Lau v Bob Jane T-Marts Pty Ltd
[2004] VSC 69
•11 March 2004
Bob
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
No. 4992 of 2003
| THOMAS LAU | Plaintiff |
| v | |
| BOB JANE T-MARTS PTY LTD | Defendant |
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JUDGE: | OSBORN J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 16-20 and 23-25 February 2004 | |
DATE OF JUDGMENT: | 11 March 2004 | |
CASE MAY BE CITED AS: | Lau v Bob Jane T-Marts Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2004] VSC 69 | |
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Contract of employment - Termination of employment - Payment in lieu of reasonable notice - No fixed minimum term - Bonus incentive – Lack of certainty and completeness as to terms of agreement – No overpayment of superannuation and expenses.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | W.F. Gillies | Michael J. Amad Pty |
| For the Defendant | P.J. Hayes | Raj Lawyers |
HIS HONOUR:
Introduction
On 9 October 1999 the plaintiff was given three months' notice of his retrenchment by Pasminco Ltd as Group Manager Marketing. At that time he had been so employed for 16 months on a salary of $135,000 per annum inclusive of other benefits including superannuation and the use of a car.
On 14 October 1999 the plaintiff forwarded a letter to the defendant seeking employment with the defendant. The letter characterised the plaintiff as an experienced business manager with particular expertise in sales and marketing, project management, business development and planning, and international relations. It enclosed an impressive personal resumé indicating that after an initial degree with first class honours in mechanical engineering from a Malaysian university the plaintiff had gone on to obtain post-graduate qualifications at the University of Cambridge in the United Kingdom. He then progressed from engineering to managerial positions. He had managerial experience in the previous decade with Pasminco Ltd, BHP Ltd, BHP Engineering Ltd, Exon Australia Ltd and the Ford Motor Company of Australia Ltd.
At the time in 1999 and at all material times thereafter Mr Bob Jane held 90 percent of the shares in the defendant and was its Managing Director. He controlled the defendant and had the ultimate say on all issues of importance affecting its management. It was his view in late 1999 that it was appropriate for the defendant to bring in a new Chief Executive Officer due to a decline in profitability in previous years and the substantial management difficulties that had been encountered.
Bob Jane (whom I am satisfied at all material times had authority to deal with the plaintiff on behalf of the defendant) met with the plaintiff on 1 November 1999 and was impressed by the plaintiff and his qualifications. After some discussion Bob Jane agreed that the defendant would employ the plaintiff and on 3 November 1999 he wrote to the plaintiff in the following terms:
"Dear Thomas
Thank you for sending me your resumé and for finding time to meet with me on Monday 01 November 1999.
This letter serves to confirm my offer to you to be employed as the Chief Executive Officer of the Bob Jane T-Marts Tyre Group, commencing on 15 November 1999 as agreed.
The salary package will be no less than what was discussed and prior to your commencement date, we will have a further, more detailed discussion on additional incentives in line with the achievement of certain performance targets.
I will speak to you again to discuss this issue with you early next week. I take this opportunity to extend a warm welcome for you to become part of the Bob Jane T-Marts family and I look forward to achieving future success together."
The plaintiff commenced employment with the defendant on 15 November 1999 and on 17 November 1999 a further letter was provided by Bob Jane on behalf of the defendant to the plaintiff in the following terms:
"This letter serves to state your total remuneration offer as the company's CEO to be $180,000 inclusive of all taxes, car allowance and superannuation.
Further to this commencement offer, you will be given an opportunity to participate in a profit share scheme for your performance at the Bob Jane T-Marts Tyre Group and the corporation as a whole. This will be considered within a period of 120 days from your date of commencement.
I trust this will clarify our positions and I look forward to receiving positive results with your contribution."
The plaintiff's case is that thereafter he confirmed his understanding of this letter with the defendant and that he was in fact paid:
·the monthly equivalent of $180,000 per annum,
·plus superannuation, and
·was provided with the use of a motor car.
Thereafter the plaintiff sought to perform his duties as Chief Executive Officer to the best of his ability including the attempted formulation of a staff incentive scheme. Nevertheless, his performance was not satisfactory to Bob Jane and on 20 October 2000 the defendant terminated the plaintiff's employment paying him one month's salary in lieu of notice, exclusive of superannuation but including the use of a car. The defendant does not allege that the plaintiff was guilty of misconduct entitling it to dismiss the plaintiff summarily. It has conducted its case before me on the basis that the defendant was entitled to terminate the plaintiff's employment and dismiss the plaintiff from his employment with it upon the provision of reasonable notice or payment in lieu thereof.
The plaintiff now claims:
(a)that he was employed pursuant to a contract of a fixed minimum duration under which he was entitled to be employed for a period of between five and seven years;
(b)that he is entitled to a performance bonus pursuant to arrangements agreed after the commencement of his employment; and
(c)that if he was not employed pursuant to a contract which fixed a minimum term of duration then he was entitled to 12 months' notice prior to termination of his employment.
The defendant counterclaims:
(a)that it overpaid the plaintiff during the course of his employment as a consequence of negligent misrepresentation by the plaintiff; and
(b)that a one week trip undertaken by the plaintiff to the Sydney Olympic Games was not undertaken in the course of the plaintiff's employment and accordingly
· the plaintiff was overpaid one week's annual leave when his employment was terminated; and
· an amount of incidental expenses is refundable by the plaintiff to the defendant.
The Claim as to a Five to Seven Year Term of Employment
I accept that it is more probable than not that the plaintiff had some initial discussions with Bob Jane as to the period for which the plaintiff might reasonably expect to be employed as Chief Executive Officer by the defendant. The plaintiff had just been retrenched and was as he says going into a family company. It would be entirely sensible for him to raise this issue with Bob Jane.
I further accept that it is likely Bob Jane gave the plaintiff an estimate in the order of five to seven years as to what term the plaintiff might expect to serve as Chief Executive Officer. It is likely that as the plaintiff says Bob Jane did so in part by reference to his plans for his son Rodney Jane to move into the position of Chief Executive Officer in due course. It is likely such conversation was more significant to the plaintiff than it was to the defendant's witnesses who cannot recall it.
I do not, however, accept that any such conversation went beyond an estimate or statement of general intention at the time. In particular, I am not persuaded by the plaintiff's evidence that there was any agreement for a fixed or minimum term of employment. Neither of the letters provided by the defendant to the plaintiff in November 1999 record an agreement such as that alleged by the plaintiff. The letter setting out the terms of remuneration would surely have recorded that the salary referred to was one offered for a fixed or minimum term if this was the case. Furthermore no other contemporaneous documentation records the alleged agreement. Lastly, when the plaintiff was ultimately sacked by Mr Rodney Jane in the presence of Mr Alex Chung the plaintiff did not assert that he had a right to a fixed term of employment of at least five years. He simply asserted that he was entitled to a minimum period of six months' notice. I do not accept that the plaintiff was retained as Chief Executive Officer on the terms now alleged regarding the duration of his employment and accordingly the first limb of the plaintiff's claim fails.
The Claim for a Performance Bonus
It is apparent from the letter of employment of 3 November 1999 that at the time of the initial meeting between the plaintiff and Bob Jane there was discussion concerning a bonus incentive package. In confirming his offer to the plaintiff Bob Jane stated:
"The salary package will be no less than what was discussed and prior to your commencement date, we will have a further, more detailed discussion on additional incentives in line with the achievement of certain performance targets."[1]
[1]Defendant's court book 1168. I shall refer to the defendant's court book as the "court book" and identify exhibits principally by reference to it for the sake of convenience.
Both the plaintiff and Bob Jane agree that there was some discussion of a bonus incentive package scheme at the initial meeting. Bob Jane maintains that he had reservations with respect to such a scheme because of previous experience that such schemes could be counterproductive. Nevertheless, he says that he agreed to the preparation of such a scheme by the plaintiff (relating to staff generally) because it was possible the plaintiff had the capacity to put something together which was workable and would be to the company's benefit. The plaintiff also intended from the outset that he would put together a scheme which extended beyond himself.
Bob Jane's position was no doubt adopted in part having regard to the fact (as I have said) that the defendant had suffered a decline in profitability. It had suffered a reduction of gross profit during the period 1996 to 1998 due to an increase in expenses and a drop in sales.[2] Bob Jane hoped the plaintiff would implement new initiatives and reverse this trend.
[2]Court book 1156.
Prior to commencing duties on 15 November 1999 and as envisaged in the defendant's letter of 3 November 1999, the plaintiff had a further preliminary meeting with Bob Jane concerning a bonus scheme. The plaintiff had made a series of preliminary handwritten calculations as to the basis of a bonus scheme for senior staff almost immediately after his employment. These were produced in evidence. They envisaged key performance indicators for the Chief Executive Officer, General Manager and Chief Financial Officer based on a series of factors including cash flow, retail sales turnover, the net profit results and "climate survey". An annotation by the plaintiff indicates that these notes were discussed with Bob Jane at his farm and the plaintiff was advised "it is too complicated to implement – use net profit." I accept that there was a conversation to this general effect and the plaintiff was encouraged to put forward a further proposal.
On 15 November 1999 Bob Jane made a presentation to staff concerning Mr Lau the basis of which is recorded in printed notes. In the course of that presentation Bob Jane made statements to the following effect:
"… The biggest change I have had to make is in the appointment of Thomas Lau as the company's new CEO. As you have gleaned from the introduction letter, he is a highly qualified individual who will not only assess the company and everything it is currently doing but more importantly, he will work with each and every one of you to achieve long term goals and in the process, help bring out the best of your ability.
Thomas will be responsible for devising and implementing strategic objectives and he will also be involved in guiding senior managers to ensure we all achieve common goals. *Vertical Management – Bob to explain. Thomas will empowered to direct, guide and review your performances according to the professional criteria established by him. He will be directly responsible and accountable only to myself, and/or the entire Board of Directors …" (emphasis in original)
I am satisfied that this presentation foreshadowed a process of identification of goals and key performance indicators. It did not expressly refer to a bonus scheme but it was deliberately expressed in terms which would embrace the process of the implementation of such a scheme.
On 17 November 1999 when Bob Jane wrote to the plaintiff making a remuneration offer he stated:
"Further to this commencement offer, you will be given an opportunity to participate in a profit share scheme for your performance at the Bob Jane T-Marts tyre group and the Corporation as a whole. This will be considered within a period of 120 days from your date of commencement."
I find that this letter was intended to convey a genuine in principle commitment to the plaintiff with respect to a profit share scheme. I do not accept Bob Jane's suggestion that he was seeking at the time to deflect the plaintiff from concern with this concept. It is true that the basic salary package (however its detail was to be understood) substantially exceeded that which the plaintiff had received at his previous employer. Nevertheless, I do not accept that Bob Jane's statement that the plaintiff would be given an opportunity to participate in a profit share scheme was at this stage other than genuine.
Bob Jane also gave evidence that he regarded the plaintiff as being in effect on probation for 90 days. I accept this and the time frame stated in the letter of 17 November 1999 thus postulated a further month beyond this period in which a profit share scheme for the plaintiff would be considered.
Shortly after the defendant's letter of 17 November 1999, the plaintiff submitted a memo of 22 November 1999 to Bob Jane concerning the plaintiff's proposal for a staff incentive scheme. This memo was headed "Strictly Confidential" and stated:
"As discussed with you and Rodney Jane on 16 Nov 1999, I write to seek your approval to put in place a staff incentives scheme to further improve our business growth and profitability.
The scheme is based on the following proposed components.
1. Implementation date: from 1 Jan 2000.
2.Open to all permanent staff – from CEO to receptionist, excluding employees already on previous profit-sharing schemes.
3.Performance based criteria and targets set by the CEO and departmental managers.
4.Money allocation for this scheme is around 7.5% of the Gross Profit Before Interest and Tax (set at $7.5 to $15M in the first year) based on the following ratio:
(a)CEO – 2% fixed plus a 0.5% discretionary bonus from the Chairman;
(b)Management team – 3% maximum, based on targets set by the CEO;
(c)All staff – remaining 2.5% maximum, based on targets set by the CEO.
Note: The CEO may alter the ratio of (b) and (c) above to reflect the need to reward the most deserving employees strictly based on performance.
5.At the recommendation of the CEO, the company may withhold part of the incentives money for use of any extraordinary business expansion purposes."
This memo was received and annotated by Bob Jane. He ticked items 1 and 2 and annotated item 2 with a reference to the need for discretion relating to staff who already had bonus schemes.
Thereafter the plaintiff asserts he was given a handwritten memo ("the November memo") by Bob Jane giving approval for the implementation of an amended scheme. The full terms of this memo are set out in appendix 1.
Bob Jane asserted in evidence that this document comprised notes for a meeting and denied that it was or would have been given to the plaintiff. I do not accept this. It is clear that the contents might properly be regarded as confidential and this provides an obvious rationale for a handwritten memo. I accept the plaintiff's evidence that the document was given to him by way of response to his own memorandum of 22 November 1999. Further, I accept his evidence that having received it he acted upon it and in particular made an initial powerpoint presentation to all staff concerning the proposed scheme and thereafter sought to refine this scheme with senior staff members.
Returning to the November memo, Bob Jane further asserts that the signature appended to it and contained on the fourth page was not appended by him to the memo, nor in particular was it so appended at the plaintiff's request as the plaintiff maintains. It is unnecessary for me to resolve the conflict between the plaintiff and Bob Jane on this point. I am satisfied that Bob Jane did in fact provide the plaintiff with the memo and intended the plaintiff to act in reliance upon it whether he signed it or not.
The memo stated the following essential matters:
· Bob Jane was committed to the staff incentive scheme "in principle".
· The kind of incentive proposal in issue was accepted as both desirable and to some degree necessary as a tool for the CEO.
· Commitments to retiring directors required a revision of the formula proposed by the plaintiff.
· Bob Jane suggested the scheme should be:
(a)applied to 90% of profit before tax ("not audited yet but reasonable expected profit");
(b)open to all staff save exceptions whose current remuneration made a further bonus inappropriate;
(c)involve percentages for different categories of staff which were different from those put forward by the plaintiff and were:
(i)Thomas Lau 2% - "value say on $7-14 million $140,000 to $280,000";
(ii)management team 2½% "range – $175,000 to $350,000 for disbursement";
(iii)all staff 2% "range – $140,000 to $280,000 for disbursement".
(d)this would comprise a total of 6½% on the 90% for the period of 1 January 2000 to 30 June 2000. (Despite the reference to 1 June 2000 in the document I am satisfied Bob Jane intended to refer to 30 June 2000).
· Based on experience with this initial period the bonus system for 1 July 2000 to 30 June 2001 would be reviewed. (Despite the reference to 31 June I am satisfied Bob Jane intended to refer to 30 June 2001).
A critical issue in this case is whether this memo can be regarded as comprising a certain and complete agreement as to the initial bonus payable to the plaintiff. Nevertheless, before returning to its terms, it is useful to record the further course of events.
The evidence as to the course of events is admissible as going to the fact of a concluded agreement at the time of the November memo as distinct from its terms. The conduct of the parties subsequent to the making of a contract is not relevant to the interpretation of the contract[3]. The relevant principle is stated by the New South Wales Court of Appeal in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd[4]. Gleeson CJ, with whose reasons for judgment Hope and Mahoney JJA agreed, stated at 550 and following:
"… The case involves the objective determination of the intention of the parties from a consideration of a series of communications exchanged by them in the context of their dealings over a period of time. In those circumstances it is both appropriate and necessary to have regard to the commercial circumstances surrounding the exchange of communications and, in particular to the subject matter of those communications: Allen v Carbone (1975) 132 CLR 528 at 531-532. Furthermore, as was noted earlier, it is proper to have regard to communications between the parties subsequent to the date of the alleged contract to the extent to which those communications throw light upon the meaning of the language which is being considered for the purpose of determining whether it expresses an intention one way or the other upon the critical matter. At the least, such subsequent communications will often form part of the context in which the particular exchanges in question are to be evaluated."
[3]Ryan v Textile Clothing & Footwear Union of Australia [1996] 2 VR 235, FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343 and Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153.
[4](1988) 18 NSWLR 540.
During the first half of 2000 the plaintiff sought to devise an incentive scheme for the defendant's staff. It is apparent, however, that he did not resolve the details of such a scheme. Neither the key performance indicators applicable to individual staff were finalised nor were the individual bases of quantifying bonuses.
The plaintiff made a powerpoint presentation to all staff concerning the incentive scheme in or about January 2000. (Despite the date printed on its face I am satisfied that the presentation was prior to 12 April having regard to the evidence of staff witnesses and the detail of emails prior to this date.)
The presentation envisaged the specification of key performance indicators for each staff member, the weighting of such criteria, the specification of a minimum target or targets, and the date for the achievement of such targets. This process, however, was never completed, as all the witnesses associated with the company unanimously attested.
The nature of the process which was attempted and the fact that it was not resolved is reflected in a series of emails tendered in evidence before me. I will mention some examples.
(a)By email dated 7 April 2000 the plaintiff advised Rod Kitchin and Nikki Berger concerning the staff incentive scheme as follows:
"The trial period for the above is 1 January 2000 to 30 June 2000 and any payment will probably only be made in August 2000. The scheme is subject to review at the end of the trial period. It has never been intended to be a monthly payment. The key measure will be based on the monthly P & L (actual versus budget etc.), the performance of the participants meeting the set performance criteria (and specific targets etc.) While an indicative likely range is given, it has never been designed as 'automatic' monthly payments."
(b) By further email of 11 April 2000 the plaintiff advised Mr Kitchin:
"I have not forgotten that meeting – in which, I clearly outlined to you and others that an indicative achievable range might be established following each monthly P & L (as it is % pegged) so that staff can see and be motivated by the results and what is achievable when it is strictly performance based at the end of the six month trial period – eg. maximum achievable target is X 1 plus … X 6 but one only gets Y because of overall performance. Please do not forget that the key condition for participation is to have agreed performance criteria between the staff and supervisor – this is clearly communicated to all – it is a performance based staff incentive that requires goals, settings and measurements. It is not an 'automatic' or 'consequential' or 'promised" payment with administrative nightmare! You are right – Sales and Marketing has clearly defined targets and I expect the same for all that are participating. It is not an issue of it not reflecting well on anyone. Yes, this scheme is for only on trial from 1 Jan to 30 June (and not beyond)."[5]
[5]Court book 854.
(c)By email of 19 April 2000 the plaintiff advised another staff member, Michael Francis, of indicative but not as yet final performance criteria.
"Yes I can confirm that the staff incentive scheme is in place from 1 Jan 2000 to 30 June 2000. It is linked to 90% of Gross Profit (Bob's share) during this period and to be paid in August 2000. I did indicate to you in December the maximum achievable bonus for you is 0.4% of 90% of Gross Profit, based on you meeting agreed performance criteria which include:
(i) cash flow (10% weighting);
(ii)retail sales turnover – gross target/# new store – eg. 20% per annum growth – doubling the turnover in five years (40% weighting);
(iii)net profit of BJTM (10% weighting on gross profit to BJTM, 15% weighting on Budget/Cost Control);
(iv)Climate Survey – team work/customer satisfaction etc. (25% weighting).
Please be reminded that the staff incentive scheme is strictly performance based and strictly confidential. No it is not backdated to 1/7/99."
On 3 July 2000 the plaintiff prepared a confidential memo to Bob Jane in the following terms under the heading "Strictly Confidential – Only Handled by Chairman".
"Dear Bob,
With your approval (see attached note), we implemented a Staff Incentive Scheme in the 6 months from January 2000 to June 2000 allowing for a maximum of 6½% of 90% (Bob's share) of Profit Before Tax.
The final committed and recommended incentives payment is 4.72% of 90% (Bob's share) of Profit Before Tax. This represents a saving of 1.78% from the original approved level of 6½%. The details is as follows:
Thomas Lau, CEO 2%
Rodney Jane, GM 1%
Michael Francis, GM *0.4% (amount set aside – legal case)
Peter Burns, Mgr 0.74% (based on $26.5K – to be negotiated down)Felix Lai, CFO *0.64% (based on $23K – as novated lease from June)
Kathy Bourke 0.05%
Rod Kitchin 0.03%
Nikki Berger 0.03%
Neven Milevoj 0.03%
Sharron Cowman 0.04%
All Staff 0.08%Total 4.72% (*excluding M Francis/F Lai's bonuses)
(Note: I will be negotiating further with Peter Burns given that some of the basis of his bonus computation - $26.5K – is debatable.)
Once the 1999/2000 financial figures are completed, the bonus will be paid from August over 6 monthly installments (to ease cashflow), a slight deviation from your earlier instruction (see attached) to pay out in the month of August 2000.
The overall assessment of this 1999/2000 scheme is that whilst it worked well at senior executive levels, it was not as effective for all staff. I will therefore announce to all staff that this will now cease with immediate effect.
New Financial Year 2000/2001
In line with your original philosophy, the principle of incentive is still desirable and very necessary to key senior executives to drive performance in the company. At the same time it is a good staff morale lifter to retain the previous tradition of a Christmas or annual bonus to all general staff.
As such, I am proposing in the new financial year that we offer an incentive scheme to only the most senior managers (note: we are committed to in most of their contracts of employment); and provide a one-off discretionary Chairman's year – and/or Christmas bonus to all general staff.
This is aimed at driving the company and staff to achieve the challenging new financial year targets, set by the Chairman, to be a $14M profit from retail sales and $4M from capital injections via new Stores. The new overall incentive/bonus program in the new financial year will represent about only 3.7% of 90% of the PBT. The details is as follows:
CEO – Thomas Lay 2.0% Profit Before Tax (PBT)
GM – Rodney Jane – 0.8% of PBT
S&M – Vaughan Clark – max $20K bonus
CFO – Felix Lai - $23K bonus (taken as novated lease)
Frachise Dev – Peter Burns - $2000 (reduced from $3500) per T-Marts)(note: target 20 new stores by July 2001)
All Staff – Christmas Bonus – max $30K in total
Total 3.7% (based on $14M PBT in 2000/2001).
The above is within a very realistic benchmark for industry of our size to incentivise senior managers and staff to drive company's performance.
May I seek your approval to finalise the 1999/2000 (once the PBT figures is completed in July/August) and the new 2000/2001 scheme, please."
Bob Jane does not recall receiving this document but I am satisfied it was provided to him (probably on 4 July having regard to the terms of the plaintiff's diary). I further accept the plaintiff's evidence that upon receipt of the memorandum Bob Jane stated to the plaintiff in substance:
"… In principle, he will honour this, and in fact he told me he wanted a more aggressive scheme. He wanted a more aggressive scheme for the senior managers. He wanted top stores, more stores by year 2000, so he wanted a special package. So he was promising me that, you know, we are going to continue with the staff incentive for senior managers. For junior staff, we agree that we cancel it and revert back to a bonus scheme; and Bob also say that because he is travelling in the month of July he wanted to wait, he wanted me to wait for him to come back before he authorised the payment, and also to wait for the accounts to be finalised."[6]
[6]Tpt. 73.
A handwritten note made by the plaintiff on 3 July 2000[7] records:
[7]Court book 1816.
" – spoken to Bob, leaving overseas tomorrow afternoon.
- discuss tomorrow or wait till his return.
-there will be more profits/losses etc. – only finalised August/October etc.
- need to communicate future plan (what bonus etc.)
- WA set up to be included?
- BJTM – $169K estimated total for all under this scheme."
As I have already recorded, the plaintiff's own memo of 3 July 2000 also envisaged that the bonus would be paid from August once the 1999/2000 financial figures were completed.
No final resolution of the amounts payable under the staff incentive scheme occurred. On 24 August 2000 the plaintiff forwarded an email to Bob Jane relating to a claim by one Peter Burns for a bonus and stated by way of introduction[8]:
"Bob
Peter is putting pressure on us to finalise this. Would you like to resolve this now or after your overseas trip. My recommendation is for us to do it (together with other staff incentive schemes) after your return from your trip in Oct (as we must first get the fully audited 1999/2000 P & L to ascertain our profit levels etc.)."
[8]Court book 583.
I now return to the November memo. The statement of claim first alleges that through the November memo:
"It was agreed that the plaintiff would receive a profit share based on 90% of profit before tax of the defendant upon which a 2% bonus would be paid upon an annualised profit before tax of more than $7 million up to $14 million."
It further alleges that on 3 July 2000 the plaintiff wrote to the defendant recommending a bonus payment to the plaintiff for the first six months of 2000 and subsequent periods, and that Bob Jane approved the payment on behalf of the defendant.
The November memo did not on any view express an obligation beyond a trial period of six months. Insofar as a claim was originally made in this proceeding with respect to the subsequent period of the plaintiff's employment there is no arguable basis for it and it has not been pursued before me.
The more difficult question is whether the approval "in principle" expressed by the November memo resulted in obligations which were certain, complete and intended to be legally enforceable.
There are three aspects of the arrangement which the defendant contends made it (at best) provisional:
(a) the definition of operational profit was uncertain;
(b) the basis of payment to the plaintiff was uncertain; and
(c)it was not envisaged payment would be made to the plaintiff independently of the resolution of a comprehensive scheme relating to the company staff as a whole.
I will deal with each of these factors in turn, although in truth, the issues are related. The fundamental problem confronting the plaintiff is that the language of the November memo is that of profit estimates. Such language readily connotes authority to formulate a scheme within a range but presents fundamental problems if it is sought to be relied on as itself defining obligations and entitlements with certainty and finality.
The November memo states, "take 90% of the profit before tax, not audited yet but reasonable expected profit." The plaintiff contends that this referred to profit as reported in monthly management reports, such as that found at court book 1815. It is clear that such reports were provisional and in the past had progressed to annual management reports in the form set out at court book 1856-1858. Moreover, as I have stated, the plaintiff himself on 3 July 2000 annotated management figures as not finalised and subject to further profits and losses[9]. Further, on 24 August 2000 the plaintiff advised Bob Jane that he was waiting for the audited figures.
[9]Court book 1816.
The evidence as to the profit and loss situation of the defendant discloses that the estimate of profit by management reports was the subject of revision. The audited profit for the group comprising the defendant company for the year ending 30 June 2000 was $5,615,008. The profit based on revised monthly management reports of the type the plaintiff states he used in formulating the appropriate target range in discussion with Bob Jane, was in the order of $6.968 million.[10] (No report in this form is available which includes the June 2000 figures).
[10]Court book 1763.
It is only the managerial report in the form set out at court book 1815 that results in a profit in excess of $7 million for the relevant financial year namely $7.796 million. The provenance of this report is not clear. It was described by the witness Kitchin as having the appearance of the sort of internal report the company secretary Garry Ryding used to prepare for his father the director.
It can be seen that the definition of the relevant profit and its mode of ascertainment might critically affect both the achievement of a relevant target (and in particular $7 million if that be such target) and the amount payable by way of any bonus referable to such profit.
Having regard to the evidence as a whole I have formed the view that the terminology adopted in the November memo was not certain and that in effect Bob Jane reserved to himself the right to finalise and approve the relevant profit figure. In this regard the terminology "not audited yet" is of some significance.
I am not satisfied that the November memo does more than disclose approval of an estimated profit range for the formulation of a proposed scheme. In commercial terms this might be regarded as the essential starting point of the scheme. The document gives an in principle budgetary "allocation" to the project to use the term used by the plaintiff himself in his expression of the formula at item 4 of his memorandum of 22 November 1999.[11] The document does not, however, define the basis on which the profit figure utilised for the purpose of implementation of the scheme would ultimately be ascertained and finalised for the first six months. The document is entirely consistent with the view that this aspect of the scheme required further resolution and approval. The very timing of the document in November 1999 supports this view. Moreover, the plaintiff's own notes and emails after the conclusion of the financial year support the view that no concluded agreement had been reached even by then as to the final ascertainment of the relevant profit.
[11]Court book 1134.
The next issue relating to certainty and completeness of the agreement involves the manner of calculation of the bonus. The November memo makes clear that the scheme was to operate on 90% of the relevant profit and then states percentage criteria. The subsequent figures clearly had regard to the plaintiff's own expression of a desired "allocation" and are to be understood as an allocation of a range of funds potentially payable. The plaintiff, however, goes further and says that the defendant by the November memo in fact approved both the target level of performance necessary for payment of a bonus to him personally and the manner of its calculation. I will deal first with the question of the plaintiff's target.
If the November memo constituted approval of a bonus payable to the plaintiff, then the November memo on its face provided for payment of a bonus in the event of an annual profit of $7 million in the relevant financial year. The plaintiff's claim is, however, made on the basis that by the memorandum it was agreed that a bonus would be payable if an annualised target or targets were achieved i.e. a target of $3.5 million for the six months or $0.588 million per month. It can be seen that the performance required to achieve the relevant target or targets might vary significantly with each of these alternatives.
Likewise, the bonus which would be yielded might be affected hypothetically by the manner of ascertainment of the profit over the relevant six months either as that actually achieved in the relevant six months, or that achieved assuming that $3.5 million had already been reached in the initial six months of that year.
On the basis of the evidence as a whole I have formed the view that although the plaintiff may have understood the November memo as going beyond an allocation of funds in principle it did not in fact resolve with any certainty the basis on which the bonus was to be paid or calculated. It did not embody an agreement as to the relevant performance indicator or as to the manner of calculation of the bonus if such indicator were achieved. It did not on its face refer to annualised figures and I accept Bob Jane did not intend it to. It may have provided the basis for the preparation of such a scheme but it did not constitute approval of such a scheme.
This uncertainty was said by the plaintiff to have been resolved in discussion concerning the memorandum with Bob Jane. I am not persuaded such uncertainty was resolved. In this regard I note that in cross-examination the plaintiff ultimately conceded first that the November memo does not in terms refer to a performance criterion[12] and second that he did not in chief or during initial cross-examination refer to a conversation with Bob Jane in which it was agreed his performance trigger would be a profit of $3.5 million for the six months.[13] In my view the probability is that the plaintiff's understanding of the scheme was not fully communicated to and shared by Bob Jane. Furthermore it did not crystallise in communications, which can be regarded objectively as certain and complete, as to the trigger for and manner of calculation of the plaintiff's bonus.
[12]Tpt. 424.
[13]Tpt. 424-425.
The last factor relied on by the defendant with respect to the lack of certainty and completeness in the November memo is the proposition that the memorandum envisaged and required a comprehensive scheme of bonuses. As against this it might be said firstly, that the memorandum deals with the plaintiff as being in a category of his own. Secondly, that the letters pursuant to which he was appointed expressly envisaged that he individually would receive a bonus. Thirdly, it may well be that a bonus payable on the basis of gross profit is sensible in the case of a CEO but not in the case of other staff. Fourthly, Bob Jane had identified gross profit as the appropriate performance indicator for the Chief Executive Officer in his response to the plaintiff's handwritten notes provided in early November with respect to the structure of a possible incentive scheme.
As the defendant contends, however, the November memo clearly envisages a scheme for all staff and I am not satisfied that the November memo can be said to commit the defendant to a payment to the plaintiff in the absence of resolution of a larger scheme. In particular it is difficult to read the November memo as approving the payment of a bonus to the plaintiff if the scheme otherwise failed totally. Such an outcome would not reflect the proposal put forward by the plaintiff to Bob Jane, the essential character of such scheme as a tool for enhanced staff performance, and the tenor of the November memo itself including, in particular, the specific reference to the scheme as one for all staff immediately prior to the statement of the "formula" relied on as constituting approval of a bonus for the plaintiff.
The plaintiff's evidence as to the discussion which occurred with Bob Jane after the submission of the plaintiff's memo of 3 July 2000, confirms that at that stage it was the understanding of the parties that the details of the scheme were unresolved. The plaintiff says that Bob Jane stated that "in principle he will honour this". The plaintiff says Bob Jane wanted the plaintiff to wait until Bob Jane returned from overseas before Bob Jane authorised the payment and to wait for the accounts to be finalised. This conversation does not amount to an approval of payment to the plaintiff as alleged in the statement of claim. It did not constitute approval of a bonus in a sum certain or capable of precise ascertainment and it cannot be objectively understood to have constituted final approval of payment to the plaintiff in isolation.
The subsequent email of 24 August 2000 concerning Peter Burns further reflects the understanding of the plaintiff that the liability of the defendant had not crystallised in a final approval.
For the above reasons although I am satisfied that there was agreement between the plaintiff and Bob Jane on behalf of the defendant to the effect that the plaintiff would develop a staff bonus incentive scheme and that the plaintiff sought to do so with the support in principle (initially at least) of Bob Jane, no certain and complete agreement for the payment of a performance bonus to the plaintiff was ever finalised.
In Australian and New Zealand Banking Group Ltd v Frost Holdings Pty Ltd[14] Kaye J, with whom Marks and Teague JJ agreed, adopted the following statement by Sugarman J in the Full Court of the Supreme Court of New South Wales, quoted on appeal with approval by Menzies J in Thorby v Goldberg[15]:
"It is a first principle of the law of contracts that there can be no binding and enforceable obligation unless the terms of the bargain, or at least its essential or critical terms, have been agreed upon. So, there is no concluded contract where an essential or critical term is expressly left to be settled by future agreement of the parties."
[14][1989] VR 695 at 700.
[15](1964) 112 CLR 597 at 607.
The application of this fundamental principle to contracts of employment was illustrated in the decision of the New South Wales Court of Appeal in Biotechnology Australia Pty Ltd v Pace[16]. In that case it was held that the promise of an option to participate in a non-existent equity share scheme, being dependent for its formulation on factors special to the particular employment relationship, was incapable of being valued in accordance with any existing or reasonable standards. It was therefore illusory and did not give rise to an enforceable contractual obligation. Kirby P summarised the relevant general principles applicable at p.135 and stated that the Court would not uphold the validity of an agreement where in effect it was asked to spell out to an unacceptable extent that to which the parties had themselves failed to agree. Nor would the Court clarify that which is irremediably obscure. Most particularly the Court would not accept for itself a discretion which the parties had, by their agreement, reserved to one or other of them. To do so would not be to effect the contract but to change it.[17]
[16](1988) 15 NSWLR 130.
[17]Kofi-Sunkersette Obu v A. Srauss & Co Ltd [1951] AC 243 at 250 (PC)..
In the present case the parties agreed to the development of a bonus incentive scheme. The scheme itself was, however, never finalised and the defendant never agreed to pay the plaintiff an ascertained or ascertainable sum. Moreover the evidence does not satisfactorily establish that the profit target contemplated for the proposed scheme was ever achieved. Accordingly the plaintiff's claim must fail.
Reasonable Notice
The plaintiff further claims that if he was not entitled to remuneration in accordance with a contract having a minimum term of five years he is entitled to damages in lieu of reasonable notice. The defendant concedes that a term was to be implied into the plaintiff's contract requiring the giving of reasonable notice from the defendant to the plaintiff upon termination of the plaintiff's employment.
In Rankin v Marine Power International Pty Ltd[18] Gillard J stated:
"In determining what is a reasonable period in respect to an employee, it must be steadily borne in mind what the primary purpose of giving a period of notice is. It is to enable the employee to obtain new employment of a similar nature. Some types of employment are readily available, whilst others are not. Those who are at the top or near the top of their chosen fields, invariably have very few opportunities to obtain similar employment and hence, the period of notice is usually many months to in excess of a year."[19]
[18][2001] VSC 150.
[19]Ibid at 220.
In Quinn v Jack Chia (Australia) Ltd[20] Ashley J stated the relevant principles governing the notion of reasonable notice as follows:
"It was common ground that the content of “reasonable notice” is to be determined as at the date when notice is given, not when the contract is entered into. In this context matters occurring antecedently to the making of and in the course of the performance of the contract up to the date of termination are not irrelevant.
Macken et al, Law of Employment, pp.157-8, lists certain pertinent considerations. Thus, for example: the duration of the hiring; industry practice; the seniority of the position held; the importance of the position held; the size of the salary; the worker's age; the worker's length of service; what the worker gave up to come to the present employer; the worker's prospective pension or other rights."[21]
[20][1992] 1 VR 567
[21]Ibid at 580.
The most recent addition of the text to which Ashley J refers[22] states at p.171 that in addition to the duration of the hiring and industry practice, other relevant job related factors include the "high grade" of the appointment; the importance of the position; the size of the salary; and the nature of the employment. Relevant factors which pertain to the employee include: the length of service of the employee; the professional standing of the employee; the employee's age; the employee's qualifications and experience; her or his degree of job mobility; the expected period of time it would take the employee to obtain alternative employment; the period it was likely, apart from the dismissal, that the employee would have continued in the employment; what the employee gave up to come to the present employer; and the employee's prospective pension or other rights.
[22]The 5th edition 2002.
The factors which determine what is reasonable in a particular case must of course turn on the facts of that case. In the present case the defendant now contends three months would be reasonable notice objectively determined and not the one month which in fact formed the basis of the payment which the defendant made to the plaintiff upon the termination of his employment.
I have come to the conclusion that six months was the appropriate period for reasonable notice in the present case. Such a period is in my view reasonable having regard to the following principal factors:
· The seniority and importance of the plaintiff's position as Chief Executive Officer.
· The evidence of Mr Coysh (which I accept) that the plaintiff might reasonably have been expected to obtain an equivalent position within six months. In this regard I prefer the evidence of Mr Coysh to Ms Deane. In my view Mr Coysh demonstrated a more convincing expertise and knowledge with respect to the relevant market.
· The relatively high level of the plaintiff's remuneration which could not be expected to be readily replicated elsewhere.
· The expectation reflected in the discussions between Bob Jane and the plaintiff at the time of the plaintiff's employment that he might reasonably have expected to continue in his position as Chief Executive Officer for five to seven years.
· The identification by the plaintiff at the time of his sacking of six months as the minimum reasonable notice.
I do not accept that the other matters to which Mr Hayes referred in submission including the prior continuous record of employment of the plaintiff, the apparently high level of his qualifications, his relatively young age (41) and his prior degree of job mobility, lead to the conclusion that a lesser period is appropriate.
Conversely I do not accept that the facts in this case are sufficiently analogous to those before the Court in the cases of Quinn and Rankin to justify the greater period of 12 months.
A further question arises as to how damages in lieu of notice should be assessed. Following his initial employment and the defendant's letter of 17 November 1999 the plaintiff advised the defendant's pay officer, Nikki Berger, of his understanding of the terms of his remuneration. These terms were that he would be paid $180,000 per annum, plus superannuation and would receive the use of a car. Bob Jane has given evidence that what he intended by the letter of 17 November 1999 was remuneration of $180,000 per annum, plus a car but inclusive of superannuation. Nikki Berger has given evidence in turn that contrary to the plaintiff's assertion, she was not provided with a copy of the letter of 17 November 1999 at about that time. However, had she been provided with such a letter, she would have had further different understanding of it as a result of previous experience with Bob Jane. It might be said that the apparent plain meaning of the letter accords with none of these understandings.
Critically, however, Ms Berger gave evidence that she did not accept the advice she received from the plaintiff. She sought independent confirmation from Bob Jane of what she should pay the new Chief Executive Officer. Following this inquiry she was advised by Alex Chung (the General Manager of Corporate Affairs for the Bob Jane group of companies) that the plaintiff was to receive $180,000 gross per annum and she understood this from prior experience to mean that the plaintiff would receive superannuation in addition to this.[23] She knew independently that the plaintiff had been given the use of a car and her understanding thus accorded with the plaintiff's understanding of the arrangement and it was on this basis that the plaintiff was paid throughout his employment. In these circumstances I am satisfied that the apparent lack of consensus between the parties as at 17 November 2000 was resolved shortly thereafter and the defendant did in fact agree to pay the plaintiff on the basis that he was in fact paid. Confirmation of that agreement was effected firstly, by the independent instruction to Nikki Berger by Alex Chung to pay the plaintiff and secondly, by the ongoing making of such payments which can only have been regarded by the plaintiff as confirmation of the arrangement as he had understood and asserted it.
[23]Tpt. 665, 670-671, 676-677.
After his employment was terminated the plaintiff took reasonable steps to mitigate his loss during the relevant six months period. He initially sought to embark on a business venture which ultimately failed. In addition he set out on a series of extensive job applications. I am satisfied that the steps taken by the plaintiff were reasonable in this regard.
In the circumstances the plaintiff is entitled to the following:
(a) six months gross salary $ 90,000
(b) superannuation at 7% $ 6,300
(c)use of a motor car for six months
(valued by Bob Jane whose opinion I accept)
at $15,000 per annum[24] $ 7,500
[24]Tpt. 525.
$103,800
less amount paid $13,846
and one month motor car $ 1,250 $ 15,096
$ 88,704
The Counterclaim
The counterclaim relates firstly to alleged overpayment of superannuation and car allowance. The second matter is inconsistent with the evidence of Bob Jane himself, but in any event, for the reasons I have stated, I do not accept the plaintiff was paid superannuation or provided with a car otherwise than with the agreement of the defendant. Further, I note that this counterclaim was originally based on allegations of fraud which are now withdrawn. In my view it was originally misconceived and despite amendment remains unsupported by the evidence.
The further counterclaim relates to alleged overpayment of one week of annual leave entitlement and $371.50 of expenses. This claim is premised on the proposition that the plaintiff without the authority of the defendant treated a trip to the Sydney Olympic Games as part of his employment and further claimed incidental expenses relating to that trip. It is again to be observed that the evidence of Bob Jane was not consistent with the counterclaim as formulated. Bob Jane stated in evidence that he understood the counterclaim involved a claim with respect to one week's leave after the trip to the Olympics and also that it involved a question of airline expenses.[25]
[25]Tpt 526-7.
I accept the plaintiff's evidence that the trip was offered to a senior representative of the defendant by key suppliers with whom the defendant's image and relationship was of some business importance. Bob Jane himself was unable to attend and the plaintiff sought approval to attend as the company's representative. I further accept that this approval was given. The expenses claimed were modest in the extreme and relate in part to ongoing communication with the defendant's office in Melbourne.
Once again, this counterclaim was originally formulated by way of allegations of fraudulent conduct. It was originally misconceived and in my view remains unsupported by satisfactory evidence.
Conclusion
Accordingly the counterclaim is dismissed and for the reasons I have already stated the claim is allowed in part.
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Appendix 1
MEMO: THOMAS LAU
RE: STAFF INCENTIVE SCHEME
Following our first discussion on this subject which I am committed to in principle, I have done some more thinking.
First of all I/we believe that the kind of incentive is most desirable and to some point very necessary as a tool for you as CEO to use to drive the company.
Since talking to you matters relating to our 2 directors while nothing has changed in my mind (sic).
At the board meeting on Wednesday there is a possible new director where AC will continue his role with Rod and I on sourcing product and MR will continue on the board with some specific responsibility. These responsibilities are outside managers and include matters like the bank, the wash up of sales tax, the finalisation of the end of year 1998/1999.
I can see that I am most probably committed to paying or making provision of the 2 x 5% total 10% to these 2 directors.
With this commitment still in place I have adjusted my thinking slightly to take this commitment into account.
So the formula will be as follows.
For the first period Jan 1 2000 to June 31 2000 the formula I suggest should be –
Take 90% of the profit before tax, not audited yet but reasonable expected profit.
Open as you say to all permanent staff and not including people like Garry Philpott who commission is related to WA and who is well paid if not overpaid and any like person in our employ or under contract.
The percentage I have now in mind is as follows. Using your criteria as in 3 is as follows.
Thomas Lau 2% value say $7-14 million
$140K to $280K
Management team 2½% range $175K to $350K for … for disbursement
All staff 2% range $140K to $280K for disbursement.
Thomas this is a total of 6½% paid on 90% of estimated profit for the Jan 1 2000 to June 1 2000.
Based on how this works in the first period we will be in a much better position than we are now to estimate what this bonus system will provide for all parties participating.
I would on that basis review this bonus system for the next 12 months July 1 2000 to June 31 2001 paid in 2 parts, first half year paid in say August for the period up to June 31 2000 and in August 2001 for the period up to June 31 2001.
Tom I believe in spite of the slight changes of 9% and 6½ from 7½ that bonus system will work well.
30