Byrne v Macquarie Group Services Australia Pty Ltd
[2011] NSWCA 68
•11 April 2011
Court of Appeal
New South Wales
Case Title: Byrne v Macquarie Group Services Australia Pty Ltd Medium Neutral Citation: [2011] NSWCA 68 Hearing Date(s): 14 March 2011 Decision Date: 11 April 2011 Jurisdiction: Before: Campbell JA at [1]
Macfarlan JA at [13]
Whealy JA at [14]Decision: (1) Leave to appeal be granted
(2) Appeal dismissed
(3) The applicant to pay the respondent's costs of the leave application and the appeal.
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]Catchwords: CONTRACT - separate questions - construction of commercial contract - employer and employee - profit retention policy - natural meaning of words - lack of ambiguity - post contractual conduct cannot contradict terms of contract
Legislation Cited: Uniform Civil Procedure Rules 2005 r28.2
Cases Cited: Thomas v State of New South Wales [2008] NSWCA 316; 74 NSWLR 34 at [22]
Frankins Pty Ltd v Metcash [2009] NSWCA 407; 264 ALR 15 per Allsop P [1] - [24], per Campbell JA [239] - [292]
The Movie Network Channels Pty Ltd v Optus Vision Pty Ltd [2010] NSWCA 111 per Macfarlan JA at [97] - [106]
QBE Insurance Australia Ltd v Vasic [2010] NSWCA 166; 16 ANZ Ins Cases 61-851 per Allsop P [28] - [35]
McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) CLR 579 at 589 [22] per Gleeson CJ
International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 at 160 [8] per Gleeson CJ
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451 at 461 - l462 [22]
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 at 179 - 181 [40] - [46]
Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; 238 CLR 570 at 582 [35]
General Surgery PA v Suppes 24 Kan App 2d 753 (1998)
Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28; 217 CLR 424
North v Marina [2003] NSWSC 64; 11 BPR 21359 per Campbell JA
World's Best Holdings Ltd v Sarker [2010] NSWCA 24 at [22] per Handley AJA
Batterham v Makeig [2010] NSWCA 86 at [36] per Young JATexts Cited: Spigelman CJ, 'From text to context: Contemporary contractual interpretation' (2007) 81 ALJ 322
Category: Principal judgment Parties: Maghnus P Byrne (Applicant)
Macquarie Group Services Australia Pty Ltd (Respondent)Representation - Counsel: Counsel:
B Walker SC / V R W Gray (Applicant)
I M Jackman SC / A B Gotting (Respondent)- Solicitors: Solicitors:
Somerset Ryckmans Lawyers (Applicant)
Maddocks (Respondent)File number(s): CA 09/288820 Decision Under Appeal - Court / Tribunal: - Before: Tamberlin AJ - Date of Decision: 07 May 2010 - Citation: [2010] NSWSC 417 - Court File Number(s) 2009/288820 Publication Restriction: Nil
Judgment
CAMPBELL JA: I agree generally with the reasons of Whealy JA, but wish to add some remarks concerning the Appellant's argument based on the grammatical structure of the sentence in question.
Construction is a process of coming to understand the meaning of a text whose meaning is disputed. It involves a consideration of the disputed text in itself, both as a whole, and in its constituent parts. It also involves a consideration of the context in which it occurs, meaning by that the entire text in which disputed portion occurs, and any relevant matters of the wider context and purpose of the disputed text: cf Thomas v State of New South Wales [2008] NSWCA 316; (2008) 74 NSWLR 34 at [22]. It involves using all of these factors as a means of throwing light on the others, so that eventually an understanding of the disputed text is arrived at.
Grammatical analysis, or syntactical analysis, of a sentence is one of the steps that a judge can go through in that process of construction. It aims to divide the sentence into constituent parts, and identify those parts according to the functions that each of them plays in the sentence.
It is not always possible, by examination of a sentence in isolation, to ascertain its grammatical structure. Sometimes, sentences that might appear identical in grammatical structure in fact are different. That happens with " Mary called Tom a fool" , and " Mary called Tom a taxi ". The functions that are played by the various parts of the first of those sentences can be represented by " Mary (called a fool) Tom ". The expression " called a fool " is a phrase that operates like a verb, and the structure of the sentence is similar to that of " Mary insulted Tom ", or " Mary denigrated Tom ". In the second example, " called " is a transitive verb, " a taxi " is its direct object, and " Tom " is its indirect object. The structure of the second sentence is such that it is identical in meaning to " Mary called a taxi for Tom ".
The differences between the structures of the sentences in that example can be identified by understanding the range of meanings that " called " can have in English usage, and by understanding the idiomatic meanings of " called a fool " and " called a taxi ".
In the present case, where the disputed text is " If the employee ceases employment with Macquarie " there are two relevant matters concerning the range of meanings that ordinary English usage leaves open. One is that a complex verb can (sometimes) be a marker of the beginning or the end of an activity or state of affairs. Thus, the structure of " John started school yesterday " is not the same as the structure of " John started the car yesterday ". One way of explaining the difference between these two sentences is to say that " started school " in the first of those examples functions like a complex verb that indicates the beginning of a state of affairs (John being a school student), while in the second of the sentences " started " operates as an ordinary transitive verb.
I will now turn to the second matter concerning the range of meanings of the components of the disputed phrase which are left open by ordinary English usage. It is possible to say " He ceased being well when he reached 80 ", when there is no activity or decision involved on the part of a man who was the subject of the sentence, but rather that the sentence is stating that something happened to him. One way of explaining the structure of that sentence might be to say that " ceased being well " operates like a verb that has no object. Another might be to say that " ceased " is a transitive verb, with " being well " as its object, but that " ceased " is used in a sense that extends to an event that the subject of the sentence undergoes rather than an action that he deliberately or voluntarily does.
Similarly in the disputed text in the present case, " If the employee ceases employment with Macquarie ", the range of English meanings leaves open the following possibilities:
·that " ceases " is a transitive verb of the kind that requires the subject of the sentence to deliberately engage in the action;
·that " ceases " is a transitive verb of the kind where the subject of the sentence undergoes an event without deliberate choice to do so; or
·that " ceases employment " functions as a complex verb indicating the start of a state of affairs, that of no longer being employed.
It is part of the process of construction for the judge to come to a view about which of those meanings is most likely to be understood by a reasonable person in the position of the parties. The grammatical structure of the sentence in which the disputed phrase occurs is not something that is indisputable and apparent, and thus capable of providing a firm starting point for the process of construction. Rather, the grammatical structure is something that comes to be understood as part of the process of construction.
Matters other than the range of meanings of the disputed phrase that are open as a matter of ordinary English usage can also assist in deciding between various possible structures that a sentence might have. In the present case, in deciding whether " ceased " is a transitive verb, one can draw assistance not only from the matters of ordinary English usage that Whealy JA identifies at [45] and [46], but also from the other provisions (concerning TPD benefits) of the document in which the disputed phrase occurs that Whealy JA identifies at [58], and from the matters concerning the purpose of the provision for retention of benefits that Whealy JA identifies at [59] and [62]. As well, as the process of construction is an activity that a judge is undertaking in the context of this particular piece of litigation, it is possible to derive assistance from the concession that Whealy JA discusses at [60]-[61]. It is by taking all those matters into account that one eventually arrives at an understanding of both the structure, and the meaning, of the disputed text.
In the Kansas case upon which the Appellant relied the judge took as his starting point a dictionary definition of " cease " " As a transitive verb ". However standard dictionaries recognize that " cease " can be used sometimes as a transitive verb, and sometimes as an intransitive verb. (I have consulted the Macquarie, the Oxford English Dictionary and Chambers 20th Century Dictionary to confirm this, though it would also be apparent to any ordinary user of English language who also understood the grammatical terminology.) Once it was assumed that " cease " was being used as a transitive verb, the result followed. However, the grammatical structure of a disputed phrase is often not clear, and in such cases arriving at the grammatical structure is part of the process of construction. In such cases it is utterly unpersuasive to start the process of construction by making an assumption about the grammatical structure of the disputed phrase.
I agree with the orders that Whealy JA proposes.
MACFARLAN JA: I agree with the orders proposed by Whealy JA and with the reasons that he gives. In particular, I agree that the condition "[i]f the employee ceases employment with Macquarie" did not require the employee to have brought about the cessation of employment. In its ordinary meaning the phrase is a reference to a state of affairs that might come about, not to who might bring it about. It operates similarly to a phrase such as "if the man ceases to be married". The example given in [46] in Whealy JA's judgment well makes the point: in answer to a question of "When did you cease employment with Macquarie?", Mr Byrne would in ordinary parlance have been expected to say something to the effect of "December 2008", not "I did not cease employment with Macquarie, it terminated my services".
WHEALY JA: This appeal proceeded by way of a concurrent hearing. The applicant seeks an order for leave to appeal and submits, if leave be granted, that the appeal be upheld. The application arises out of proceedings heard before Tamberlin AJ (the primary judge) in the Equity Division of the Supreme Court in April and May 2010. His Honour had been asked to accept that this was an appropriate case for the making of an order pursuant to Rule 28.2 of the Uniform Civil Procedure Rules 2005 (NSW) that certain questions be determined before the trial of any other issue in the proceedings. His Honour was satisfied that the case was appropriate for that purpose and he made an order accordingly.
The primary judge was required to determine a number of preliminary questions as to the construction of the employment arrangement between the plaintiff (Mr Byrne) and his employer, the defendant (Macquarie), as at the date of termination of his services, namely 4 th November 2008. There were other issues for his Honour to determine ("strike out applications"), but these do not arise for decision on this appeal.
The questions posed in the Notice of Motion filed by Mr Byrne were as follows:-
(A) As a matter of construction, does the "Profit Share Retention Policy (Macquarie-wide excl Canada)", which contains the words "If the employee ceases employment with Macquarie, any retained profit share allocation that has not vested to them will be forfeited", authorise a forfeiture of the plaintiff's retained profit share allocation in circumstances where the plaintiff's employment was terminated by Macquarie?
(B) If the answer to question A is "no", was the plaintiff entitled to be paid his retained profit share allocation which had not vested to him as at 4 December 2008?
(C) As a matter of construction, does Macquarie's ESOP, containing the words "... each Option also lapses ... if the relevant Executive ... ceases to be an Employee or Consultant of the MBL Group before the Option has vested", result in the lapsing of the plaintiff's Options in circumstances where the plaintiff's employment was terminated by Macquarie?
(D) If the answer to question C is "no", do the plaintiff's unvested and unexercised Options as at 4 December 2008 continue to vest and continue to be exercisable until the fifth anniversary of the date of their grant?
The primary judge answered the construction questions as follows:-
(A) Yes.
(B) Does not arise.
(C) Yes.
(D) Does not arise.
The concurrent proceedings before this court raise the question of the correctness of the answers given to the first two questions. There is no longer any issue between the parties in relation to answers (C) and (D).
Mr Byrne's employment with Macquarie Bank Limited
In 2001, Mr Byrne commenced working with Macquarie Bank Limited. From time to time thereafter, on an annual basis, he was remunerated by reference to a basic salary figure, together with an allocation of profit share, and, at a later stage, provision was made for the issue of options as part of his remuneration package.
On 22 nd December 2005, Mr Byrne accepted a written offer from Macquarie Bank Limited to undertake permanent employment in a managerial role within the Equity Markets Group. The remuneration package agreed to between the parties included: salary, superannuation, share options and discretionary profit share bonuses. The "Australian Annexure" to the employment contract contained detailed stipulations for "leaving the employer", including termination with notice (by either the employer or employee) and termination without notice (by the employer), generally on grounds of misconduct. The annexure contained the following clause:-
Discretionary Profit Share
In addition to your remuneration, a profit share bonus may be allocated to you in recognition of your contribution to the Employer for the financial year to 31 st March. Profit share bonuses are completely discretionary and will not be included in the calculation of any termination payments including payments in lieu of notice and payments in lieu of accrued but untaken leave.
While you may receive a profit share bonus in one financial year, you will not necessarily receive the profit share bonus in any subsequent year. All profit share monies will be allocated in instalments in accordance with the Profit Share and Profit Share Retention policies.
The Employer reserves the right to terminate or vary the terms of any profit sharing or bonus scheme, including, without limitation, this profit share bonus scheme, at its absolute discretion.The Profit Share policy (posted on Macquarie Bank Limited's intranet, 'Macnet') in 2005 contained the following:-
Profit Share Retention Policy
In order to assist in retaining its high performing employees, the Bank may retain a portion of allocated profit share. The Bank's retention rules will be applied to all profit share allocations prior to funds being available for election to other investment products or schemes. The current retention polices apply to 2005 profit share allocations onwards.
For all employees allocated up to A$50,000, profit share is not subject to retention.
For any profit share allocation greater than A$50,000, 25% of the excess above A$50,000 will be retained. The retained profit share will be paid in three equal instalments 2, 3 and 4 years from the retention date. Interest is paid on retained profit share.
More generous retention arrangements apply to employees who have been eligible for seven or more profit share allocations, where the minimum threshold for retention is A$200,000. For allocations up to A$200,000, there will be no retention. The retention will be 25% of the excess above A$200,000 and will be paid in three equal instalments 2, 3 and 4 years from the retention date.The policy document then gives details of the way the calculations work for particular categories of employee. The document continues:-
Payment of Retained Profit Share
Retained profit share plus interest that is vested and is payable to you will be notified on your remuneration review memo that you will see in mid May. It will be paid at the same time as your current year available profit share allocation and will be paid in the same currency as your available profit share for the current year it is paid.
...
Ceasing Employment with the Bank
If you cease employment with the Bank, any retained profit share allocation that has not vested to you will be forfeited.
Death or Total and Permanent Disability
In the case of the death of an employee or that employee's Total and Permanent Disability (TPB), the retained profit share allocation will vest to the employee or their estate.Mr Byrne continued to work for Macquarie Bank Limited in Australia until late June 2006. A good illustration of the way in which the allocation and retention of profit share instalments worked can be seen in the Memorandum addressed to him dated 16 th May 2006. I shall set out the relevant parts of that document:-
Remuneration
As a result of your remuneration review, I advise that your BCR, effective 1 st July 2006, in the role of Associate Director, will be $160,000 per annum.
Profit Share
I am pleased to advise that the Bank has made a discretionary allocation of Profit Share to you out of the 2006 Profit Share pool, which will be credited to your BCR in four instalments (unless you elect otherwise). This amount is inclusive of the applicable on costs which are associated with the total cost of your employment.
| Total 2006 Profit Share allocation | $260,000.00 |
| less 2006 Profit Share to be credited in June 2008* | $ 17,500.00 |
| less 2006 Profit Share to be credited in June 2009* | $ 17,500.00 |
| less 2006 Profit Share to be credited in June 2010* | $ 17,500.00 |
| Total available Profit Share to be credited to BCR on 23 June 2006 | $207,500.00 |
* The Bank's policy is to retain 25% of Profit Share in excess of A$50,000 which is released in three equal instalments in the 2 nd , 3 rd and 4 th years after allocation subject to you remaining employed on the crystallisation date for each respective year. Please refer to Macnet for further details of the retention policy.
(BCR stands for "Basic Costs Responsibility", and is, in effect, an employee's total salary package).
The Memorandum further stipulated that:-
Profit share allocations are conditional, including the requirement that you remain employed with the Bank up to and including the relevant crystallisation dates. The crystallisation date for this year is 16 th June 2006.
On 7 th July 2006, Mr Byrne accepted an offer from Macquarie Bank Limited to take up an assignment in Hong Kong. This was expected to be for a period of up to 24 months, the offer contained details of remuneration and benefits, including entitlement to share options and allocation of profit share. Mr Byrne's new position in Hong Kong was that of Associate Director, Equity Derivatives Trade.
Mr Byrne's profit share allocation for 2007 was A$75,000 plus HK$2,364,488. This reflected time worked in both Sydney and Hong Kong for the years 2006/2007. His salary was increased to HK$1,350,000.
On 26 th October 2007, Mr Byrne was notified by a letter from the Managing Director, Macquarie Group of companies, that his employment arrangements were to be varied. The effect of this letter was to terminate the old contract and to replace it with a new one. The letter stated:-
I am writing to you because the business area in which you are employed in Australia will transfer to the non-banking group. Accordingly, I confirm that with effect from 1 st December 2007 you will cease to be employed by Macquarie Bank Limited (MBL) and will become employed by Macquarie Group Services Australia Pty Ltd (MGSA) another company within the Macquarie Group.
Your terms and conditions of employment (including any post-employment restraints) will continue in accordance with your current employment documentation, including your letter of offer and employment agreement, as if they had originally been entered into between you and MGSA. There will be no changes to the Macquarie Group's obligations to you, or to your duties to the Macquarie Group. There will be no change to your salary and MGSA will recognise your previous service with MBL. Your international assignment in Hong King will continue on its existing terms - it is only your employment in Australia that is varied by the transfer.
There will also be no material changes to the profit share and director's profit share (DPS) schemes for employees who are currently eligible to participate in these schemes. The administration of the profit share and DPS schemes, as well as any retained profit share and DPS, accrued leave and any BCR balance (Relevant Benefits) will transfer to MGSA.The letter from Allan Moss indicated that there was no need for Mr Byrne to sign any new employment agreements. His attendance for work and performance of his duties on or after 1 st December 2007 would be taken to indicate his consent to the arrangements stipulated in the letter.
Macquarie Bank Limited had always reserved to itself the right to change its Profit Share and Profit Share Retention policies with or without notice, at its discretion. The precise form of the Profit Share Retention policy applicable to Mr Byrne at the time of his termination of employment (and hence applicable to his employment with Macquarie, pursuant to the October 2007 arrangements) was relevantly as follows:-
Non-Executive Director profit share retention policy (excluding Canada)
In order to assist in retaining its high performance employees, Macquarie will retain a portion of allocated profit share. Macquarie's retention rules will be applied to all profit share allocations prior to the funds being available for election to other investment products or schemes. The current retention policies apply to 2007 profit share allocations onwards. Please see 'Local Policies' for the Canadian Retention rules.
For all employees allocated up to $A50,000, profit share is not subject to retention.
For any profit share allocation greater than $A50,000, 25 percent of the excess above $A50,000 is retained. A de minimus threshold also applies. If the calculated retention is less than $A10,000, no amount will be retained. The retained profit share will be paid in three equal instalments, two, three and four years from the retention date. Notional interest is paid on retained profit share.
More generous retention arrangements apply to employees who have been eligible for seven or more profit share allocations, where the minimum threshold for retention is $A200,000. In these cases, for allocations up to $200,000, there will be no retention. The retention will be 25 percent of the excess above $A200,000. A de minimus threshold also applies. If the calculated retention is less than $A10,000, no amount will be retained. The retained profit share will be paid in three equal instalments, two, three and four years from the retention date.
Profit share retention and vesting rules
...
All retention monies are held by Macquarie in the profit share source currency.
Notional interest will be accrued on any retained profit share. It is based on a one year guaranteed cash rate, and the actual rate will depend on the currency in which the finds are held. When retained profit share vests, it will include this notional interest.
Payment of retained profit share
Retained profit share plus notional interest that has vested and is payable will be notified on the employee's remuneration review memorandum that will be received early May. It will be paid on the payment date of the source country and will be in the currency of the source country.
For example, an employee was formerly employed in the UK and had retention withheld in GBP. They now work in the US and will have available current year profit share paid to them in US dollars. For the current year profit share allocation the current year available profit share allocation will be paid in USD, and the release of the UK retention will be paid in GBP.
Note Australian-sourced retained profit share will be credited to the employee's BCR unless they elect otherwise.
Ceasing employment
If the employee ceases employment with Macquarie, any retained profit share allocation that has not vested to them will be forfeited.
Total and Permanent Disability (Australia only)
In the case of the death of an employee or that employee's Total and Permanent Disability (TPD), the retained profit share allocation will vest to the employee or their estate.
For Australian based employees, the definition of TPD is as per the AMP superannuation fund definition. Refer to the AMP Employee Information Guide on Macnet.
If you have any questions regarding these definitions, contact your local Human Resources manager.
NOTE:
Profit Share and Profit Share Retention policies can be changed with or without notice at the Macquarie's discretion.
The Retention policy included tables showing the manner in which the profit share retention and vesting rules operated. It included examples as well showing, in a practical way, the working of the policy. There were other details as well, not relevant for present purposes.
On 1 st July 2008, Mr Byrne's salary was increased to HK$1,400,000. He was also awarded a profit share allocation for 2008 of HK$15,1074,700 with the retention of 25% to become available in each of the years 2010, 2011 and 2012. The 2008 remuneration review (which was dated 6 th May 2008) contained a footnote which stated:-
Profit share allocations are conditional, including the requirement that you remain employed at Macquarie, up to and including the relevant crystallisation dates.
The review also contained the following in relation to Mr Byrne's service in Australia:-
2008 profit share to become available May 2008: Nil
2008 VESTING PROFIT SHARE
Amount in respect of 2004 retention including notional interest: 0
Amount in respect of 2005 retention including notional interest: A$11,230
Amount in respect of 2006 retention including notional interest: A$24,156
Total available profit share to become available in May 2008: A$35,386.
(The footnote to which I have made earlier reference was repeated on this page of the remuneration review).
On 7 th November 2008, Macquarie terminated Mr Byrne's employment, effective from 4 th December 2008. Relevantly, that letter read:-
Dear Maghnus,
I refer to your various meetings with Kieran Moffat and/or Peter Alderson on Thursday 30 October 2008, Monday 3 November 2008 and again on Thursday 6 November 2008, during which they discussed with you a number of serous concerns relevant to your performance.
These concerns more specifically relate to the significant losses in your books over the past two months, the general strategy behind some of these positions and not consistently marking your positions to market.
Over the past three months, there has been a general and repeated directive to the trading desk to reduce risk in the trading books given the increased uncertainty and volatility in the markets. We are not satisfied you have done this.
You were given an opportunity to provide a response to MSG's concerns and advised that Macquarie would consider your responses, and until that time you would be on leave from the office.
After having considered your responses and reviewing all of the circumstances we advise that your responses do not satisfy Macquarie's concerns. As a result this has led to a loss of trust and confidence in you by Macquarie.
I therefore advise that in accordance with your employment agreement and your International Assignment letter, Macquarie is providing you with four weeks' notice from today that your International Assignment to Macquarie Services (Hong Kong) Limited and your employment with Macquarie Group Services Australia Pty Limited will both cease on 4 December 2008. During this notice period you are not required to attend work or undertake any work for Macquarie, including contacting clients.On 21 st November 2008, Mr Byrne wrote to Macquarie, referring to his "entitlement" to sums that Macquarie had retained over the years in the form of retained profit share, as well as company share options, which he claimed had been granted to him as a result of promotion and excellent performance. On 12 th December 2008, Macquarie replied to Mr Byrne. It stated its position as follows:-
As stated in your employment documentation, which you signed in December 2005, "all Profit Share monies will be allocated in instalments in accordance with the Profit Share and Profit Share Retention policies". The Profit Share Retention policy provides that "if the employee ceases employment with Macquarie any retained profit share allocation that has not vested to them will be forfeited." This policy is available on Macnet and a copy of the policy was provided to you on or about 18 November 2008 ...
As you may know, forfeiture rules also apply to Macquarie Group Limited options pursuant to the option plan rules ... All unvested options lapse immediately on termination of employment and any vested options can be exercised within six months of the effective date of termination of employment subject to the Staff Dealing Rules.
As a result, your retained profit share and unvested options will be forfeited following the termination of your employment.
Mr Byrne brings proceedings against Macquarie
The nature of the proceedings brought by Mr Byrne against Macquarie, and the questions that arose for decision, are succinctly stated by the primary judge at pages 7 and 8 of his decision dated 7 th May 2010:-
[21] Mr Byrne says that before 30 October 2008 Macquarie did not give him any prior notification that his employment might be terminated or give him an opportunity to respond to reasons relied on by Macquarie or provide an opportunity to remedy any alleged deficiencies or to investigate the alleged deficiencies.
[22] In substance, Mr Byrne says that the true meaning and effect of the employment contract is that retained profit share allocations were only forfeited, and the vested or unvested share options only lapsed, if the employee actively initiated cessation of employment with Macquarie, for example, in the form of a voluntary resignation. He says that under the Employment Agreement the retained profit share allocations and the share options have not been forfeited and did not lapse upon the termination by Macquarie of the employee's employment whether for cause, or without cause. He says that in breach of the employment contract Macquarie has refused to pay or acknowledge liability to pay him an amount equal to his retained profit share allocations as at 4 December 2008, despite due demand having been made by him...
[23] In the alternative Mr Byrne seeks to rely on s 7 of the Contracts Review Act 1980 (NSW) ("Contracts Review Act") and alleges that if on its true construction the agreement operates to cause forfeiture of the retained profit allocation or lapse of the share options then the employment contract is unfair, unjust and unconscionable, and that he has suffered an unjust consequence or result. On this ground Mr Byrne says that he is entitled to an order for payment consequent on variation of the employment contract pursuant to s 8 of the Contracts Review Act.
[24] Accordingly, the substantive issue between the parties is whether, on the true construction of the employment contract, the ESOP and the Profit Share Retention Policy, Mr Byrne is entitled to retained profits and unvested options in circumstances where his employment is "ceased" by Macquarie.The primary judge, in the ultimate, did not accept the construction advanced by Mr Byrne. His Honour preferred the construction of the arrangements between the parties that had been advanced by Macquarie. Relevantly, for the issues presently involved in this appeal, the primary judge held that the words in the profit share retention policy "if the employee ceases employment with Macquarie any retained profit share allocation that has not vested in them will be forfeited" authorised a forfeiture of Mr Byrne's retained profit share allocation in circumstances where his employment had been terminated by Macquarie.
The issue for this court is whether the primary judge was correct in answering question (A) "yes".
Mr Byrne's arguments on appeal
Mr Bret Walker SC and Mr Ventry Gray appeared for Mr Byrne on the appeal. Although the Notice of Appeal listed nineteen different grounds, it was agreed that they could be summarised under the following five brief headings:-
1) The primary judge's construction of the relevant phrase in the Retention Policy was wrong as a matter of language, grammar and syntax;
2) The primary judge misapprehended the object of the purpose of the Retention Policy and preferred a construction of the relevant phrase that was commercially unreasonable, unfair and unjust, and contrary to decided cases;
3) The primary judge erred in admitting into evidence various post-contractual documents which he considered gave support to his construction of the relevant phrase in the Retention Policy;
4) The primary judge erred in finding that the "Death or Total and Permanent Disability" provision of the Retention Policy was inconsistent with his construction of the relevant phrase; and
5) Finally, on the assumption that the relevant phrase was ambiguous, the primary judge erred in failing to construe it contra proferentem , that is, against the opponent.
Arguments on behalf of Macquarie
Mr Jackman SC and Mr A B Gotting appeared for Macquarie. Their arguments generally supported the reasoning contained in the primary judge's decision. In particular, Mr Jackman emphasised the following four broad points:-
First, that the relevant phrase, in isolation, was neutral as to the person who was contemplated as initiating the outcome. It was simply a reference to a status rather than a causal examination requiring identification of the initiating party.
Secondly, when regard was had to the relevant phrase in the context of the policy document as a whole, there was little, if any, support for the construction advocated on Mr Byrne's behalf.
Thirdly, other provisions in the contract of employment supported Macquarie's construction of the relevant phrase. Reference was made to the option plan, the restraint of trade clauses and the various provisions for termination in various parts of the contractual documentation.
Fourthly, a number of pre-contractual statements in the documentation between the parties were said to provide assistance as to the prior awareness of the parties and demonstrated that there was no ambiguity involved. Reference was made to the remuneration notices in 2006 and 2007.
Overall, Mr Jackman submitted that none of the case law relied on by Mr Walker provided any assistance in relation to the construction point.
Resolution of the issue
The resolution of the issue in this matter does not require any analysis of, or dissertation upon, the legal principles involved in the interpretation of business contracts. None of the submissions of the parties raised any controversy or doubt about those principles. For that reason I will not add to the comprehensive and exhaustive analysis of the authorities already undertaken in recent times by members of this court (see, for example, Frankins Pty Ltd v Metcash [2009] NSWCA 407; 264 ALR 15 per Allsop P [1] - [24], per Campbell JA [239] - [292]; The Movie Network Channels Pty Ltd v Optus Vision Pty Ltd [2010] NSWCA 111 per Macfarlan JA at [97] - [106]; QBE Insurance Australia Ltd v Vasic [2010] NSWCA 166; 16 ANZ Ins Cas 61-851 per Allsop P [28] - [35]; and extra-curially, Spigelman CJ, 'From text to context: Contemporary contractual interpretation' (2007) 81 ALJ 322). I will simply restrict myself to the following brief statements which, to my mind, encompass the principles most directly connected with the interpretation of the business contract in the present matter. The references to authorities are not intended to be exhaustive.
(a) The interpretation of a commercial contract requires that a business-like interpretation be given. Attention is to be given to the language used by the parties, the commercial circumstances which the agreement addresses, and the objects it is intended to secure ( McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) CLR 579 at 589 [22] per Gleeson CJ; International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 at 160 [8] per Gleeson CJ)
(b) The interpretation of a commercial contract is to be determined by what a reasonable person in the position of the parties would have understood it to mean in the circumstances and context in question. The post-contract conduct of the parties cannot be used as an aid in the interpretation of their agreement ( Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451 at 461 - 462 [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 at 179 - 181 [40] - [46]; Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; 238 CLR 570 at 582 [35]).
I now turn to the text of the Share Retention Policy. The relevant phrase is:-
If the employee ceases employment with Macquarie, any retained profit share allocation that is not vested to them will be forfeited.
It is to be noted at the outset that there is no grammatical agreement between the singular word "employee" and the plural "to them" appearing in the last section of the sentence. This piece of ungrammatical clumsiness has no bearing, however, on the construction of the phrase for present purposes. It is probably no more than an endeavour to avoid gender inequality.
The textual argument suggested on Mr Byrne's behalf, that the verb in the relevant phrase - "if the employee ceases employment with Macquarie" - is transitive, that is, it transfers the action from the subject (the employee) to the object (employment). If this be the case, so the argument runs, it lends support to the construction that the phrase is only concerned with the situation where the employment was terminated by the employee. It is not concerned with the situation where the employment is terminated by the employer. In the latter case, there will be no forfeiture.
The first response to this argument is that, before a verb can be seen to be transitive, the rules of grammar require that the entire sentence structure be scanned. When that is done in the present case, and an endeavour is made to understand the entire meaning of the sentence, the position is not necessarily as suggested by Mr Walker's argument. Indeed, to conclude that the verb "ceases" is transitive, with the word "employment" as its object, merely begs the question.
Secondly, a more natural meaning that is suggested by the sentence, read as a whole, is that it simply means, "if the employment ceases". That is the meaning that was attributed to the phrase by the primary judge. Again, more naturally, it may mean "if an employee ceases to be employed with Macquarie". The heading above the sentence in which the phrase appears does not assist Mr Walker's argument. The expression "ceasing employment" may be described, in grammatical terms, as a compound verb (where each of the two words perform together the function of a verb) or, perhaps more accurately, as a gerund where it functions as a noun.
Indeed, to regard the word "ceases" as a transitive verb in the sentence under discussion (as suggested on Mr Byrne's behalf) is to give a strained meaning both to the phrase and to the sentence in which it appears, one not consistent with ordinary everyday usage. During argument, it was suggested that, if Mr Byrne were asked in the course of a hypothetical discussion, "When did you cease employment with Macquarie?" he would not be expected to reply, "I did not cease employment with Macquarie, they terminated my services".
Mr Walker fairly acknowledged the point being made, although he cautioned against testing the meaning of the relevant phrase by reference to dinner-party or casual conversation. However, Mr Walker conceded that it was not possible to depend wholly on the grammatical construction argument. Senior counsel submitted that the other arguments on which he placed reliance gave weight to the syntactical argument, whatever its shortcomings in absolute terms.
It might also be observed that the claim that "ceases" is a transitive verb, directly transferring the action from the employee to the "employment", has a somewhat Elizabethan ring to it, rather well removed from the contemporary way in which the phrase would be used and understood by business people in discussions concerning their relationship. In my opinion, the more natural meaning of the relevant phrase, in its immediate context, is that it is describing a status, namely, the coming to an end of a bilateral relationship. It is not concerned to identify the terminating party or the circumstances leading to the cessation of the relationship.
It is appropriate at this point to mention a case relied on in the written submissions filed on behalf of Mr Byrne. This was a decision that had been examined by the primary judge and found to be of little assistance. In General Surgery PA v Suppes 24 Kan App 2d 753 (1998), the Kansas Court of Appeal affirmed the trial court's finding that a relevantly identical provision - "should (the employee) cease employment" - applied only when the employee (Dr Suppes) terminated the employment relationship. The words did not apply, it was held, when the employer was the party ending the employment relationship.
In that case, the employer, General Surgery, had ended the employment relationship by giving Dr Suppes 30 days written notice of termination of her employment. She subsequently commenced medical practice in the city of Lawrence, whereupon General Surgery sued her for breach of the following provision of the employment contract: "The doctor agrees that should she cease employment with General Surgery then she will not engage in the practice of medicine within 25 miles of the city limits of the City of Lawrence, Kansas for a period of two years."
In affirming the dismissal of General Surgery's claim, the Kansas Court of Appeal stated:-
As a transitive verb, cease means "to bring an activity or action to an end: discontinue" (Webster's Ninth New Collegiate Dictionary 218 (1989)).
The trial court gave the word a precise meaning based on the subject "she" and the direct object "employment". The syntax indicates the verb is being used transitively, with Dr Suppes as the only subject. The non-competition clause therefore would operate only in the event that Dr Suppes were the agent bringing about the end of employment. Applying the Webster's definition, the contract would read: "The doctor agrees that should she bring her employment to an end". The trial court reasoned that this situation is different from "should either party cease employment" or "should her employment cease"... We note this is a logical interpretation. It provides that if Dr Suppes ends the relationship, she may not continue to practice in the area. If she does not end the relationship, she is not compelled to practice elsewhere.Mr Walker argued that the contractual provision in Suppes was precisely the same as that involved in the present matter. He argued that the primary judge should have accepted the value of the decision of the Kansas Court of Appeal, and concluded that the relevant phrase operated only when the employee was "the agent bringing about the end of his employment".
Mr Jackman argued, however, Suppes was not on all fours with the present case. The decision there involved the construction of a restraint of trade (and not a profit scheme). Senior counsel submitted that the nature of the restraint was essential to the reasoning of the court. There were no surrounding circumstances of the kind in the present case (including the 2006 and 2007 remuneration reviews).
It may be said with some certainty that, as the primary judge found, the contractual context in Suppes was rather different to that involved in the present matter. More significantly, in my view, the reasoning of the Kansas Court of Appeal in Suppes is not, by any means, compelling. The court there simply asserted that the verb "ceases" was being used transitively, and said this, without more, was determinative of the issue before it. No reasoning was given to support the conclusion. I do not accept that the Kansas case is of any real assistance in the present matter.
I am, in the end, persuaded by Mr Jackman's submission, that the relevant phrase in the particular sentence is simply neutral as to who is to initiate the outcome of the cessation of the employment. It is, as senior counsel submitted, a reference to a resultant status. One would ask, "has the employee ceased employment?" If the answer is that the bilateral relationship between the employer and the employee has come to an end (no matter who initiated the cessation), the consequences stipulated in the sentence come into play.
That this is the position is, I think, made more certain when one has regard to a number of the situations arising from, and contemplated by, the Profit Share Retention policy.
It is true, of course, as Mr Walker strongly submitted, that a purpose, perhaps a primary purpose, of the policy is that it is, as expressed:-
In order to assist in retaining its high performance employees.
There is more, however, to it than that. For example, it is clear that in the case of the death of an employee, or that employee's Total and Permanent Disability, the retained profit share allocation "will vest to the employee or their estate" (note, once again, the use of the plural "their"!).
In the case of TPD, it would be anticipated, as a general matter, that the employer would ordinarily terminate the employment. If Mr Walker's construction were correct, there would be no need for this contractual stipulation, because any retained profit share allocation would not be forfeited and would, in due course, vest. The context of this contractual stipulation suggests that care has been taken to ensure that the "ceasing employment" stipulation (where the employer has terminated the employment) does not operate to the disadvantage of the disabled ex-employee. It is an exception to the general situation contemplated by the language of the policy, namely that cessation of employment (whoever initiated it) prior to vesting will lead to forfeiture.
A second textual argument relied upon by Mr Jackman concerned the opening phrase in the Retention Policy, "in order to assist in retaining its high performing employees, the bank may retain a portion of allocated profit share. Mr Jackman submitted that "retaining" is a continuous activity, and thus an employee should count as a "high performing employee" throughout the period of retention. If a person ceases to be a high performing employee, and hence not one that the bank wants assistance in retaining, the purpose of retaining the portion of allocated profit share (for that employee to receive later) has gone. In my opinion, this argument provides further support for the construction urged by Mr Jackman. When the purpose of retaining the profit share allocation for later payment to the employee has gone, it is a consistent consequence that the retained profit share is to be forfeited if the employee ceases being employed because his services have been terminated by notice.
There is a further matter, not arising from the precise terms of the policy, that may properly be regarded as a relevant contextual matter. Before the primary judge, it had been accepted on Mr Byrne's behalf that the retention allocation would be forfeited in the event that the employer (for proper cause) terminated the employment before vesting. This meant that, for example, where an employee had been guilty of fraud, forfeiture would occur in a situation where cessation occurred at the behest of the employer.
That being the agreed situation between the parties, it would be a very odd result, in terms of construction, if, by contrast, termination by four weeks notice (in a situation where no wrongdoing was involved) prohibited forfeiture where the notice had been given by the employer. This, in my view, is a powerful reason for rejecting the construction urged on Mr Byrne's behalf.
Mr Walker put his primary submission in this area as follows: is an earned share from past accomplishments to be lost in the future by an event which has nothing to do with the recognition of those past accomplishments? With that question in mind, senior counsel asked, how would the construction urged on Macquarie's behalf fulfil the stipulated aim of assisting Macquarie in "retaining its high performance employees"? Mr Walker suggested that Macquarie's construction of the relevant phrase would have the opposite effect. It would lead to, senior counsel argued, highly qualified employees seeking greener pastures. The simple answer, I think, is that the Profit Share Retention policy exists to assist the employer in the retention of its high performance employees, by discouraging them from terminating their employment and thereby forfeiting their retained profit share allocations. They may forfeit those allocations as a result of the employer terminating the employment but the encouragement of them not to terminate the employment themselves remains.
For the foregoing reasons, I am satisfied that the primary judge was correct in the construction he gave to the relevant phrase in the Profit Share Retention policy. The grammatical construction of the phrase, in the light of the overall context of other matters in the policy, and the need to give a consistent and business-like interpretation to the Profit Retention arrangement between the parties, leads me to this conclusion. There is no occasion to rely on the contra proferentem rule. Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28; 217 CLR 424 does not stand for a general proposition that all contracts must be construed contra proferentem in the case of ambiguity. Rather, the reasoning in it is closely confined to contracts of guarantee and indemnity. The rule is one of last resort ( North v Marina [2003] NSWSC 64; 11 BPR 21359 per Campbell JA; World's Best Holdings Ltd v Sarker [2010] NSWCA 24 at [22] per Handley AJA; Batterham v Makeig [2010] NSWCA 86 at [36] per Young JA). In the present case, where the application of proper principles of construction yields a preferable and satisfactory meaning, there is no need to use the contra proferentem rule at all.
I am not, however, attracted to Mr Jackman's remaining two arguments. The first of those related to the stipulations in the option plan, the restraint of trade clauses and the termination clauses generally. While it is true that each of those stipulations recognise that, in certain situations, the employer may terminate employment with consequences for other benefits, I do not see that those other provisions in the wider contractual relationships between the party have any real bearing on the interpretation of the relevant phrase in the Profit Share Retention policy that is at the heart of this appeal. At best, it should be said that they give little guidance, one way or the other, as to the meaning of the relevant phrase. At worst, they distract from the actual words used in the Retention Policy.
The so-called pre-contractual statements and their contents do not have the value argued for by Mr Jackman, in my opinion. This is because, although a new contract was entered into on 26 th October 2007, the terms and conditions of the employment were already determined by Mr Byrne's current employment documentation in force prior to the new contract. In particular, there was to be no material change to the profit share arrangement, including the arrangements as to any retained profit share. In those circumstances, the 2006/2007 remuneration notices are not properly to be seen as statements capable of contradicting, in their terms, remuneration matters previously agreed to between the parties. They were post, not pre, contractual statements. Thus, for example, the footnotes in the remuneration notices upon which Mr Jackman placed reliance could not, in my opinion, be used to contradict the remuneration terms already agreed to between the parties. The footnotes could not alter the terms of the Retention Policy. In that regard, the primary judge may have been wrong in placing reliance on this post contractual material, but even so, leaving it out of consideration, he was otherwise correct in the conclusion he reached.
For the reasons stated earlier, I have concluded that the answer given by Tamberlin AJ to question (1) was correct and that the appeal must fail.
I propose the following orders:
(1) Leave to appeal be granted
(2) Appeal dismissed
(3) The applicant to pay the respondent's costs of the leave application and the appeal.
**********
8
8
1