Keira Holdings v Broadcast Australia

[2015] NSWSC 1716

Supreme Court

New South Wales

Medium Neutral Citation:	Keira Holdings v Broadcast Australia [2015] NSWSC 1716
Hearing dates:	2 November 2015, 3 November 2015 4 November 2015 and 5 November 2015
Date of orders:	05 November 2015
Decision date:	05 November 2015
Jurisdiction:	Equity - Commercial List
Before:	McDougall J
Decision:	Amended summons dismissed
Catchwords:	CONTRACT – agreement whereby plaintiff provided its principal’s services to manage one of the defendant’s businesses – obligation to negotiate in good faith towards long-term incentive package – enforceability – whether breached – where defendant attempted in good faith to negotiate towards a package – failure of plaintiff to do the same – consequence that no breach shown – whether any loss suffered – poor performance of the business under plaintiff’s management – result that any performance-based incentive package would not have yielded a benefit to the plaintiff in any event – alternative contention that plaintiff should have been remunerated in line with market rates – where evidence demonstrated that it was remunerated above market rates – consequence that no loss suffered
Category:	Principal judgment
Parties:	Keira Holdings Pty Ltd (Plaintiff) Broadcast Australia Pty ltd (Defendant)
Representation:	Counsel: ID Faulkner SC / AE Maroya (Plaintiff) PS Braham SC / R Mansted (Defendant)   Solicitors: Harland Sebastian Koops (Plaintiff) Minter Ellison (Defendant)
File Number(s):	2014/200875

Judgment   (ex tempore – revised 5 november 2015)

1. HIS HONOUR: In January 2010 the plaintiff (Keira) made a written agreement with the defendant (Broadcast Australia). The agreement was expressed to be retrospective to 1 July 2009.

2. Under the agreement, Keira agreed to supply the services of its principal, Mr Mullen, to perform the duties of managing director (MD) of Hostworks Group Pty Ltd (Hostworks). Hostworks was a wholly owned subsidiary of Broadcast Australia.

3. The contract included a promise (the LTIP clause) to negotiate in good faith so as to seek to agree upon a long term incentive package (LTIP) for the continued provision of Mr Mullen’s services.

4. Keira says that the LTIP clause was enforceable, and that it was breached. Broadcast Australia says that the clause was not enforceable, but that, if it were, it was not breached. Broadcast Australia says that, in any event, Keira has failed to prove the pleaded (or any) loss that it claims.

The issues and outcome

5. Although more issues were debated, the fundamental questions to be resolved are:

1. did the LTIP clause impose a legal obligation on the parties?

2. If so, did Broadcast Australia breach that obligation?

3. If Broadcast Australia did breach its obligations under the LTIP clause, has Keira suffered any loss?

6. In my view, for the reasons that follow, Keira’s claim fails. In summary, even if the LTIP clause were enforceable, Broadcast Australia did not breach it. Further, Keira has not proved any relevant loss.

Changes in Keira’s case

7. The case originally propounded by Keira was that there was to be negotiated an LTIP based on the increase in value of Hostworks over the period of Mr Mullen’s employment: specifically, from the financial year 2010 to the financial year 2013. The week before the hearing, that case changed. Keira sought and was granted leave to abandon that aspect of the pleaded case, and to claim by way of damages an asserted shortfall between the total remuneration paid for Mr Mullen’s services over the years in question and what was said to be a market rate of remuneration appropriate for his position and duties.

8. It may be inferred that the change in Keira’s case took into account the uncontested expert evidence to be called by Broadcast Australia from Mr Samuel. The effect of Mr Samuel’s evidence was that the value of Hostworks had declined very steeply over the years of Mr Mullen’s stewardship.

9. The case originally propounded included also claims based on misrepresentation and misleading or deceptive conduct. That case, too, was abandoned. Somewhat curiously, the pleading of the alleged representations was not withdrawn. Nor was the evidence relied upon to support those pleadings. That evidence was said to be relevant in some way to the contract case.

10. Keira’s case now rests entirely on the proposition that proper performance of the LTIP clause required Broadcast Australia to cause Hostworks to pay a market rate of remuneration for Mr Mullen’s services. Even if that were the proper effect of the clause, the evidence in my view does not prove that he (or Keira) was underpaid.

11. In final submissions, there was a further change to the case propounded by Keira. The expressly pleaded link between the breaches of contract asserted and the damages alleged was found in para 25 of the Amended Commercial List Statement (ACLS). That paragraph read:

25.   Had Broadcast Australia negotiated and acted in good faith, it would have provided Keira with a long-term incentive package; that is, the parties would have agreed upon a long-term incentive package, contractually binding, at market rates from June 2009.

12. That allegation of causation was the basis on which the case was run. The effect of its abandonment is that the case of causation is now purely inferential, based on the preceding allegations of breach and the succeeding allegations of damage.

13. A further result of the abandonment of para 25 is that it leaves entirely at large Keira’s case on what should have been the LTIP that might have been negotiated. Its pleaded but abandoned case was only that the LTIP would have been one to produce the necessary dollar amount to fill the asserted gap between actual and alleged market remuneration.

14. In the result, bearing in mind the view to which I have come on the facts on this case, it is not necessary to explore further the consequences of the abandonment of reliance on para 25.

The witnesses

15. Keira called, as a witness of fact, Mr Mullen. Broadcast Australia called, as witnesses of fact, Messrs Barclay, Berryman, Hassell and Savill, and Ms Curcuruto. Mr Hassell and Ms Curcuruto were not cross-examined. It follows that I accept their evidence, so far as it goes.

16. Messrs Barclay, Berryman and Savill were cross-examined. There was no real challenge to their credibility, although the relevant conflicts between their evidence and that of Mr Mullen were fairly and squarely put to them. In my view, there is no reason to think that any of those men sought to give untruthful evidence. I accept, with one qualification, the evidence of each of them so far as it goes, as truthful and reliable.

17. In Mr Savill’s case (and this is not a criticism of his credibility), it is apparent that his recollection of the conversations alleged was based on reconstruction and his understanding of his usual practices in the circumstances in which those conversations were said to have occurred. It follows that, unlike Messrs Barclay and Berryman, in many (or most) cases he was unable specifically to deny, as a function of memory, particular conversations. I take that into account in balancing the evidence in question.

18. Mr Mullen was cross-examined closely. I formed an unfavourable view of his credibility. Since the factual disputes are now less significant than was the position when Keira relied on a misrepresentation case, I will be brief in explaining the reasons why I came to this view.

19. I will refer only to three specific aspects of Mr Mullen’s cross examination. In one of them, he was cross examined as to a conversation that he had had with Mr Barclay in about May or June 2011. That conversation related to a draft LTIP proposal that Mr Barclay gave to Mr Mullen for the latter’s consideration. It was put to Mr Mullen that, at the conclusion of the discussion, Mr Barclay said, “I will consider all of your feedback”. Mr Mullen said that he did not recall those words; he was sure of this. It was then pointed out to him that the words in question had been quoted from his affidavit. He then said, “If that’s what I said, that’s what I said”. It is apparent from this aspect of Mr Mullen’s evidence that the purported certainty and clarity of his recollection, as to what was and was not said, may well have overstated the position.

20. The next matter relates to a discussion that Mr Mullen said he had with the chairman of Broadcast Australia’s board, Mr Moriarty, in relation to a draft LTIP proposal that was put to Mr Mullen in late 2012. According to Mr Mullen, he said that he felt totally misled and cheated. The obvious inference, from Mr Mullen’s full account of this conversation, is that the offer was totally unacceptable to him (or to Keira).

21. However, after the pleaded case changed and Keira claimed market remuneration (or the difference between market remuneration and actual remuneration), Mr Mullen swore a further affidavit in which he purported to recall having said, as well, that “I’m all ears to any proposal you may have”. This is supposed to have happened in the course of the conversation that Mr Mullen had earlier dealt with at length. I find the evidence on this topic totally unworthy of belief. The words that Mr Mullen belatedly “recalled” that he used were, contextually, utterly out of place in the account of the conversation that he had given. It is scarcely credible, and I do not believe, that he could have said what he said he said in the discordant accounts of the conversation.

22. Those two matters, taken by themselves, might not be thought to warrant an unfavourable view of Mr Mullen’s credibility overall. However, there is another matter that in my view does have that effect. That relates to negotiations that Mr Mullen had with Mr Barclay in August 2012, seeking an increase in Keira’s remuneration. Mr Mullen sent an email to Mr Barclay setting out in some detail what he said was a job offer that he had received from a competitor, Macquarie Communications. It was apparent, when Mr Mullen was cross examined on this, that no such offer had been made, and that none of the alleged terms of the offer had been put to him specifically as an offer (or components of what might be an offer).

23. Mr Mullen was asked whether this evidence was a lie. He said, “I wouldn’t say it’s a lie. It’s incorrect”. In my view, Mr Mullen was dissembling when he gave that answer. He agreed, after he had been taken in detail to the terms of the alleged offer, that what he said was offered was without foundation, in the terms that had been expressed. Indeed, it transpired, some of the alleged terms were “probably something I would like” or “what is normal in listed companies”.

24. In my view, this aspect of Mr Mullen’s evidence shows that he was prepared to be dishonest towards his “employer”, in the course of negotiations. It shows, further, that he was prepared to dissemble with the Court, in attempting to conceal the extent and seriousness of that dishonesty. I do not regard either of those matters as the attribute of a witness whose evidence ought be accepted without question.

25. To the extent that there is a conflict between the evidence of Mr Mullen and that of the witnesses of fact called for Broadcast Australia, I do not accept Mr Mullen’s evidence. I accept, instead, the evidence of the witnesses of Broadcast Australia.

The contract

26. The written contract that was entered into was based on a draft that Mr Mullen had produced. He discussed it with Mr Barclay. At the initial stage, it made no reference to any LTIP. It is clear, and this is one of the aspects of Mr Mullen’s evidence that I do accept, that Mr Mullen did have discussions with Mr Barclay and others to the effect that Keira wanted an LTIP as part of the contractual arrangements.

27. I should say that it is also clear that Mr Mullen commenced to provide his services somewhat before the retrospective starting date of the contract, namely 1 July 2009. Nothing appears to turn on that.

28. Finally, before I turn to the terms of the written contract, I should say that nothing appears to turn on the fact that it took more than a year for the parties to set down in writing the basis on which their contractual relationship would be conducted.

29. The nature of the contract appears sufficiently from Recitals A and B:

A.   The Principal requires the Consultant to provide the services of Paul Mullen to fulfil the role of Managing Director of Hostworks Group Limited and to participate in and contribute to other matters associated with the BA group business identified from time to time.

B.   The Consultant has been working with the Principal and has agreed to provide the Services in accordance with the provisions of this Agreement.

30. By cl 2, Broadcast Australia as principal engaged Keira as consultant to provide the “services” that were defined in the Schedule of the contract.

31. By cl 13, Broadcast Australia agreed to pay fees in accordance with the schedule.

32. By item 1 of the Schedule, the term of the contract was agreed to be 12 months from 1 July 2009 until 30 June 2010, to continue on a month to month basis thereafter subject to termination in circumstances that have no present relevance.

33. By item 2 of the Schedule, Keira agreed to “act on for [sic]” Broadcast Australia in the role of MD of Hostworks. It is obvious that it was Mr Mullen who was to be the human entity who would take and perform that role.

34. Item 5 dealt with the topic of fees.

Item 5. Fees

Base fee of $30,750 per month (excl GST) invoiced monthly in arrears.

plus

A performance bonus of up to 40% of base fee being payable at the same time as the BA Group senior executive bonus is paid weighted as follows:

- 50% of performance bonus dependent on the Hostworks budget being achieved (EBITDA $4.5m);

- 25% of performance bonus being dependent on BA Group EBITDA budget being exceeded by 1.5%, with a pro rata calculation for performance between Budget and Budget plus 1.5%

-25% of performance bonus dependent on signiuficant [sic] progress with the implementation of a strategy to re-position the Hostworks business on digital media market and an integrated approach with BA.

Of this performance bonus, $50,000 has been guaranteed for FY 2010.

plus

Statutory Superannuation contribution.

plus

CPI (All cities) indexation will apply from 1 July 2010 and annually thereafter.

Plus

The consultant will be provided with 4 weeks equivalent annual leave

Both parties agree to negotiate in good faith towards a long term incentive package which will require board agreement. This will aim to achieve a total remuneration in line with market rates.

35. The last two sentences, which are what I have called the LTIP clause, were added by Mr Barclay to the draft shortly before it was signed. They reflect the fact that, at the time the contract was signed, the parties had not been able to agree on the form of any LTIP arrangement to be offered to Keira.

Approach to decision

36. Logically, the first question to be decided should be the enforceability of the LTIP clause. As I have said, Keira submitted that it did impose legally binding obligations. Broadcast Australia submitted that the clause was too uncertain to have contractual effect, and that in any event, as no more than an agreement to negotiate in good faith, the failure to produce an outcome went nowhere.

37. The question of the legal enforceability of the clause does not require resolution of any disputed question of fact. It turns on the proper construction of the clause in the context of the contract as a whole and of the relevant factual matrix. That analysis is to be informed by statements of principle in relevant authorities that were fully canvassed in the parties’ submissions.

38. There is no contest as to the relevant factual matrix. Specifically, there is no doubt that the parties discussed Keira’s requirement for an LTIP. There is no doubt that Keira had made that requirement known to Broadcast Australia before the written agreement was signed. There is no doubt that the parties had failed to agree on an appropriate LTIP before or when the written agreement was signed.

39. Equally, it is clear that the parties were well aware of both the kinds of LTIP available in the market generally, and specifically of the particular LTIP that Hostworks had given to its previous Chief Executive Officer (CEO), Mr Gauvan. That LTIP was offered to Mr Gauvan when Hostworks was a listed public company. He was a CEO in function as well as in name. For reasons that will become apparent, his role included additional responsibilities to those assumed by Keira and performed by Mr Mullen. Hostworks was taken over by Broadcast Australia, Mr Gauvan left, and it was his departure that prompted Broadcast Australia’s search for a replacement.

40. As I have said, even if the LTIP clause were enforceable, there was in my view no breach. Further, in my view, no loss has been demonstrated. Since either of those conclusions is sufficient to dispose of the case, I will proceed on the assumption that the LTIP clause did have legal effect. I should make it clear that I am not expressing a view as to whether that assumption is correct.

Incentive packages

41. Before dealing with the question of breach, it is appropriate to give an outline of the kinds of incentive package over which the evidence traversed. The evidence showed that there were both short-term incentives (known by the unfortunate acronym STIs) and long-term incentives (LTIs).

42. STIs were typically paid to reflect performance over a 12-month period against a set of agreed benchmarks, or “metrics”, or “key performance indicators” (KPIs). Typically, an STI would be fixed either as a sum of money or as a percentage of base remuneration. It might be paid, in whole or in part, by an assessment of performance against all of the agreed KPIs, in some cases weighted in a manner agreed between the parties.

43. LTIs were typically payable, so the evidence goes, over a period of three years. There was evidence that in some cases the period might extend from three to four or five years. Again, the entitlements were typically assessed against agreed benchmarks. LTIs took many different forms. They varied both by reference to the benchmarks against which performance was measured, by reference to the term of years, by reference to the kinds of incentive that were offered, and by reference to the way in which entitlements to those incentives might vest.

44. In some cases, the incentives were offered in a cash form. In some cases, they were offered by way of share option (and there were variations within this category). In other cases, where the company did not wish to dilute its equity, there were put in place “synthetic option” structures. No doubt, there were combinations of these mechanisms; and no doubt, there were other mechanisms.

45. In addition, there were variations as to the way in which long term incentives might vest. Typically, they would not vest in whole. Often, they would vest in agreed increments over the period for which the incentive was given.

46. Finally, it may be noted that there were both “rolling” LTIPs and “fixed” LTIPs. It is unnecessary to descend to the detail.

No breach

47. If the LTIP clause were enforceable, the primary obligation that it imposed was simple. It was an obligation to negotiate in good faith to seek to arrive at an LTIP for Keira. The stated objective for that LTIP was to bring Keira’s remuneration into line with market rates of remuneration.

48. It is self-evident that the parties, being bodies corporate, could negotiate only between their human representatives. It is clear from the LTIP clause itself that the representative of Broadcast Australia (as it happened, Mr Barclay) could not bind Broadcast Australia. That was the function of the board of Broadcast Australia, which was given a power, in terms unfettered, to approve (and by necessary inference to vary, or to disapprove) whatever it was that might be negotiated. An obligation to negotiate in good faith requires honesty, and fidelity to the contractual bargain. It does not require a party to neglect its own interests, or to prefer the interests of the other party. It is not in any way to be equated to an obligation of a fiduciary nature.

47. Where the object to be negotiated is specified, along with the aim that the object is intended to achieve, the obligation to negotiate in good faith would require the parties to work honestly towards achieving that object. However, if the parties, having striven in good faith to do so, fail, that is the end of a matter. The contractual duty has been performed. There can be no breach, simply by reason of the failure of the negotiations.

48. I should mention that there was a difference between the parties as to the proper characterisation of the opportunity represented by the LTIP clause. Mr Faulkner of Senior Counsel, who appeared with Mr Maroya of Counsel for Keira, submitted that the proper characterisation of the clause, or more accurately of the chance represented by it, was that it was a chance to receive additional remuneration up to the extent indicated by the “market rate” quantification. That, Mr Faulkner submitted, was an opportunity with monetary value, and hence one the loss of which was capable of being assessed in damages.

49. Mr Braham of Senior Counsel, who appeared with Ms Mansted of Counsel for Broadcast Australia, submitted that the opportunity was no more than one to negotiate an LTIP clause. Since there was no prescription of what that clause might be (nor any evidence as to what it might have been), Mr Braham submitted that no opportunity, of monetary value, was given and lost.

50. It is not necessary to resolve this issue.

51. The question of negotiation in good faith is to be approached, in my view, bearing in mind that for negotiations to take place, both parties are required to negotiate. It is not a unilateral obligation. I say that because both Mr Mullen’s evidence and Mr Faulkner’s submissions appeared to assume that it was the obligation of Broadcast Australia to propound some form of LTIP, and only then was Keira obliged to negotiate. I do not agree. It was at any time open to Keira, through Mr Mullen, to propound the kind of LTIP that it sought, and to engage in negotiations on that.

52. I mention this because one of the allegations of breach relates to the asserted delay in producing a draft LTIP. True it is that it took the best part of a year before a draft was produced. But it does not follow that Keira could not have produced its own draft. In saying that, it is implicit, and I should make it explicit, that I do not accept Mr Mullen’s evidence that, from time to time between July 2010 and May 2011 (when the first draft was produced), he agitated the question of an LTIP with Mr Barclay.

53. The evidence shows that in May or June 2011, Mr Barclay did prepare a draft form of LTIP. He provided it to Mr Mullen. They discussed it. Mr Mullen expressed his views in respect of some aspects, and sought to have them changed. Mr Barclay said that he would consider Mr Mullen’s feedback.

54. A revised (although not substantially revised) version of this draft plan was put to the board of Broadcast Australia (more accurately, to a subcommittee, its remuneration committee, but nothing turns on this). The board rejected it. It gave reasons. Those reasons on their face were valid. It was not suggested otherwise. Mr Mullen did not thereafter make further approaches to Mr Barclay to discuss the draft agreement. Undoubtedly, Mr Mullen had the opportunity to do so. Undoubtedly, Mr Barclay asked him to do so. To the extent that Mr Mullen sought to suggest otherwise, I prefer Mr Barclay’s evidence.

55. This aspect of the evidence confirms my view that Mr Mullen’s approach seems to have been to sit back and wait for Broadcast Australia to make him an offer that would be acceptable to him, and therefore to Keira.

56. In December 2011, Broadcast Australia’s board decided on the outline of an LTIP that could be offered to Keira. That LTIP would focus on sales growth or revenue growth, over a specified period. Mr Barclay said that he told Mr Mullen about that decision. Mr Mullen disagreed. I prefer Mr Barclay’s evidence. Quite apart from my views as to credibility, Mr Barclay’s evidence is inherently likely, and is supported by emails that were sent after the board made the decision in question.

57. There was then a considerable hiatus in discussions. That hiatus was punctuated by the dishonest attempt to seek a salary review to which I have referred earlier.

58. Mr Mullen did not produce any form of LTIP for discussion during that period of hiatus. He appeared to accept that this would be one explanation for the lack of evidence of any negotiation.

59. In November 2012, the board of Broadcast Australia approved a form of LTIP which was offered to Keira by letter dated 30 November 2012. In substance, that offer proposed an incentive for financial outperformance, to be measured by revenues achieved over the budget target for the financial year then in progress (FY2013) and the following financial year (FY2014). It provided for an additional bonus to be paid, in increasing amounts according to the extent to which target revenues were exceeded. The maximum amount payable was capped at $750,000. The offer was subject to other “gates”, or conditions, including as to EBITDA and free cash flow. Nothing of present moment turns on those conditions.

60. It is plain that Mr Mullen found that offer unpalatable. He responded by letter dated 29 January 2012, but in fact sent on 29 January 2013. He said that he wanted an LTIP based on increase in value. He put forward some calculation based on figures (which the evidence shows were totally unrealistic), the purport of which was that Keira would be entitled to receive an LTIP well in excess of $6 million for the three years to 30 June 2012. However, by way of apparent compromise, Mr Mullen said that Keira was “prepared to accept $6 million in payment… for the three years to 30 June 2012.

61. Perhaps not surprisingly, the parties were unable to breach the difference between them. Nonetheless, negotiations did not cease at this point. There were further discussions, and indeed an attempted mediation.

62. In summary, as I see it, Broadcast Australia did seek to engage with Keira on the topic of an LTIP:

1. Mr Barclay put forward a proposal for an LTIP of the kind Mr Mullen wanted but the board of Broadcast Australia was not prepared to agree. As I have said, its reasons were sound and commercial, and were not challenged on the basis that they were not genuine.

2. Mr Barclay discussed this, and the rejection (by the board), with Mr Mullen. Mr Mullen did not put forward any revised proposal.

3. The board of Broadcast Australia required Mr Barclay to produce another draft plan. He did, and sought to discuss it with Mr Mullen. Mr Mullen did not engage in discussions. Nonetheless, Mr Barclay put it to the board. The board approved the variant. That was communicated to Mr Mullen.

4. Throughout this last process Mr Mullen made it clear to Mr Barclay and to the board of Broadcast Australia that the proposal put forward by Mr Barclay was totally unacceptable.

5. At no time before January 2013 did Keira put any specific LTIP proposal of its own to Broadcast Australia.

65. In those circumstances, Broadcast Australia did in my view seek to negotiate in good faith with Keira, to the extent that it could do so. Further, in my view, the failure of those negotiations to produce the outcome that Keira sought does not show any want of good faith on the part of Broadcast Australia.

66. Keira’s case is now in substance that Broadcast Australia was required to offer a package worth about $1 million over the years in question by way of LTIP. It has not shown how such a package could have been structured. Nor has it shown how, bearing in mind the dismal performance of Hostworks under Mr Mullen’s stewardship, any such package, genuinely of an incentive nature for actual performance, could have produced the cash outcome that it now seeks. In truth, it is impossible to understand how any board could agree responsibly to award and pay the incentive remuneration now sought, bearing in mind the performance achieved.

67. However, the point is that at no stage did Keira put to Mr Barclay, for the consideration of Mr Barclay and the board of Broadcast Australia, what it now says is the incentive plan that should have been offered. Thus, in my view, it is to put it mildly difficult to see how Broadcast Australia could have been acting in bad faith, in failing to negotiate on the terms of a plan that had not been put to it.

68. Further, and in any event, it is obvious when one looks at what actually happened, that a proposal from Broadcast Australia in the terms that Keira now seeks would not have satisfied Mr Mullen back in late 2012 and early 2013. It is clear from Keira’s letter of 21 January 2013 that Mr Mullen had a grossly exaggerated and even more grossly unsubstantiated view of his entitlement. If that letter is to be accepted at face value, Mr Mullen then though that $6 million was a conservative measure of his entitlement. He did not impress me as someone who would accept, in satisfaction, a relatively small fraction of that amount.

69. Regardless, the unreality of Keira’s offer to compromise for $6 million shows, in my view, both that the negotiations had failed and that they failed for reasons other than want of good faith on the part of Broadcast Australia.

70. That is enough to dispose of the good faith case. However, there is in my view another and independent reason why it must fail. On Keira’s analysis (and this was put both in opening and in closing submissions), the ultimate objective of the LTIP clause was to produce a level of remuneration, for Mr Mullen’s services, in line with market rates. However, Broadcast Australia had commissioned reports from independent remuneration consultants. I do not propose to go to the detail of those reports, other than to mention that one came from a firm known as Derwent Executive and was dated 17 November 2008, and another came from a firm known as Mercer and was dated 18 December 2008. It is apparent that those reports had been sought with a view to fixing a level of salary for the MD’s position.

71. The Derwent report recommended a base remuneration range of $320,000 to $350,000 together with an STI of 30 to 50% of that amount, together with an LTI. It is apparent that the actual remuneration received by Keira for FY 2009 ($511,600) exceeded substantially the middle of the range given by Derwent together with an STI at the middle of the range suggested by it. It follows that the package actually offered was sufficient, on the view of Derwent Executive, to accommodate a market rate.

72. The Mercer figures are somewhat more diffuse, because the range is wider and for other reasons. Nonetheless, no different conclusion flows from them.

73. There was no reason for the board of Broadcast Australia to have disregarded those recommendations. There was no reason for the board of Broadcast Australia to have considered that they were inappropriate, or below market rates. On the contrary, and plainly, they were intended to be a guide to market rates, and it was open to the board of Broadcast Australia to accept them as such.

74. In those circumstances, at least for the first year of Keira's engagement, there was no reason for the board of Broadcast Australia, acting in good faith, to consider that Keira was being paid below market rates. Accordingly, and again acting in good faith, there was no need to provide a further incentive to increase the remuneration to market rates.

75. Of course, the negotiations took place not in FY 2009, but in FY 2012 and FY 2013. No doubt, one might expect some increase in remuneration over that period. However, the evidence shows that this is precisely what happened. The remuneration increased by about $39,000 from 2010 to 2011, and by a further $19,000 from 2011 to 2012.

76. The only evidence that the remuneration actually paid was below market rates is that which comes from Keira's expert, Mr McManis. I turn to that in the next section on these reasons. It is sufficient to say that I do not accept his evidence, and thus do not conclude that Keira was being paid below market rates. On that basis, as I have said, the board of Broadcast Australia, considering the matter in good faith, was entitled to come to the view that no more was required. On that basis, the offer that Broadcast Australia had actually made, which had substantial potential value, demonstrates further, in my view, that Broadcast Australia was doing more than good faith required.

Market remuneration

77. Two experts were called. Keira, as I have said, called Mr McManis. Broadcast Australia called Mr Hogan. Mr McManis prepared a number of reports; Mr Hogan prepared one; and they conferred and produced a joint report (with a supplement that corrected one aspect of the joint report).

78. Each sought to assess a level of market remuneration by reference to published data. Each agreed that the assessment needed to take into account a range of remunerations paid to people whose roles and responsibilities were comparable to those performed by Mr Mullen, and were performed for entities that were comparable to Hostworks.

79. The differences between the experts revolved around three issues. The first was how properly to characterise Mr Mullen's role, so as to identify comparable roles. The second was how properly to identify the "the comparator" (their word, not mine) enterprises. The third was how to identify where, in the ranges of remuneration revealed by the evidence, Mr Mullen's role should be positioned.

80. I should say at the outset that I have a strong preference for the evidence of Mr Hogan over that of Mr McManis on the first two issues. The third is more evenly balanced.

81. As to the first issue, Mr McManis characterised the role as one as a CEO or MD (terms that he used interchangeably) of a standalone business. He relied on the job description for Mr Mullen's role, and on what he thought were the roles actually being performed for other applicants for that role.

82. In my view, Mr McManis overlooked that at least four significant aspects of the job description were irrelevant. He paid insufficient attention to the place of Hostworks within the Broadcast Australia group. Specifically, he paid insufficient attention to the fact that Mr Barclay, as CEO of the group, was the ultimate decision-maker (subject to the Broadcast Australia board) for the group. In my view, Mr McManis played down (I do not mean this to suggest that he was being other than frank and honest) the fact that Mr McManis reported, not directly to the Broadcast Australia board, but to Mr Barclay.

83. It is relevant to note that after Broadcast Australia acquired Hostworks, the Broadcast Australia group itself was acquired by a Canadian pension fund (the Fund). The Fund appointed directors to the board of Broadcast Australia. It is clear that the board took a direct, close and forceful role in guiding aspects of the group's operations. The evidence as to negotiation of an LTIP for Keira is sufficient indication of this.

84. It is equally clear that the board of Broadcast Australia did not consider itself as a mere cipher, whose function was to agree to anything propounded by Mr Barclay. On the contrary, and again by reference to the proposed LTIP, it is clear that the board was not at all backward in rejecting his recommendations if it thought fit to do so.

85. I mention that because although Mr Mullen’s role was titled as that of an MD, it is clear that he was very much at the second level of management, and that both the levels above him were active in directing the affairs of the group of a whole, and of its constituent companies.

86. Mr Hogan saw Mr Mullen’s role as one equivalent to that of a business unit leader: someone on the second level of authority, below and reporting to the CEO. In my view, that is the proper way to characterise Mr Mullen’s role as MD of Hostworks.

87. In the course of the concurrent evidence session, Mr McManis appeared to accept this characterisation of Mr Mullen’s role. There was cross-examination by reference to a Mercer document which described the roles, duties and the like of what Mercer called “Tier 1” executives. In Mercer’s classification, Tier 0 is the top executive level – the CEO or MD level, properly so called. Tier 1 represents the next level down of authority.

88. The Mercer classification described a number of specific characteristics of Tier 1 executives. They were put to Mr McManis. He accepted that the Mercer classification of Tier 1 was a suitable match for Mr Mullen’s role.

89. By reference to the Mercer document, Mr McManis accepted that if this were the appropriate classification of Mr Mullen’s role, then he was paid well in excess of any of the remuneration data given for people in the Tier 1 level, and that he was “well paid” in the sense of paid at or better than market rates.

90. Thus, in my view, the comparable remuneration range on which Mr Hogan relied – relevant to Tier 1 executives, or business unit leaders – is more appropriate than those ranges on which Mr McManis relied.

91. As to the second point of difference – the “comparator” cohort – Mr Hogan’s analysis of the comparable features was more thorough and more persuasive than that of Mr McManis. Again, in the course of the concurrent evidence session, Mr McManis appeared to accept this point, at least in part.

92. As to the third point – position in the range – the position is less clear. It appears that remuneration consultants identify ranges of remuneration, and consider percentile bands across that range. Usually, the bands referred to are the 25th percentile, the median, and the 75th percentile. In each case, the relevant “band” is in fact that from the designated percentile to the next percentile. Thus, for example, remuneration at the 25th percentile range would fall on or between the 25th and median figures.

93. Mr McManis positioned the role of Mr Mullen at the 75th percentile of the ranges on which he relied. I think that this was too generous. Mr Hogan positioned it at the 25th percentile. I think that this was somewhat ungenerous. Looking at the matter over the financial years in question, from FY 2010 to FY 2013, and accepting that some upward shift over that time may have been appropriate, I think that the median band is the closest relevant point of reference.

94. In saying that, I accept (as the experts agreed) that the selection of the percentile band involves subjective and judgmental issues, on which minds may legitimately differ. I accept, also, that it is likely that remuneration for someone performing Mr Mullen’s role might have commenced at a lower percentile range, and (at least on satisfactory performance) moved up the range. I have sought to accommodate that in the selection of an overall appropriate band.

95. With that in mind, if one turns to the Tier 1 data (and I refer to those because they seem to me indicate the directly comparable ranges), it is apparent that over the financial years in question, Keira was not underpaid by reference to market rates. As I have said, Mr McManis accepted that if this were the appropriate comparator, Mr Mullen, or Keira, was “well paid”.

96. Further, and if one looks not at what Keira was actually paid, but at what the total payable might have been, the position becomes even more favourable from the perspective of Broadcast Australia. In three of the four years in question, Keira did not achieve the maximum possible short term incentive. However, in assessing the value of the “package” for the purposes of comparison with industry data, it is necessary in my view to look at what the total may be. Any other approach would overlook the simple fact that incentives are just that: rewards for performance. Focussing on lesser amounts actually paid, where by definition they represent the bitter fruits of underperformance, necessarily means that the comparison is skewed in favour of Keira, by reason of its own failure, through Mr Mullen, to achieve the full discretionary bonus.

77. I said a moment ago that Mr McManis placed Keira’s remuneration at the 75th percentile of what he considered were comparable enterprise groups. There is one qualification to that. Mr McManis referred to a group of listed ICT (information, communication and technology) companies. He thought that they were comparable, because they were similar industries. In that case, he placed the remuneration at the 25th quartile of the range.

78. Of necessity, this comparison meant that Keira was paid more than the companies at or below the 25th quartile. Mr Braham identified four listed public companies in that category. Drawn from their annual returns, it was apparent that each was substantially larger than Hostworks both by reference to number of employees and by reference to revenues. Nonetheless, the remuneration of their CEOs was, on the analysis of Mr McManis, substantially less than his assessment of what Keira should have been paid.

79. To my mind, this operates as a kind of reality check on the evidence given by Mr McManis. Although he said that he did not descend into the detail, and relied on group data rather than individual data, it is nonetheless very difficult to understand why Keira should have received substantially more, for the role performed by Mr Mullen, than was received by the CEOs of the four entities in question. That difficulty is compounded when it is remembered that Mr Mullen was not a true CEO, in the sense that he did not perform all the duties that a CEO of a stand-alone listed public company would perform.

80. As I have said, I regard that as a reality check which confirms my general preference for the approach taken by Mr Hogan.

81. It follows, accepting as I do Mr Hogan’s evidence, that there is simply no evidence that for any of the years in question, Keira was underpaid by reference to market rates.

Conclusion and orders

102. For those reasons (which do not deal with all the many points argued) Keira’s case fails.

103. I order that the plaintiff’s amended summons be dismissed.

104. I direct that the exhibits be handed out.

105. I will hear the parties on costs.

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Decision last updated: 18 November 2015