Encyclopaedia Britannica Australia Ltd v Campbell

[2009] NSWCA 286

New South Wales

Court of Appeal

CITATION:	Encyclopaedia Britannica Australia Ltd v David Campbell [2009] NSWCA 286
HEARING DATE(S):	24 August 2009
JUDGMENT DATE:	10 September 2009
JUDGMENT OF:	Giles JA at 1; Macfarlan JA at 2; Sackville AJA at 3
DECISION:	1) Appeal allowed. 2) Set aside orders 1 to 4 made on 14 November 2008 and entered on 9 February 2009. 3) In lieu of the orders referred to in order 2 above, order that judgment be entered for the appellant (the defendant below). 4) Order the respondent to repay to the appellant the sum of $150,650.18 paid by it to the respondent pursuant to the orders made on 14 November 2008, together with interest thereon at the rates specified from time to time in Schedule 5 to the UCPR from 12 December 2008 to the date of repayment. 5) Direct the appellant to file within seven days an amended notice of appeal seeking restitution of the sum referred to in Order 4 and interest thereon. 6) The appellants file and serve written submissions on the costs of the trial and of the appeal within seven days. 7) The respondent file and serve written submissions in reply within a further seven days.
CATCHWORDS:	EMPLOYMENT LAW- contract of employment- period of notice required in termination of employment- whether in "event of redundancy"
LEGISLATION CITED:	Supreme Court Act 1970 (NSW) s75A Uniform Civil Procedure Rules 2005 (NSW) rr 51.52(3), 51.54; Schedule 5
CATEGORY:	Principal judgment
CASES CITED:	Amcor Ltd v Construction, Forestry, Mining and Energy Union [2005] HCA 10; 222 CLR 241 Concut Pty Ltd v Worrell [2000] HCA 64; 176 ALR 693 Dibb v Commissioner of Taxation [2004] FCAFC 126; 136 FCR 388 Federal Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd [2008] HCA 35; 201 CLR 520 Heydon v NRMA (No 2) [2001] NSWCA 445; 53 NSWLR 600 Jones v Department of Energy and Minerals [1995] IRCA 292; 60 IR 304 Pacific Carriers Ltd v BNP Paripas [2004] HCA 35; 218 CLR 451 Toll FGCT Pty Ltd v Alphapharm Pty Ltd [2004] HCA 32;219 CLR 165 R v Industrial Commission (SA); Ex Parte Adelaide Milk Supply Co-operative Ltd (1977) 16 SASR 6 Short v F W Hercus Pty Ltd [1993] FCA 51; 40 FCR 511 Tallerman and Co Pty Ltd v Nathan's Merchandise (Vic) Pty Ltd [1957] HCA 10; 98 CLR 93 TCN Channel 9 v Antoniadis (No 2) [1999] NSWCA 104 Willis v Health Communications Network Ltd [207] NSWCA 313
PARTIES:	Encyclopaedia Britannica Australia Ltd (Appellant) David Campbell (Respondent)
FILE NUMBER(S):	CA CA 40420/08
COUNSEL:	T Hale SC/ P Sibtain (Appellant) A McInerney (Respondent)
SOLICITORS:	Unsworth Legal (Appellant) Carneys Lawyers (Respondent)
LOWER COURT JURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):	5617/06
LOWER COURT JUDICIAL OFFICER:	Bergin CJ in Eq
LOWER COURT DATE OF DECISION:	11 November 2008
LOWER COURT MEDIUM NEUTRAL CITATION:	Campbell v Encyclopaedia Britannica Australia Ltd [2008] NSWSC 1178

CA 40420 of 2008

GILES JA
MACFARLAN JA
SACKVILLE AJA

10 September 2009

ENCYCLOPAEDIA BRITANNICA AUSTRALIA LTD v CAMPBELL

Judgment

1 GILES JA: I agree with Sackville AJA.

2 MACFARLAN JA: I agree with Sackville AJA.

3 SACKVILLE AJA: The respondent (the plaintiff below) was employed by the appellant (the defendant below) in what the primary Judge described as the “dual role of General Manager/Managing Director … and Director–Sales Asia Pacific”. The appellant terminated the respondent’s employment in August 2006, after he had served for some six years in the dual role. The appellant acknowledged that the respondent was entitled to three months notice on termination of his employment. However, the respondent claimed that he was entitled to a substantially longer period of notice. He brought proceedings in the Supreme Court against the appellant claiming damages for breach of his contract of employment.

4 The primary Judge held that the respondent was contractually entitled to a payment equivalent to nine months salary upon termination of his employment. Since the appellant had paid the respondent only the equivalent of three months salary, her Honour awarded him damages equivalent to six months salary. On this basis, her Honour gave judgment in favour of the respondent for the sum of $125,338.64, together with interest on the judgment debt. The Court was informed that the appellant paid $150,650.18 to the respondent on 12 December 2008, pursuant to the orders made by the primary Judge.

5 The primary Judge upheld the respondent’s claim to damages on two independent bases. Her Honour held, first, that the contract of employment in force at the date of termination of the respondent’s employment incorporated an implied term that the appellant would give the respondent reasonable notice of termination, except in the case of misconduct or redundancy. Her Honour found that, in the circumstances, nine months was a reasonable period of notice.

6 Secondly, the primary Judge held that an express clause in the contract of employment which applied “in the event of a redundancy” entitled the respondent to a termination payment equivalent to nine months salary. In her Honour’s view, the duties associated with the respondent’s position had been reallocated and, accordingly, there had been an event of redundancy. Since the appellant declined to continue the respondent’s employment in a different role, he had become entitled to the “redundancy package” contemplated by his contract of employment.

7 The appellant challenges each of the bases for the orders made by the primary Judge. The appellant seeks orders setting aside the judgment of the primary Judge and in lieu thereof entering judgment for the appellant. The notice of appeal does not seek an order for restitution of moneys paid by it to the respondent pursuant to the orders made by the primary Judge: cf Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”), r 51/19 (requiring an appellant who seeks an order for restitution to include in the notice of appeal a claim for the order and the form of the order sought). However, the appellant foreshadowed at the hearing of the appeal that it would seek an order for reinstatement, including interest on the amount paid by it pursuant to the judgment.

BACKGROUND FACTS

8 Much of the evidence, documentary and oral, given at the trial was not in dispute. The following account is based on the findings made by the primary Judge and on uncontested documentary evidence.

9 The appellant is incorporated in Delaware in the United States of America and is registered as a foreign corporation in Australia. It is a subsidiary of another United States Corporation, Encyclopaedia Britannica Inc (“EBUSA”) which has headquarters in Chicago. At the relevant times, the appellant marketed products in print, electronic, online and video form.

June 1999 Letter

10 For some years prior to 1999, the respondent worked in the radio industry. On 6 April 1999, at the suggestion of Mr Neilson, then employed by the appellant as a sales consultant, the respondent took up casual employment with the appellant. By a letter dated 5 June 1999 (“June 1999 Letter”), the respondent was appointed to the permanent position of Business Development (Offline Sales), as from 6 April 1999.

11 The June 1999 Letter attached the respondent’s job description and set out in some detail his hours of work, holiday, sick pay and long service leave entitlements, as well as his duty of confidentiality. The June 1999 Letter also provided that the respondent’s salary was to be $90,000 per annum, with the opportunity to receive “an annual equivalent bonus” of $30,000 and a share of gross profits “above target revenues”. The respondent’s annual remuneration package was capped at $160,000.

12 The June 1999 Letter included the following provisions:

“ TERMINATION

1 Encyclopaedia Britannica may terminate your employment without notice in the event of misconduct by yourself in a serious or wilful manner in relation to the performance of your duties pursuant to your employment or if you conduct yourself in a manner which is inconsistent with the interests of Encyclopaedia Britannica. Encyclopaedia Britannica reserves the right to terminate your employment for any reason at common law.

2. Encyclopaedia Britannica may terminate your contract of employment at any time by giving you one (1) month’s notice . Encyclopaedia Britannica may pay you the equivalent amount of remuneration in lieu of notice.

3 You may terminate your contract at any time on one (1) month’s notice. Britannica may vary your duties for the duration of your notice period.
Your first 3 months will be regarded as probationary, during which time your employment can be terminated at two (2) weeks notice by either party.
VARIATIONS TO CONDITIONS OF EMPLOYMENT
Britannica reserves the right to alter the terms and conditions of employment as deemed necessary by the Managing Director. Any variation will be advised, in writing, one month prior to the change becoming effective.” (Emphasis added.)
March 2000 Letter and File Note

13 By a letter dated 13 March 2000 (“March 2000 Letter”), Mr Neilson (by now the appellant’s managing director) confirmed the respondent’s appointment to the position of Director, Sales–Asia Pacific. The March 2000 Letter revised the respondent’s annual salary package to include a “Base Salary” of $120,000, “Hold-back commission” of up to $40,000 and superannuation contributions of $16,000, but did not set out the respondent’s duties. However, it recorded that the respondent would be informed of his option entitlements under the employee share incentive scheme and of the details of the hold-back commission structure. The March 2000 Letter asked the respondent to note that:

“this letter forms an addendum to your original letter of employment”,

14 On the same day as the respondent received the March 2000 Letter, Mr Neilson gave him a copy of a file note which Mr Neilson had prepared. The file note was dated 13 March 2000 and read as follows:

“In accordance with your new position, the termination notice period is now extended from one (1) month to three (3) months notice on termination .” (Emphasis added.)

May 2000 Letter

15 In May 2000, approximately 35 of the appellant’s employees were made redundant and Mr Neilson tendered his resignation as Managing Director. Despite his resignation, Mr Neilson verbally advised the respondent that he was to be appointed to the position of General Manager of Britannica.com.au Limited, the appellant’s previous name. The respondent expressed concerns to Mr Neilson about his (the respondent’s) position for the future, particularly if the appellant intended to abolish further positions.

16 Mr Neilson wrote to the respondent on 16 May 2000 (“May 2000 Letter”) confirming his appointment as General Manager and informing the respondent that he would be answerable to Mr Mitchell Davis, a Senior Vice President in Chicago. The May 2000 Letter included the following:

“As mentioned at our earlier meeting, you will be responsible for the operation and restructure of the Sydney office. It will be necessary to recut the budgets to reflect the revised operation and get these signed off by Mitch. Mitch should also forward a job description and [Key Performance Indicators] in due course. Discussions regarding remuneration should also be directed to Mitch.
You have asked me to clarify the terms of your employment, specifically redundancy provisions. I am in a position to confirm that in the event of a redundancy you will be entitled to the following :
1. Three (3) months period of notice
2. Three (3) months redundancy payment
3. An additional payment equal to three (3) months salary paid as superannuation directly into your superannuation fund .” (Emphasis added.)

17 It appears that Mr Davis did not provide the job description as contemplated by the May 2000 Letter. However, the respondent was appointed a director of the appellant and was granted a general power of attorney to act on the appellant’s behalf. During the term of his employment, the respondent was referred to as the “Managing Director” of the appellant.

18 The primary Judge found (at [11]) that between May 2000 and August 2006, the respondent:

“performed what has been described as the ‘dual’ role of General Manager/Managing Director of the defendant and Director-Sales Asia Pacific. The plaintiff was responsible for: the Asian/Australian business which took in the sale of English language products in twenty countries in the Asia Pacific region; the management of thirteen staff in the defendant’s North Sydney office; and the management of four staff in Taipei.”

Her Honour also found (at [12]) that the respondent’s management duties included:

“personnel, human resources, overseeing of staff, liaising with the head office in Chicago, representing the defendant at industry functions, trade shows and book fairs and liaising with professional advisers. The [respondent’s] duties also involved managing sales representatives and distributors in the Asian region, business development, sales planning, researching industry trends and business opportunities, establishing business contacts and responding to direct enquiries from prospective customers.”

19 The respondent appointed Mr Buckle as the General Manager of Sales and Marketing. Mr Buckle, who eventually succeeded the respondent as Managing Director of the appellant, reported directly to the respondent.

20 At the end of each financial year, the respondent attended a meeting in Chicago with his immediate superior. From 2002 onwards, that person was Ms Mansoor, the Senior Vice-President in charge of International Operations.

21 A meeting took place between Ms Mansoor and the respondent in Chicago in November 2005. The respondent and Ms Mansoor, both of whom gave evidence in the proceedings, differed somewhat in their accounts of the meeting. Ms Mansoor said that she told the respondent and Mr Buckle (who also attended) that management was unhappy with the ongoing failure of the appellant to meet “budget numbers” and that unless performance improved both their positions were at risk. The respondent acknowledged that Ms Mansoor stressed the importance of achieving better results but denied that Ms Mansoor warned that his position was at risk.

22 The primary Judge appears to have accepted Ms Mansoor’s evidence that in June 2006, she made a decision that the respondent was not the right managing director for the appellant. She said this in her affidavit:

“I decided not to terminate David for cause for what was clearly a direct violation of [EBUSA’s] policy in a position of trust because I did not wish to shame him and affect his resume. I decided to take the termination road and not cause him personal embarrassment as gratitude to his overall service to [the appellant]. I made arrangements to travel to [the appellant’s] Sydney office to terminate David’s employment.

23 Ms Mansoor’s reference to a “direct violation of policy” was to the respondent’s alleged failure in 2001 to implement company policy relating to use of corporate credit cards. However, the primary Judge noted that there was no suggestion that any expenses incurred on corporate credit cards were other than appropriate business outgoings. Her Honour was not asked to make findings as to whether the respondent had in fact breached company policy as Ms Mansoor believed.

24 On 27 June 2006, Ms Mansoor wrote to EBUSA’s General Counsel and to its Chief Financial Officer as follows:

“I have decided in the past few days that we probably need to let David Campbell go. He is not a bad guy, but we discovered some inaccurate reporting that covered up slow sales and also recently discovered that 8-10 months after we cancelled all credit cards (5 years ago) a new cards (sic) was re-issued in [Australia] … The financial guy got a verbal instruction and was told that I approved it (which I never did).

Putting all the small issues aside – I just do not think that his performance in the past few years was good enough and he is not the managing director we should have in [Australia].

I asked for a copy of his agreement and I am concerned to discover the amazing compensation package (can it be 9 months?) in case of redundancy. I can understand a 3 months notice but the rest looks a bit excessive. Do you have a copy of his file as well as it was done before my time.

I do not wish to turn it into firing for cause although if needed, we can find something. I want it to be done peacefully but paying 9 months salary is a bit outrages ( sic ). What do you think?”

25 On 30 July 2006, Ms Mansoor wrote to the General Counsel to advise that she had told the respondent she was coming to Australia. Ms Mansoor asked the General Counsel to review the respondent’s claim (which the respondent had foreshadowed) that he would be entitled to an extra six months payment if Ms Mansoor terminated his employment with the appellant.

26 On 2 August 2006, Ms Mansoor arrived in Australia and met the respondent at her hotel. The primary Judge recorded the respondent’s evidence that a conversation took place to the following effect:

“[Ms Mansoor:] [EBUSA] has recently restructured some of its international operations and we’ve made some changes in the senior management in the UK, Korea and India. The company has taken the decision to change the management of the Sydney office. Accordingly I am here to terminate your position as MD Asia Pacific and I am also terminating your employment forthwith.
[The respondent]: This is obviously a shock would you like to tell me why.
[Ms Mansoor:] [The appellant] has decided it needs a new vision for the Australian operation”.

27 According to the respondent, Ms Mansoor also said at the meeting that there was no ulterior motive for his dismissal and that it was neither a cost cutting measure nor a redundancy. The respondent asked Ms Mansoor to bear in mind his knowledge of Asian markets and the role he could play in promoting sales in Asia. Ms Mansoor invited the respondent to put a proposal in writing.

28 Ms Mansoor then handed the respondent a letter headed “draft” which stated as follows:

“Your contract calls for 3 months notice period. To ensure your orderly departure, [the appellant] requires that from today and for the first 2 weeks of your notice period, you undertake [certain specified tasks].

Following the initial two weeks of the remainder of your notice, your service will only be required on call, to answer questions by telephone, or if requested, at [the appellant’s] premises.

For the avoidance of doubt, your position is not being made redundant.

At the end of your notice period, you will be entitled to the statutory long term service and vacation pay.”

29 On 3 August 2006, the respondent recorded in an email a proposal he had put to Ms Mansoor that morning. (Although expressed to be “without prejudice”, the email was admitted into evidence.) In the email, the respondent proposed that his position at the appellant be treated as a “voluntary redundancy” as this would have significant tax benefits. The respondent proposed that he commence employment in a new position with the appellant as Director of Sales (Asia).

30 Ms Mansoor addressed a meeting of staff on 3 August 2006. Her account of her presentation was as follows:

“You are probably wondering why I am here. I am in Sydney to undertake a restructuring of the office. Chicago has taken a decision to put more resources into developing our Asian business. I have had discussions with [the respondent] and it has been agreed with him that he will step down as Managing Director. [The appellant and the respondent] agree that it is not practical for one person to hold both Managing Director and Asia business development position, therefore, James Buckle will assume the role as Acting Managing Director and [the appellant and the respondent] are discussing his future possible role focusing on Asia.”

The respondent’s account of Ms Mansoor’s presentation was very similar, although he claimed (and Ms Mansoor denied) that she indicated to the meeting that the respondent would take on a new role as Director of Sales-Asia.

31 After the meeting, Ms Mansoor advised the respondent to leave the premises and he did so. Ms Mansoor did not take up the respondent’s suggestion that he should be appointed as Director of Sales-Asia.

32 The document prepared by the appellant which calculated the respondent’s entitlements on termination of employment indicated that his salary at the date of termination was $203,150 per annum, plus a car allowance of $8,000. The evidence did not disclose what adjustments, if any, were made to the respondent’s previous salary upon his appointment as General Manager/Managing Director in May 2000. Nor did the evidence disclose what adjustments were subsequently made to produce the salary applicable at the date of termination.

THE PRIMARY JUDGMENT

The Contractual Period of Notice on Termination

33 The primary Judge first addressed the respondent’s contractual claim, independently of any issue relating to redundancy. Her Honour identified (at [37]) the question for determination as:

“whether the contract of employment in relation to the [respondent’s] appointment as General Manager/Managing director included a term that either party could terminate the contract without cause on three month’s notice.”

34 The primary Judge pointed out that the parties had made their intentions clear in relation to termination of the respondent’s contract of employment when he was appointed as Director-Sales Asia Pacific. At that time, the parties had agreed orally, as recorded in the file note, that the provision relating to termination of the respondent’s employment by notice would be “amended” to increase the period of notice from one month to three months. The parties had also provided that the letter of appointment was to be an “addendum” to the original letter of employment. However, no such provision had been included in the May 2000 Letter appointing him as General Manager/Managing Director of the appellant.

35 Her Honour rejected the appellant’s submission that the May 2000 Letter constituted a variation of the respondent’s contract of employment as Sales director:

“Had the parties intended to make the [respondent’s] employment as General Manager/Managing Director subject to the same termination provisions as his employment as Director-Sales Asia Pacific, all that was needed was the provision that had been included in the letter just two months earlier making it an addendum to the earlier letter. They did not do so and it seems to me that was because they intended that the [respondent] would have a more generous arrangement under his contract as General Manager/Managing Director particularly in respect of any termination of his employment. The contract was silent as to termination other than termination by way of redundancy. In the absence of an express term it is appropriate to imply a term into the contract that the defendant would give reasonable notice of termination except in circumstances justifying summary dismissal.”

36 The primary Judge also rejected the appellant’s submission that a reasonable period of notice in the event of termination of the contract (otherwise than for misconduct) was three months. Her Honour noted that the appellant had relied on the redundancy provision in the May 2000 Letter which required three months notice as part of the redundancy package. However, she thought that the significance of the provision was that it provided for the equivalent of nine months salary.

37 Her Honour continued:

“The [respondent] stepped into the breach when Mr Neilson left the defendant in 2000. The plaintiff’s role as General Manager/Managing Director had the added burden of having to perform the role of Director-Sales Asia Pacific at the same time. The plaintiff’s role was extremely important. His obligations and duties outlined earlier were pivotal to the successful operation of the defendant in Australia and the Asia/Pacific region. The provisions of the contract provide some guidance as to what may be reasonable because the parties considered that a package equivalent to nine months salary was reasonable for termination on a redundancy basis. Taking all these matters into account I am satisfied that reasonable notice in the circumstances of this case is nine months.”
Redundancy

38 The primary Judge, after recording the competing submissions of the parties, upheld (at [47]) the respondent’s alternative claim based on his entitlement to the “redundancy package”:

“Ms Sibtain [counsel for the appellant at the trial] submitted that it is important to determine whether the restructure came first causing the termination in which case, she submitted, there would be a redundancy, or whether the dismissal or removal of the [respondent] came first causing the reallocation of the [respondent’s] duties in which case, she submitted, there would be no redundancy. Ms Sibtain submitted that what motivated the restructure was the termination of the [respondent] for under performance. It was submitted that the evidence establishes that as from 27 June 2006 the head office in Chicago formed the view that the [respondent] was not performing his obligations in a way that satisfied head office and in those circumstances it was decided to let him go, as Ms Mansoor put it. On balance I am satisfied that although the [appellant] was obviously motivated to remove the [respondent] from his position what it did was to make the position that he held redundant.
Ms Mansoor advised the staff on 3 August 2006 that it had been decided that it was ‘not practical for one person to hold both’ positions that the [respondent] held. That meant that the [respondent’s] ‘dual’ role was no longer to be performed by anyone and thus, it seems to me, that particular position was made redundant. The [respondent’s] obligations were broken up and two positions were created, the Managing Director position and the Director-Sales position, with the latter position being broken up even further. The [respondent] is entitled to the balance of the redundancy package.”


Orders

39 Her Honour adjourned the proceedings to give the parties an opportunity to agree on short minutes of order. It appears that the parties agreed on the quantum of the damages award and that the orders reflected their agreement. It also appears that the parties agreed that the sum of $125,338.64 was the appropriate award of damages in respect of each of the grounds upon which the respondent succeeded even though part of the damages award if there had been an event of redundancy related to the payment to be made by the appellant to the respondent’s superannuation fund: see Willis v Health Communications Network Ltd [2007] NSWCA 313; 167 IR 425, at [79], per Tobias JA (with whom Mason P and McColl JA agreed).

SUBMISSIONS

Appellant’s Submissions

40 The appellant submitted that the clarification of the respondent’s terms of employment after his promotion to General Manager operated as a variation of the terms and conditions of employment, as contemplated in the June 1999 Letter. According to Mr Hale SC, who appeared with Ms Sibtain for the appellant, the parties did not set out in detail the terms and conditions governing the respondent’s role as General Manager in the May 2000 Letter because both parties understood that they would be bound by the agreement recorded both in the file note of 13 March 2000 and the March 2000 Letter. Moreover, there was nothing inconsistent between the terms of the file note and the subsequent agreement between the parties. The absence of any inconsistency supported the contention that the parties did not intend, upon the respondent’s appointment as General Manager, to terminate the earlier contract or to enter into an entirely fresh employment contract.

41 Mr Hale challenged what he characterised as the primary Judge’s “finding” that the appellant intended that the respondent would have a more generous arrangement with respect to termination than o had applied previously. He submitted that there was no evidence to support the finding. On the contrary, the case as originally pleaded by the respondent asserted that the terms of his employment contract were set out in the June 1999 Letter, the file note of 13 March 2000, the May 2000 Letter and the annual bonus program. The respondent had conceded in his cross-examination that at all material times he believed that his employment contract was governed by the four documents.

42 In his oral submissions, Mr Hale placed less emphasis on the subjective understanding of the parties or on any post-contractual admissions by the respondent and more on the terms of the May 2000 Letter. In particular, he relied on the paragraph in the letter clarifying the respondent’s entitlement in the event of redundancy. That paragraph, so Mr Hale argued, had clearly been drafted on the basis that, in the absence of a redundancy, a maximum period of three months notice, as recorded in the 13 March file note, would be required to terminate the respondent’s employment.

43 If, contrary to the appellant’s submissions, the contract of employment provided for a reasonable period of notice upon termination, Mr Hale contended that a reasonable period in the circumstances was no more than three months.

44 The respondent further submitted that the primary Judge had erred in concluding that there had been an “event of redundancy” within the meaning of the May 2000 Letter. According to Mr Hale, the term “redundancy” means a dismissal of an employee because the employer no longer wants the job done by anyone, for example where an organisational restructure eliminates the position held by the employee. In this case, the respondent had been dismissed because of his perceived poor performance. His dismissal predated any reallocation of functions within the appellant’s Australian operations. Thus there had been no event of redundancy and the respondent was not entitled to the redundancy package provided in the May 2000 Letter.

Respondent’s Submissions

45 The respondent submitted that the appointment of the respondent to the position of General Manager/Managing Director marked a “profound” change in the employer/employee relationship. In these circumstances, the primary Judge had correctly inferred that a new contract had come into existence, rather than a variation of the pre-existing contract.

46 The critical question was the intention of the parties, objectively ascertained from the May 2000 Letter and the surrounding circumstances. Since the May 2000 Letter did not address the period of notice required on termination, other than in the event of a redundancy, the primary Judge had correctly inferred that the parties intended the respondent to have more generous entitlements than under his previous contract of employment. In the absence of an express term governing termination other than for misconduct or by reason of an event of redundancy, reasonable notice was required. Mr McInerney submitted that, having regard to the respondent’s senior position, length of service, the nature of his responsibilities and the terms of the redundancy package, nine months was a reasonable period of notice upon termination of the respondent’s employment.

47 Mr McInerney advanced three arguments in support of the primary Judge’s conclusion that there had been an event of redundancy for the purposes of the May 2000 Letter. First, he contended that, in the absence of an express term in the May 2000 Letter dealing with termination without cause, the natural meaning of the expression “in the event of a redundancy” included any termination without cause. According to Mr McInerney, this was a sensible commercial construction of the contract of employment.

48 Secondly, Mr McInerney submitted that the evidence supported a finding that the termination of the respondent’s employment was not motivated merely by dissatisfaction with his performance as Managing Director, but by a desire to split up the dual roles performed by the respondent. There was therefore an “event of redundancy” because the appellant’s reasons for terminating the respondent’s employment in fact included a desire to redistribute the responsibilities previously discharged by the Managing Director.

49 Thirdly, Mr McInerney argued that even if the appellant’s sole reason for terminating the respondent’s employment was dissatisfaction with his performance, the expression “event of redundancy” in the May 2000 Letter was apt to include a case where the termination of the respondent’s employment was followed by a reallocation of his duties to two or more employees.

REASONING

Contractual Period of Notice

50 The May 2000 Letter by which the respondent was appointed to the position of General Manager of the appellant plainly constituted a contract between the parties. At the time of the respondent’s appointment he was already an employee of the appellant. At that time, his employment was governed by the pre-existing contractual relationship, the written terms of which were to be found in the June 1999 Letter, the March 2000 Letter and the 13 March 2000 file note.

51 In Federal Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd [2008] HCA 35; 201 CLR 520, the joint judgment of four members of the High Court observed (at 533 [22]) that:

“When the parties to an existing contract enter into a further contract by which they vary the original contract, then, by hypothesis, they have made two contracts. For one reason or another, it may be material to determine whether the effect of the second contract is to bring an end to the first contract and replace it with the second, or whether the effect is to leave the first contract standing, subject to the alteration. For example, something may turn upon the place, or the time, or the form, of the contract, and it may therefore be necessary to decide whether the original contract subsists.”

This passage was cited with approval in the joint judgment of Gleeson CJ, Gaudron and Gummow JJ in Concut Pty Ltd v Worrell [2000] HCA 64; 176 ALR 693, at 698 [19], a case involving a contract of employment.

52 In both FCT v Sara Lee (at 534 [23]-[24]) and Concut v Worrell (at 698 [19]), the High Court referred with approval to the comments of Taylor J in Tallerman and Co Pty Ltd v Nathan’s Merchandise (Vic) Pty Ltd [1957] HCA 10; 98 CLR 93, at 144:

“It is firmly established by a long line of cases … that the parties to an agreement may vary some of its terms by a subsequent agreement. They may, of course, rescind the earlier agreement altogether, and this may be done either expressly or by implication, but the determining factor must always be the intention of the parties as disclosed by the later agreement.”

In determining the intention of the parties it is necessary to construe the terms of the later contract, having regard to the circumstances known to the parties: Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451, at 461-462 [22], per curiam ; Toll FGCT Pty Ltd v Alphapharm Pty Ltd [2004] HCA 32; HCA 32; 219 CLR 165, at 179 [40], per curiam .

53 In the present case, the important issue is not whether the parties intended that the May 2000 Letter should or should not wholly supplant earlier contractual arrangements between them. The critical question is what period of notice they intended should be given to the respondent in the event of termination of his employment contract otherwise than for misconduct or by reason of redundancy. The answer to the latter question might well be the same regardless of whether or not the earlier contract of employment was intended to be wholly discharged by the May 2000 contract. For example, even if the May 2000 Letter was intended to discharge the existing employment contract, it still might be construed as requiring three months notice in the event of termination.

54 Two factors are of critical importance in construing the May 2000 contract insofar as it deals with the required period of notice. The first is that only two months earlier, the parties had agreed that “in accordance with [the appellant’s] new position” the termination notice period would be extended from one month to three months. The second is that the May 2000 Letter “clarif[ied] the terms of [the appellant’s] employment” by confirming that in the event of redundancy the respondent would have a threefold entitlement:

“1. Three (3) months period of notice
2. Three (3) months redundancy payment
3. An additional payment equal to three (3) months salary paid as superannuation directly into your superannuation fund.”

55 It is very difficult to interpret the terms of the respondent’s redundancy entitlement set out in the May 2000 Letter other than as affirming that, in the event of termination otherwise than for redundancy or misconduct, the previously agreed three months period of notice would continue to apply notwithstanding the respondent’s appointment to a more senior position. The terms of the redundancy provision strongly suggest that it was drafted on the basis that the respondent would be entitled to three months notice in the event of termination of his contract. The May 2000 Letter preserved that entitlement, but provided that, in the event of a redundancy, the respondent would be entitled to two additional payments, neither of which was described as a payment in lieu of notice.

56 It would have been a simple matter for the May 2000 Letter to provide for payment to the respondent of an amount equivalent to nine months salary in the event of redundancy and to require portion of that amount to be paid directly into the respondent’s superannuation fund. It would have been equally simple for the May 2000 Letter to provide for payment of six months salary and an additional amount equivalent to three months salary as a superannuation contribution. Instead the letter appears to have been deliberately structured to reaffirm that a period of three months notice was required on termination of the respondent’s employment, but also to provide for additional payments to be made to the respondent in the event of redundancy.

57 In my opinion, the May 2000 Letter, on its proper construction, provided for a period of three months notice in the event of termination of the respondent’s contract, otherwise than for misconduct or by reason of redundancy. Although it may not matter, the better view is that the May 2000 contract was intended to amend (and not to discharge) the pre-existing contract between the parties. This intention is suggested by the absence of any reference in the May 2000 Letter to a number of important issues (including superannuation, health insurance and sick leave entitlements) dealt with in the June 1999 Letter. (That letter retained its contractual force by reason of the express provision in the March 2000 Letter that it would form an addendum to the respondent’s original letter of employment.) Clearly enough, the parties intended that some or all of the contractual terms in force immediately prior to the respondent’s appointment as General Manager would continue to form part of his contract of employment after his appointment as General Manager. On this basis, the May 2000 Letter preserved the contractual effect of the period of notice stipulated in the 13 March 2000 file note, namely that the respondent was entitled to three months notice on termination of his contract, otherwise than for misconduct or by reason of redundancy.

58 It follows that the appellant’s challenge to the first ground for the primary Judge’s decision succeeds.

Redundancy

Reason for Terminating the Contract

59 It is convenient to deal first with the respondent’s submission that the evidence warrants a finding that the appellant terminated the respondent’s employment partly because Ms Mansoor (or perhaps others within EBUSA) wished to reallocate the responsibilities discharged by the appellant. In making this submission, Mr McInerney invited the Court to find that Ms Mansoor’s subjective intention, prior to terminating the respondent’s employment, was to restructure managerial responsibilities within the appellant’s Australian office. No such finding was made by the primary Judge.

60 Following the termination of the respondent’s employment, there was some re-allocation of his responsibilities. As Ms Mansoor advised the staff meeting on 3 August 2006, Mr Buckle became Acting Managing Director upon the respondent’s departure. Mr Buckle was subsequently appointed as the appellant’s Managing Director. Ms Mansoor’s evidence was that when she returned to Chicago on 5 August 2006, she arranged for Mr Feng, EBUSA’s International Licensing Manager, to assume some of the respondent’s responsibilities in Asia, specifically in relation to the Chinese and Taiwan markets. Ms Mansoor said that Mr Feng, who had no previous knowledge of what was occurring in Australia, was suitable for the role because he was fluent in Mandarin and was already familiar with the region. It appears that Mr Buckle took over responsibility from the respondent for other parts of Asia.

61 Mr McInerney’s submission was to the effect that Ms Mansoor must have had these changes in mind all along and that her decision to remove the respondent was motivated, at least in part, by her desire to implement the restructure. The principal difficulty with this submission is that the events of November 2005 and the internal communications passing between Ms Mansoor and others within EBUSA, prior to her visit to Australia, do not support the submission. On the contrary, they strongly indicate that her decision to terminate the respondent’s employment was made because of her dissatisfaction with the respondent’s performance and not because of any desire or intention to restructure the Australian management or to redefine the role of the Managing Director. As the respondent acknowledged in his evidence, he had proposed budget cuts in March 2005 partly because the appellant had been struggling to achieve revenue and profitability targets over the previous 18 months. Whether or not Ms Mansoor warned the respondent in November 2005 that his position was at risk (as she said in evidence), she certainly conveyed her serious dissatisfaction with the respondent’s performance as Managing Director. Ms Mansoor’s assessment was clearly expressed in her internal email of 27 June 2006, when she stated that the respondent’s:

“performance in the past few years was [not] good enough and he [is] not the managing director we should have in [Australia].”

62 Mr McInerney acknowledged that there was not a single document predating Ms Mansoor’s arrival in Australia on 2 August 2006 that suggested that she was motivated to terminate the respondent’s employment by any consideration other than her dissatisfaction with his performance. Ms Mansoor, who gave evidence but was not cross-examined, said that she decided in late June 2006 that the respondent was not the right person to be managing director of the appellant. She also said that she decided to “take the termination road”, rather than dismissal for cause, because she did not wish to cause the respondent personal embarrassment. The failure to cross-examine Ms Mansoor on these matters makes it very difficult for the respondent to contend that her evidence concerning her decision to terminate the respondent’s contract should not be accepted.

63 Mr McInerney referred to Ms Mansoor’s discussion with the respondent on 2 August 2006 and to her explanation to the staff on the following day as supporting the finding for which he contended. However, Ms Mansoor, even on the respondent’s account of their conversation, said nothing to the respondent to indicate that the termination of his employment was influenced by a desire to restructure the Australian operations or to reallocate the responsibilities of the Managing Director. In substance, she merely told the respondent that EBUSA had decided “to change the management of the Sydney office” and had formed the view that a “new vision” was needed for the Australian operation.

64 Ms Mansoor’s presentation to the staff was entirely consistent with her evidence that she wished to “save face” for the respondent. As Mr McInerney accepted, Ms Mansoor’s statement that she had “had discussions with [the respondent] and it has been agreed that he will step down as Managing Director” was explicable only as a means of saving face, since the statement (as the respondent knew at the time) was not accurate. Similarly, Ms Mansoor’s assertion to the staff that she was in Sydney to undertake a restructuring of the office cannot detract from the conclusion to be derived from internal EBUSA communications and Ms Mansoor’s unchallenged evidence to the contrary.

65 The respondent’s submission that this Court should find that Ms Mansoor’s decision was partly motivated by her desire to reallocate the Managing Director’s responsibilities cannot be accepted. It is inconsistent with the uncontroverted evidence.

“ In the Event of Redundancy”

66 The respondent’s remaining arguments turn on the construction of the May 2000 contract, in particular the words “in the event of a redundancy”. The concept of redundancy has been examined in many cases, a number of which were referred to by the Full Federal Court in Dibb v Commissioner of Taxation [2004] FCAFC 126; 136 FCR 388. However, it is important to appreciate that, as was noted in Dibb v FCT, at 403 [38], the expression “redundancy” must be construed in the context in which it appears.

67 In Dibb v FCT itself, the question was whether a payment had been made to a taxpayer, who had been dismissed from his employment, “by reason of the bona fide redundancy of the taxpayer”. The Full Court considered (at 405 [43]) that the statutory formula would be satisfied if, in good faith, a taxpayer’s employer:

" • has reallocated duties;
• considers that the employee is not suitable to perform any available job, defined by reference to those reallocated duties, existing after the re-allocation; and
• for that reason, dismisses the employee.”

68 In Dibb v FCT (at 400 [28]), the Court referred with approval to a judgment of Burchett J in Short v F W Hercus Pty Ltd [1993] FCA 51; 40 FCR 511, at 520-521, in which his Honour relied heavily on the analysis in a South Australian decision, R v Industrial Commission (SA); Ex parte Adelaide Milk Supply Co-operative Ltd (1977) 16 SASR 6. In the Adelaide Milk Case, Bray CJ said (at 8) that:

“the concept of redundancy in the context we are discussing seems to be simply this, that a job becomes redundant when the employer no longer desires to have it performed by anyone. A dismissal for redundancy seems to be a dismissal, not on account of any personal act or default of the employee dismissed or any consideration peculiar to him, but because the employer no longer wishes the job the employee has been doing to be done by anyone.”

This passage has been frequently cited, including by the High Court: see, for example, Amcor Ltd v Construction, Forestry, Mining and Energy Union [2005] HCA 10; 222 CLR 241, at 256 [43], 259 [54], per Gummow, Hayne and Heydon JJ; Jones v Department of Energy and Minerals [1995] IRCA 292; 60 IR 304, at 308, per Ryan J.

69 The May 2000 Letter used the expression “in the event of a redundancy”. The background to the insertion of this expression in the letter was the concern stated by the respondent to Mr Neilson arising out of the 35 redundancies that had taken place in May 2000. The respondent conveyed his concerns about his own position, particularly if the appellant intended to abolish further positions.

70 In these circumstances, I would not be inclined to give the expression a narrow meaning. I would not be disposed, for example, to confine an event of redundancy to the case where the respondent’s employment was terminated because of a restructuring that affected a number of positions in the appellant’s organisation. On this approach, there might well be an event of redundancy if the respondent’s employment was terminated solely because the appellant (or EBUSA) wished to redefine the role and responsibilities of the Managing Director and the respondent was thought not to have the necessary qualifications or skills for the restructured position: cf Jones v Department of Energy, at 308.

71 On no view, however, is the expression, as used in the May 2000 Letter, broad enough to include termination for any reason other than misconduct (as the respondent argued). To terminate an employee’s contract because of perceived poor performance does not imply that the employer has more staff than is necessary, nor that the organisational structure is to be rearranged. The position occupied by the employee remains, but the employer does not wish the incumbent to stay in the job.

72 Nor do I think that there was an “event of redundancy” simply because termination of the respondent’s employment was followed by a reallocation of some of the responsibilities of the Managing Director. On the evidence, Ms Mansoor decided to terminate the respondent’s employment solely because of dissatisfaction with his performance and not because of any intention to restructure management in Australia or to reallocate the duties of the Managing Director. It was in consequence of the termination decision that Ms Mansoor decided to assign Mr Feng to some of the duties previously performed by the respondent.

73 The redundancy provisions of the May 2000 Letter were intended to provide the respondent with enhanced entitlements if the appellant decided to terminate his services for a particular reason. The entitlements would arise if the decision was made, at least in part, not because of any perceived deficiency in the respondent’s ability to perform his duties, but because the position he held was to be abolished or because the responsibilities attached to it were materially changed. If, for example, Ms Mansoor terminated the respondent’s employment because she wished to restructure the Australian operations and to redefine the role of the Managing Director, it is likely that there would have been an event of redundancy.

74 The decision to terminate the respondent’s services, however, was made solely because of the belief that he had not performed his duties in a satisfactory manner. Neither decision nor the termination itself constituted an “event of redundancy” for the purposes of the May 2000 Letter. The subsequent reallocation of responsibilities was a consequence of the termination and could not give the termination a characteristic that it lacked at the time.

75 It follows that the respondent’s challenge to the second ground for the primary Judge’s decision also succeeds. Accordingly, the appeal must be allowed.

RESTITUTION

76 The parties filed written submissions after the hearing as to the orders that should be made by way of restitution, consequential on the allowing of the appeal. There was no dispute that the respondent should be ordered to repay the sum of $150,650.18 paid by the appellant pursuant to the orders made by the primary Judge: Supreme Court Act 1970 (NSW), s 75A(10); UCPR, R 51.54; TCN Channel 9 v Antoniadis (No 2) [1999] NSWCA 104.

77 The parties did not agree, however, as to the interest, if any, that the respondent should be ordered to pay on that sum. The appellant claimed interest at the rate set out in Schedule 5 to the UCPR. The respondent submitted that either no interest should be payable or the rate should be equivalent to the Reserve Bank target cash rate for the period concerned. This submission was put on the basis that the Schedule 5 rates would constitute a penalty to the respondent, who had acted in good faith. Moreover, so it was said, the cash target rate represents a close estimate of the highest return available to a prudent investor.

78 The principles governing the rate of interest in a restitution case such as the present were stated in Heydon v NRMA (No 2) [2001] NSWCA 445; 53 NSWLR 600, at [30]-[32], per Mason P (with whom Beazley and Ipp JJA agreed). The general principle is that restitutionary interest is awarded at the rates payable on judgments unless special circumstances exist (at [32]). This approach is taken, in part, because:

“[t]here is no reason to assume that the [Schedule 5] rates are fixed in disregard of commercial reality or that they embody a deterrent or punitive intent” (at [31]).”

79 The only evidence the respondent has sought to adduce in order to support his submission on interest is correspondence which is said to show that a proportion of the money paid to the respondent represents a superannuation contribution to which he was entitled. A letter of 21 August 2006 from the appellant indicated that the amount paid at that time to the respondent included a superannuation payment directly to the respondent’s superannuation fund, equivalent to 12% of his salary for three months, no such payment was actually made. The correspondence relied on by the respondent suggests that, despite the terms of the letter of 21 August 2006, the appellant may not have paid any amount to the superannuation fund.

80 Had the respondent wished to raise the issue of non-payment of the superannuation contribution at trial, it would have been necessary to amend his pleadings. A letter of 27 March 2008 foreshadowed such an amendment, but an application to amend was never made. Consequently, her Honour was not asked to resolve the factual question of whether the superannuation contribution was or was not made.

81 The respondent has not established that this Court should depart from the usual practice relating to restitutionary interest. Nor is there any basis for offsetting against the amount of interest a sum equivalent to the superannuation contribution which the respondent now says was never paid. Accordingly, interest should be paid on the restitutionary amount at the rate specified in Schedule 5 to the UCPR.

82 As I have noted, the appellant did not include in its notice of appeal the restitutionary orders it sought. No injustice will be occasioned to the respondent if the notice of appeal is amended to include the claim foreshadowed by the appellant on the hearing of the appeal, since there is no dispute that the appellant paid the amount due under the orders made by the primary Judge: see UCPR, rr 51.52(3); 51.54.

83 The appellants have indicated that they wish to seek a special costs order if the appeal is allowed. Accordingly, the orders I propose include provision for submissions on costs.

84 The orders I propose are:

1. Appeal allowed.

2. Set aside orders 1 to 4 made on 14 November 2008 and entered on 9 February 2009.

3. In lieu of the orders referred to in order 2 above, order that judgment be entered for the appellant (the defendant below).

4. Order the respondent to repay to the appellant the sum of $150,650.18 paid by it to the respondent pursuant to the orders made on 14 November 2008, together with interest thereon at the rates specified from time to time in Schedule 5 to the UCPR from 12 December 2008 to the date of repayment.

5. Direct the appellant to file within seven days an amended notice of appeal seeking restitution of the sum referred to in Order 4 and interest thereon.

6. The appellants file and serve written submissions on the costs of the trial and of the appeal within seven days.

7. The respondent file and serve written submissions in reply within a further seven days.

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