to me to matter; since the objective of both is to determine what the reasonable person with the background knowledge of the parties would have understood the contract to mean (Rainy Sky §14; Belize Telecom § 18).

I would therefore dismiss the appeal.

I am most grateful to Lord Justice Moore-Bick for setting out the material in this appeal, and to him and Lord Justice Lewison for their persuasive judgments.

The critical facts are that Dante Lido was first introduced to MFG on 19 August 2003, prior to the commencement of the contract between Mirador and MFG, or even to the incorporation of Mirador (on 5 September 2003), but its account was not accepted nor opened by MFG until 3 October 2003, the day when the IBA (the “contract”) was executed and therefore, under its own terms, came into operation. It is also relevant that the precise identity of the independent broker company vehicle was not of importance to MFG; and that from soon after Mr Hachem’s lunch in July 2003 with the president and executive chairman of MFG the deal, which had been reached over lunch and which fructified in the contract, was put into operation. As the judge found:

“33.

No contract was entered in to between Mirador and Man until 3 October 2003. It was however clear almost from the lunch on 25 July as between Man and Mr Hachem that his team would move over to Man using the same or a similar structure as had operated at IFX with the identity of the IB to be arranged…34. The parties gave effect to what had been agreed. The members of the team that left IFX were offered employment by Man and, apart from Mr Hachem, joined that company. The process of opening accounts at Man for Mr Hachem’s clients moved forward. The parties proceeded as though the deal was going ahead…”

The judge therefore concluded in effect that it was not possible for any of the parties concerned to think that what was done in anticipation of the contract was not done for the purposes of and under the contract. As he said (at his para 43):

“But it seems to me obvious that in the context in which the agreement was being entered into both parties would have read “accounts already introduced to Man” as including those introduced by the team to Man in the expectation of both that they would be customers of Mirador [sc Man]. It would be equally obvious that the parties could not have intended to draw a distinction between customers introduced as part of the transition process on 2 October and those introduced on 4 October. Had the agreement continued to operate it is inconceivable that Man would have suggested or Mirador accepted that commission should be payable in respect of the teams introduced after 3 October but not those whom it had brought on board before hand.”

That pragmatic conclusion was in effect conceded (although the appeal continued to be pressed as a matter of law) when Mr Christopher Hancock QC on behalf of MFG accepted that, if it had been known prior to trial, what Mr Xenophontos admitted in the course of cross-examination at trial, namely that he had introduced Dante Lido to MFG as a member of Mr Hachem’s team (see paras [14]-[15] above), something which had been disputed up to that point, then Mirador’s claim may well not have led to litigation.

The critical provisions of the contract are as follows:

“2.

IB’s responsibilities

Throughout the duration of the IB’s appointment:

a.

The IB will promote and develop the business of [MFG] by introducing financially responsible and capable Customers to Man…

b.

The IB will seek to introduce Customers to [MFG] only through permitted methods and means… The IB will only introduce Customers for whom the services and products of [MFG] can be reasonably expected to be suitable.

The question which has arisen is whether the contract covers introductions of customers made prior to the inception of the contract.

The argument against such cover is as follows:

The argument in favour of such cover is as follows:

These are both persuasive arguments, and it has to be said that there are no as it were silver bullets, points which are plainly and unanswerably definitive of the correct answer. It is rather a matter of assessment, as to how a reasonable person, knowing of the issue before the court, and of the matrix facts known to both parties at the time of contract, would have understood the contract at the time it was made.

In my judgment, the argument in favour of the respondent Mirador is preferable to that made on behalf of the appellant MFG. I would in particular emphasise the following points.

On behalf of MFG, Mr Hancock particularly emphasised the definition of “Customer” (that is to say “Customer” with a capital C as a defined term, see clause 15) for the consideration that it was concerned with introductions by Mirador to MFG “whether or not accepted by [MFG] as a Customer”. Therefore, he contended, the critical question was whether a Customer had been introduced, not accepted, by MFG during the contract period, which Dante Lido had not been. However, in my judgment, this is not a decisive consideration. First, it seems to me that the importance of the definition for the contract is not geared to the timing of an introduction, but to the concept that an introduction may be effected without the agreement of MFG. That concept is important because otherwise it would be possible for the introducing broker to introduce all its clients to MFG, for MFG then to give 60 days notice of termination to the introducing broker under clause 7(a)(i) before accepting them as customers, and for MFG then to argue that it was open to them to accept the introducing broker’s clients after termination without being obliged to pay anything to the introducing broker by way of commission. As it is, that argument might possibly still be run by reference to clause 8(c), since that clause is written in terms of “accounts already introduced to [MFG]” rather than in terms of “Customers” (or of “Customers already introduced to [MFG]”, which in definitional terms would be pleonastic language).

Secondly, the use of the definition of “Customers” as a critical item in the construction of the contract leads into difficulties and dead-ends. There is no consistency in its use within the contract. Sometimes the contract refers to the definitional “Customers” and sometimes it refers to “customers”. Sometimes it refers to “potential Customers” and sometimes it refers to “potential customers”. Even the definition itself runs into problems, because, as Mr Hancock himself accepts, the phrase “whether or not accepted as a Customer” needs to be rewritten as “whether or not accepted as a customer”. The same is I think true of clause 5(c) which was heavily relied on by Mr Hancock, where “Customer” must mean “customer”: since ex hypothesi there can be no relevant commission in play unless a potential customer or Customer has been accepted as an actual customer. Moreover, there is another factor which undermines the definition of “Customer”, and that is the clause 8(c) extension of relevant introductions to those made (not only by the introducing broker itself but also) by the introducing broker’s “clients of contacts”. It follows that the definition of “Customer” is in any event an inadequate definition. In sum, I do not think we have been shown anything in the contract which makes the definition of “Customer” critical for the issue which is before us. In any event, it would be a somewhat unsafe tool to use for any critical purpose.

Thirdly, Mr Hancock submits that “accounts introduced” is merely another way of saying “Customers introduced”, but I do not think that is correct. The change from “Customers” to “accounts” appears to me to be quite deliberate, and is reflected also in the expression “accounts introduced by the Introducing Broker” found in Schedule A. Therefore, the expression “accounts introduced” is in my judgment to be regarded as a somewhat complex expression and probably means “accounts opened by [MFG] for customers introduced to [MFG]”. Such customers will necessarily be customers accepted by MFG, otherwise no accounts would have been opened. I can see that such a construction of clause 8(c) could well lead to a dispute which the definition of “Customer” may have been intended to assist in avoiding. However, that is not the dispute which is before the court in this case and it does not have to be resolved. I would merely hazard that a broker-dealer (such as MFG) which in bad faith was holding off accepting acceptable clients (see clause 2 for what counts as an acceptable client, viz “financially responsible and capable Customers”…”for whom the services and products of [MFG] can be reasonably expected to be suitable”) until after a termination notice, would be likely to have a difficult argument to make; whereas the case of a customer introduced by an introducing broker who was reasonably rejected by the broker-dealer as unsuitable but which sometime later, after termination, was proposed again as a customer and by this occasion had improved its credentials and was found acceptable, would probably present very different considerations.

Fourthly, it follows that the ultimately decisive question (at any rate on the facts of this case) is not so much whether an introduction was first made within the contract period, but whether the introduction was open for acceptance and accepted within the contract period and for the purposes of the contract. At any rate the critical question for the purposes of clause 8(c) will be whether the Dante Lido account or accounts were “accounts already introduced to [MFG]”. Even if that “already” goes back no further than the commencement of the contract (a question I postpone for the moment), and it plainly goes back at least that far, the Dante Lido account was an account opened by MFG during the contract period. Does it matter that it was an account opened during the contract period for a customer first introduced by Mirador (or a person within the prospective Mirador team) before the commencement of the contract? In my judgment, no. When the contract came into operation upon its execution the introduction of Dante Lido was still pending. It had not been accepted as yet. Upon the execution of the contract, that introduction was plainly taken over by Mirador and became Mirador’s introduction. I do not see any other realistic (or decent) way of looking at it. Could MFG say that the introduction had not been made by Mirador for the purposes of the contract, because, for instance, it had first been made by Mr Xenophontos? Of course not: the idea would have been absurd. As Mr Hancock frankly told us, the litigation would never have been fought if it had been realised in time that, as Mr Xenophontos vouchsafed but only at trial, he had introduced Dante Lido to MFG “as part of the team’s client base” (Footnote: ¹) and not, as his witness statement had put it, as his personal client. When, therefore, MFG accepted Dante Lido as an acceptable customer by opening an account for it on 3 October 2003, it was accepting it as a customer introduced by Mirador, and was doing so in every sense as a customer introduced for the purposes of the contract, introduced under the contract, and accepted under the contract.

Fifthly, it seems to me that such a way of looking at the matter is underpinned by other provisions in the contract, such as Mirador’s obligations and warranties. Mirador undertook that it would promote and develop the business of MFG by introducing financially responsible and capable customers to MFG which met MFG’s standards and for whom the services and products of MFG could be reasonably expected to be suitable (clauses 2(a) and (b)). Mirador warranted “each time the IB introduces a Customer to [MFG]” all the warranties listed in clause 6. If it were to be suggested (I have read and heard no such submission from MFG) that these obligations and warranties did not apply to any introductions, such as Dante Lido’s, which were pending at the commencement of the contract and not yet accepted, I would be surprised. It would seem to me that the contract, as at its commencement, was clearly intended to apply such provisions to the pending introductions. Mirador would not, in my judgment, be able to say, when it asked MFG to process such introductions upon or after commencement, that it was not putting forward financially responsible and capable customers etc, or that it was providing no warranties in terms of clause 6 of the contract, on the ground that such customers had first been introduced to MFG in the run-up to and in anticipation of the contract. It would seem to me that any such unreasonable contention would rightly be rejected.

The judge did not put his conclusions in quite this way, but his intuition was in my judgment quite right when he said that “accounts already introduced to [MFG]” included those introduced by the team to MFG in expectation that they would be customers and that it would be absurd to draw a distinction between “customers introduced as part of the transition process on 2 October and those introduced on 4 October”.

There is no evidence of which I am aware as to why the account for Dante Lido was not opened until 3 October 2003, ie not until the contract was executed but then immediately upon such execution, even though we are told that preparations of client assessment paperwork was going as early as August 2002 (Judge Mackie’s judgment at para 15). The natural inference is that the acceptance of the proposed customer was delayed so that there could be no question but that the customer’s introduction and acceptance all took place under and for the purposes of the contract. However, I do not rely on any such inference as being necessary to my judgment.

The question does not arise, therefore, on the facts of this case, as to what might have been the position had the introduction of a potential customer been acted upon before the contract was executed so that the customer was accepted as a client of MFG and an account opened before 3 October 2003. On that basis, nothing relevant would have occurred under the contract or during its operation (save for any subsequent transactions on the account), and Mirador’s argument would potentially become more difficult. I assume nevertheless for the purposes of such a scenario that all that had happened was done in anticipation of the contract. The question then might be whether “already” in clause 8(c) looked back prior to 3 October 2003. I recognise the argument that it should not be extended that far. Nevertheless, I also acknowledge the reasoning of Lewison LJ at para [48] above that there is no need to limit the normal meaning of “already”. I would be content, therefore, if necessary, to adopt that reasoning. As it is, on the facts of this case, the “account” was opened after the contract had commenced albeit in respect of a potential customer first introduced before the contract but in anticipation of it; the introduction was by a member of Mr Hachem’s team and thus by a “contact” of Mirador once that had been incorporated and identified; and that first introduction in anticipation of the contract became an introduction by Mirador itself for the purposes of the contract once that contract had been entered into. In such circumstances, which are very much more in favour of Mirador than the scenario contemplated at the beginning of this paragraph, I would regard Lewison LJ’s reasoning regarding “already” as all the stronger. I see nothing in the wording of the contract to prevent a just result. It is, as I have pointed out, the result which MFG might itself have accepted as correct had it not been led astray, and into litigation, by thinking that the introduction of Dante Lido had nothing to do with Mr Hachem’s team.

In sum, for these reasons, in addition to those contained in Lewison LJ’s judgment, I would dismiss this appeal.