Downer EDI Ltd v Gillies

The dispute in *Downer EDI Ltd v Gillies* concerned the entitlement of a former chief executive officer, Mr Gillies, to certain termination payments under his employment contract, following the termination of his employment by Downer EDI Ltd. The Court of Appeal of New South Wales was required to determine whether Mr Gillies was entitled to these payments, specifically accrued bonuses, despite the subsequent discovery of serious misconduct on his part.

The central legal issues before the Court of Appeal were whether the principle established in *Shepherd v Felt and Textiles of Australia Ltd* applied to disentitle Mr Gillies to his accrued bonus payments, and whether the conduct of Mr Gillies and others in relation to certain payments from a bonus pool and company treasury facility constituted misconduct that would forfeit his entitlement to termination benefits. The Court also considered the nature of the duties owed by Mr Gillies as CEO and the implications of certain financial transactions for his contractual entitlements.

The Court of Appeal allowed the appeal in part, setting aside the orders of the Supreme Court. The Court reasoned that while Mr Gillies and others acted honestly and there was no overall net loss to the company, the company was exposed to risks of regulatory or taxation irregularities due to payments not being declared as related party loans and tax not being withheld. The Court applied the principle from *Shepherd v Felt and Textiles of Australia Ltd*, which suggests that an employee's entitlement to accrued benefits may be forfeited if they engage in serious misconduct that harms the employer, even if the misconduct is discovered after termination. The Court found that the conduct in question, while not causing direct financial loss, did expose the company to significant risk, and therefore, the accrued bonus payments were not payable. The Court ordered that the parties file agreed orders or draft short minutes and submissions within 14 days to dispose of the appeal, including as to costs.