Leahey v CSG Business Solutions (Aus) Pty Ltd
[2017] FCA 1098
•18 September 2017
FEDERAL COURT OF AUSTRALIA
Leahey v CSG Business Solutions (Aus) Pty Ltd [2017] FCA 1098
File number: NSD 1986 of 2016 Judge: LEE J Date of judgment: 18 September 2017 Catchwords: INDUSTRIAL LAW – workplace rights – whether employment terminated because employee had a workplace right or exercised a workplace right – termination for non-prohibited reason established
CONTRACTS – employment contract – principles of construction – contract provided for remuneration measured by reference to key performance indicators – whether obligation on employer to set key performance indicators in advance of measurement of remuneration – obligation upon employer to allow the employee the benefit of the employment contract – failure to set key performance measures in a timely manner – breach of contract shown
DAMAGES – employment contract – breach – failure of employer to set key performance indicators in a timely manner – loss of commercial opportunity or chance – loss of opportunity to obtain the benefit of contractual remuneration
Legislation: Corporations Act 2001 (Cth), s 319
Evidence Act 1995 (Cth), ss 136, 140(1), 140(2)
Fair Work Act 2009 (Cth), ss 12, 119, 340, 340(1)(a)(i), 340(1)(a)(ii), 341(1), 341(1)(c), 341(1)(c)(ii), 342(1), 360, 361, 361(1), 545(1), 545(2)(b), 570
Federal Court of Australia Act 1976 (Cth), s 37P(2)
Surveillance Devices Act 2007 (NSW), ss 12, 12(2)(b)
Cases cited: Agricultural & Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570
Australian Building and Construction Commissioner v Hall [2017] FCA 274
Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (No 3) [2002] FCA 1294; (2002) ATPR 41-901
Avenia v Railway & Transport Health Fund Ltd [2017] FCA 859
Bartlett v Australia & New Zealand Banking Group (No 2) [2014] NSWCA 30; (2014) 92 NSWLR 639
Board of Bendigo Regional Institute of Technical and Further Education v Barclay [2012] HCA 32; (2012) 248 CLR 500
BP Refinery (Westernport) Pty Ltd v Shire of Hastings [1977] UKPCHCA 1; (1977) 180 CLR 266
Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336
Butt v M'Donald (1896) 7 QLJ 68
Chaplin v Hicks [1911] 2 KB 786
Commonwealth Bank of Australia v Barker [2014] HCA 32; (2014) 253 CLR 169
Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64
Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission [2007] FCAFC 132; (2007) 162 FCR 466
Construction, Forestry, Mining and Energy Union v Anglo Coal (Dawson Services) Pty Ltd [2015] FCAFC 157; (2015) 238 FCR 273
Construction, Forestry, Mining and Energy Union v Clermont Coal Pty Limited [2015] FCA 1014; (2015) 253 IR 166
Darlington Futures Limited v Delco Australia Pty Limited [1986] HCA 82; (1986) 161 CLR 500
DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423
Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; (2017) 91 ALJR 486
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640
Elliott v Kodak Australasia Pty Ltd [2001] FCA 1084; (2001) 129 IR 251
General Motors-Holden’s Pty Ltd v Bowling (1976) 12 ALR 605; (1977) 51 ALJR 235
In Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (S99/2015; S102/2015) (2015) 256 CLR 104
Malec v J. C. Hutton Pty Ltd [1990] HCA 20; (1990) 169 CLR 638
McDonald v Parnell Laboratories (Aust) (No 2) [2007] FCA 2086; (2007) 164 FCR 591
Melbourne Stadiums Ltd v Sautner [2015] FCAFC 20; (2015) 229 FCR 221
Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited [2015] HCA 37; (2015) 256 CLR 104
Park v Brothers [2005] HCA 73; (2005) 80 ALJR 317
Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126
Qantas Airways Ltd v Gama [2008] FCAFC 69; (2008) 167 FCR 537
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596
Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332
Shea v TRUenergy Services Pty Ltd (No 6) [2014] FCA 271; (2014) 314 ALR 436
Silverbrook Research Pty Ltd v Lindley [2010] NSWCA 357
Society of Lloyd's v Clementson [1995] CLC 117
University of Western Australia v Gray [2009] FCAFC 116; (2009) 179 FCR 346
Allsop J, “Conscience, Fair-dealing and Commerce – Parliaments and the Courts” (FCA) [2015] Federal Judicial Scholarship 17
Carter, J W, Peden, E and Tolhurst, G J, Contract Law in Australia (5th ed, LexisNexis Butterworths, 2007)
Waddams, S M, “Principles of Compensation” in P Finn (ed), Essays on Damages (Law Book Co, 1992)
Date of hearing: 19-23 June 2017, 13-14 July 2017 and 14 September 2017 Date of last submissions: 14 September 2017 Registry: New South Wales Division: Fair Work Division National Practice Area: Employment & Industrial Relations Category: Catchwords Number of paragraphs: 279 Counsel for the Applicant: Mr D Mahendra Solicitor for the Applicant: Streeterlaw Solicitors Counsel for the Respondents: Mr G Fredericks Solicitor for the Respondents: DLA Piper Australia ORDERS
NSD 1986 of 2016 BETWEEN: FORRESTER PATRICK LEAHEY
Applicant
AND: CSG BUSINESS SOLUTIONS (AUS) PTY LTD (PREVIOUSLY KNOWN AS CSG COMMUNICATIONS PTY LTD) ABN 69 010 533 650
First Respondent
CSG LTD ABN 64 123 989 631
Second Respondent
JUDGE:
LEE J
DATE OF ORDER:
18 SEPTEMBER 2017
THE COURT ORDERS THAT:
1.The proceedings be listed for a case management hearing at 10:15 am on 29 September 2017 for orders and directions to be made as to the future conduct of the proceeding.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
LEE J:
A INTRODUCTION
The second respondent (CSG) is a technology service provider in Australia and New Zealand. It has different business units but primarily is a provider of print and technology services to a range of businesses and other enterprises. The business involves the sale of equipment or hardware, together with ongoing provision of services. The business, obviously enough, requires a number of persons to be involved in sales, either as employees or pursuant to agency relationships.
The applicant, Mr Leahey, was employed by the first respondent, CSG Communications Pty Limited (which is a service company of CSG). There was no attempt made by the parties to discriminate between CSG and its service company and it was common ground that CSG could be regarded, as between the parties, as being responsible for any liabilities of its service company. Therefore, save for one exception at [216] below, in the balance of these reasons, I will refer to CSG without distinguishing between the respondents.
Prior to his employment, from 1 July 2012, Mr Leahey had been engaged by CSG as an independent contractor with the title “Regional General Manager NSW & ACT”. This changed in June 2013 when Mr Leahey entered into an employment agreement, which is dated 26 June 2013 (Employment Agreement).
By letter dated 23 August 2016 (Termination Letter), Mr Leahey’s employment with CSG was terminated. It is worth setting out extracts from that letter, which CSG contends set out the reasons:
As you are aware, you have fallen considerably short of your sales targets for FY16. This follows on from a marginal year in FY15. Comments that you made to senior executives (including myself) on separate occasions over recent months that your motivation and energy for your current role was low, cause me great concern about your continued effectiveness in the role.
In addition to that, the company recently concluded its investigation into an incident you were involved in which occurred on 7 July [2016] in Brisbane.
Having spoken to people who were present on that occasion, and having considered your version of events that you self-reported to the Business Solutions People & Culture Business Partner, CSG is satisfied that your conduct was unacceptable as you used inappropriate physical force against one of CSG’s sub agents.
Your behaviour on 7 July [2016], in itself, gives CSG reason to make a determination to end your employment. That behaviour, coupled with your inadequate performance and expressed lack of engagement, confirmed the company’s thinking that your ongoing employment was not sustainable.
Therefore, in accordance with clauses 13.1 and 13.4 of [the Employment Agreement], CSG has made the decision to end your employment with immediate effect today and to pay you an amount equivalent to four weeks’ notice calculated on your base salary.
Mr Leahey’s case is essentially threefold.
The first aspect of the case is that CSG was not telling the truth (or at least the whole truth) concerning the reasons behind the termination of his employment. In his amended statement of claim, Mr Leahey says that the termination constituted adverse action by CSG against him because he exercised one or more of eleven workplace rights and, by doing so, CSG acted in contravention of s 340 of the Fair Work Act 2009 (Cth) (FWA).
The workplace rights pleaded in the amended statement of claim are repetitive and overlapping but Counsel for Mr Leahey, Mr Mahendra, accepted in opening that they can be placed into four broad categories:
(a)the right to be paid an annual bonus calculated in accordance with the Employment Agreement, called a Short Term Incentive (STI Workplace Right);
(b)a complaint that Mr Leahey made about the Brisbane Incident (Incident Workplace Right);
(c)the right to a redundancy payment under s 119 of the FWA in the event that Mr Leahey was made redundant (Redundancy Workplace Right); and
(d)the fact that Mr Leahey was absent from work on personal sick leave (Sick Leave Workplace Right).
In final submissions, Mr Mahendra accepted that the Incident Workplace Right and the Sick Leave Workplace Right had both “fallen away” and were abandoned. Accordingly, the case finally pressed on behalf of Mr Leahey in relation to CSG taking adverse action, is that the termination of Mr Leahey’s employment was because, or partly because, Mr Leahey:
(a)had a workplace right (s 340(1)(a)(i)), that is, the Redundancy Workplace Right; and/or
(b)made a complaint or enquiry in relation to his employment (s 341(1)(c)) being the STI Workplace Right, and in doing so exercised a workplace right (s 340(1)(a)(ii)).
The second aspect of the case is that Mr Leahey pursues CSG for damages for breach of contract by reason of an alleged failure of CSG to make payment of a Short Term Incentive (STI) for the year ended 30 June 2015 (FY2015) and for the year ended 30 June 2016 (FY2016).
The third aspect of the case is that Mr Leahey seeks a sum of $94,003 plus statutory interest (LTI Amount), being the agreed value of rights said by CSG to have been forfeited by Mr Leahey pursuant to the terms of the “CSG Limited Long Term Incentive Plan” (LTI Plan).
The balance of these reasons are organised into the following sections:
·Section B: Procedural History & Issues for Determination;
·Section C: Findings as to the Relevant Factual Background;
·Section D: Relevant Approach to Fact Finding on Critical Issues;
·Section E: Determination of the Issues of Law and Fact;
·Section F: Conclusion and Orders.
B PROCEDURAL HISTORY & ISSUES FOR DETERMINATION
Following Mr Leahey’s employment being terminated in August 2016, proceedings were filed in this Court in November 2016. Following an unsuccessful attempt at mediation in April 2017, a series of procedural directions were made in order to facilitate an early final hearing.
An order was made on 26 April 2017, that pursuant to s 37P(2) of the Federal Court of Australia Act 1976 (Cth) (FCAA), the legal representatives confer and attempt to agree and produce two documents: the first being a document which identified agreed background facts, and the second being a document which identified the facts and legal issues for determination at hearing.
Despite what appeared to be good co-operation between the parties, which was reflected at the hearing, the parties were unable to agree. The reason I ordered this course of conferral was my assessment, following case management hearings, that the pleading included a bewildering number of alleged workplace rights and that the joinder of issue did not readily identify the true nature of what was likely to be bona fide in dispute.
Prior to the hearing, an attempt was also made to facilitate the parties reaching agreement on relief in the event that Mr Leahey succeeded on the second and third aspect of his case, being the claims in contract and in relation to the LTI Plan. This was somewhat more successful in that the parties were able to agree on the LTI Amount (although, for reasons I will explain below, this agreement had the effect of obscuring the true nature of the dispute as to the LTI Plan).
The parties were not, however, able to agree quantum in relation to the STI for either FY2015 (FY2015 STI) or FY2016 (FY2016 STI). Having said that, the parties agree that following a determination being made as to the rights and obligations of the parties, the issue of damages may be the subject of agreement. Given the co-operative spirit in which the litigation was conducted by Mr Mahendra and Mr Fredericks (who appeared for CSG), I consider that there is a likelihood that all questions of quantum will be agreed once the fundamental construction and interpretation issues that divide the parties are resolved.
In any event, at the conclusion of the evidence, the parties were able to agree upon almost all the issues of fact and law which were required to be determined in these proceedings. On 23 June 2017, I made an order pursuant to s 37P(2) of the FCAA that the Court would proceed to determine, initially, the questions identified as Issues 1 to 7 of the document styled “Issues of Fact & Law for Determination” (Issues Document). Those issues of fact and law for determination (including the balance of issues to be determined, if necessary, at a subsequent hearing) are set out below:
1.What happened in relation to the Brisbane incident (as defined in the amended statement of claim at [22]) and what, as at the date of termination of [Mr Leahey], was the belief of the decision maker (or makers) within CSG as to what happened?
2.Who made the decision within CSG to dismiss [Mr Leahey] and was the decision maker's (or makers') reason (or reasons) those specified in the letter from CSG to [Mr Leahey] dated 23 August 2016?
3.Has CSG proved, as a matter of fact, on the basis of all the evidence, that a substantial and operative reason for the decision to terminate [Mr Leahey] was not a pleaded reason prohibited by s 340(1) of the [FWA]?
4. Given the alleged terms of the Employment Agreement being:
a.the admitted “condition of [Mr Leahey’s] employment” that [Mr Leahey] was eligible to be paid an STI “upon the achievement of specified key performance indicators (KPIs) within a financial year”; and/or
b.an alleged implied term requiring CSG to consult and agree with [Mr Leahey] in good faith prior to implementing KPI targets; and/or
c.an alleged implied term to exercise its discretion in setting KPI targets in good faith and not arbitrarily or capriciously,
i.was [Mr Leahey] paid the correct amount of [the FY2015 STI]?
ii.was an amount of STI payable to [Mr Leahey] for [the FY2016 STI] and, if so, by what means is it to be calculated?
5.Did the conduct of [Mr Leahey] in relation to the Brisbane Incident amount to conduct which would have justified the summary termination of his employment?
6.Did the reasonable belief to be attributed to CSG as to the conduct of [Mr Leahey] in relation to the Brisbane Incident, justify the summary termination of his employment?
7.If the answer to both of 5 and 6 is no (and, as a consequence, it is agreed there was an unlawful determination that [Mr Leahey] was a ‘Bad Leaver’ for the purposes of the rules of the [LTI Plan]), is [Mr Leahey] entitled to recover the [LTI Amount] being … the agreed value of the rights alleged by [Mr Leahey] to be payable pursuant to the rules of the [LTI Plan]?
TO BE DETERMINED LATER
8.If the answer to 3 is no, and there has been a contravention of s 340(1) of the FWA:
a.did [Mr Leahey] suffer loss “because of the contravention” (within the meaning of s 545(2)(b) of the FWA)?
b.should the Court make any order under s 545(1) of the FWA compensating [Mr Leahey] and/or any other order?
9. If [the FY2016 STI]...is payable to [Mr Leahey]…:
a.is the amount calculated greater than an amount already paid to [Mr Leahey] on account of [FY2016 STI]…and, if so, by how much?
b.did [Mr Leahey] suffer any recoverable damages for breach of contract by reason of the failure to pay any amount identified in 9(a) or in any other amount?
10.Should the Court be satisfied, in accordance with s 570 of the FWA, that an unreasonable act or omission of a party to this litigation caused the other party to incur costs such that the Court ought make a costs order against that party and the terms of any such order?
(emphases in original)
In final submissions, the alleged implied terms in Issue 4(b) and (c) were abandoned and the only complication that remained was that although the Issues Document was otherwise agreed, Issue 4 of the Issues Document remained somewhat controversial in the sense that Mr Fredericks contended that the issue as framed in Issue 4 (as refined) was not within the pleaded case he had met at the hearing. This matter can be resolved very shortly. The cases of both parties departed somewhat from the pleadings and I do not believe there is any substance in the contention that Mr Fredericks was unable to meet that part of the case as is defined by Issue 4. I do not consider there to be any prejudice to CSG established in allowing the contract case, in the form ultimately advanced by Mr Leahey, to proceed.
Prior to dealing with the contested issues, it is convenient to first make some detailed, relevant factual findings.
C FINDINGS AS TO THE RELEVANT FACTUAL BACKGROUND
I have already outlined in Section A (Introduction) the nature of the relationship between Mr Leahey and CSG, and the way in which his employment with CSG was terminated on 23 August 2016.
As can be seen from the Issues Document, the central factual issues which require resolution to quell the controversy as to liability are of a relatively narrow compass and include:
(a)what happened in relation to the Brisbane Incident;
(b)who made the decision to terminate Mr Leahey; and
(c)the reason or reasons why Mr Leahey was terminated.
Generally, I will deal with my factual findings in relation to these issues in Section E (Issues 1 to 3). What follows in this section of my reasons are some findings as to the relevant factual background against which these critical issues fall to be determined, including recounting some of the general dealings between the parties as to Mr Leahey’s performance and his enquiries about remuneration.
As noted at [3] above, Mr Leahey had previously been engaged by CSG as an independent contractor and, obviously enough, this status changed when he entered into the Employment Agreement.
On 19 June 2013, Mr Leahey received an offer of employment (Offer Letter). The Offer Letter noted as follows:
I have pleasure in confirming your role of Regional General Manager, ACT & NSW with [CSG] with the following conditions:
Ÿ$250,000 pa base salary
Ÿ$16,470pa superannuation contribution
ŸSTI of $250,000pa in accordance with agreed KPIs which will be based on financial targets and non-financial targets as detailed in [sic] KPI document attached (draft)
ŸLTI of 457,143 awarded on the basis of the performance vesting criteria as established by the Board
ŸStandard sick and annual leave entitlements as per [the FWA]
Prior to the entry into the Employment Agreement, on 20 June 2013, Mr Leahey received an email from Ms Dianne Silvestro, the then “Executive General Manager, People & Culture”. This email attached a “draft Employment Agreement and draft KPIs for 2013/14”. Ms Silvestro informed Mr Leahey that:
At this stage the [LTI Plan] details are being drafted by Jillian and they will be released to the relevant employees very shortly. In this pack from Jillian [sic] will have all the information about the [LTI Plan].
As anticipated in the Offer Letter and the email of 20 June 2013, on 24 June 2013, Mr Leahey received a letter from the managing director of CSG, Ms Julie-Ann Kerin, which enclosed the “CSG Limited Long Term Incentive Plan” rules (Rules) and indicated that Mr Leahey had been selected to apply for what were described as ‘Performance Rights’ under the LTI Plan (Performance Rights). The LTI Plan was said to:
…underpi[n] CSG’s strategy of rewarding performance and retaining key talent and we see you as having an integral part of CSG’s future. Specifically, the [LTI Plan] aims to recognise your time with CSG by rewarding you with rights which will allow you to share in the growth in value of CSG and strengthen the link between your performance and remuneration.
It is common ground that on 26 June 2013, Mr Leahey accepted the offer in the Offer Letter by entry into the Employment Agreement (effective 24 June 2013) and also accepted the invitation to participate in the LTI Plan, in which he received 457,143 Performance Rights.
The Employment Agreement set out the express terms of the employment of Mr Leahey, including clause 7.1, by which CSG agreed to remunerate Mr Leahey in accordance with Item 8 of Schedule 1. That Item provided as follows:
Item 8 Package
Remuneration Package $250,000 pa base salary
$16,740 superannuation contribution
STI of $250,000pa in accordance with agreed KPIs (draft KPIs attached)
LTI of 457,143 performance shares as detailed in the attached documentationPay Period Monthly Pay method Direct Bank Deposit
The Employment Agreement did attach the “draft KPIs” referred to in Item 8. As was noted in the Offer Letter, the amount of the STI (which was to be calculated “in accordance with agreed KPIs which will be based on financial and non-financial targets as detailed in the KPI document attached (draft)”) was to be $250,000. This was reflected in the documents attached to, and comprising part of, the Employment Agreement relating to the STI, which comprise pages 75-7 of Exhibit B (STI Schedule). The STI Schedule itself comprised three separate documents being: (a) a list of KPIs for FY2014; (b) a ‘Scorecard’ comprising a ‘Corporate scorecard’ for FY2014 (which set out various corporate targets, weightings and KPI values for those targets for that financial year) and a ‘Divisional scorecard’ for FY2014 (which set out ‘Financial’ and ‘Non-Financial’ KPIs, indicated targets, assigned weightings and provided a value for these targets for that financial year); and (c) a document describing a ‘Divisional (Additional) Incentive’, referable to a KPI value, if the EBITDA target contained in the Divisional scorecard had been exceeded by sums identified in $500,000 increments. The confusing nature of the STI Schedule is examined further below.
Of course, Mr Leahey’s first full year as an employee of CSG was FY2014. The draft KPI targets, as set out in the second document of the STI Schedule, appear to set the anticipated targets for the payment of the FY2014 STI (in respect of which there is no complaint). It is unnecessary to determine whether these draft KPIs, that is, the Scorecard for FY2014, changed. What is relevant to note, for present purposes, is that after entry into the Employment Agreement, Mr Leahey received an amount comprising his anticipated STI entitlements in monthly instalments.
As to the LTI, pursuant to the Rules, it is common ground that Mr Leahey also received what were described by the parties as 133,333 ‘shares’, which were allocated on 2 December 2013 (by which, I infer, 133,333 Performance Rights were allocated). In January 2014, Mr Leahey was granted 93,333 additional “Stage 1” Performance Rights.
On 1 July 2014, Mr Leahey, who previously had held the title of “Regional General Manger, NSW & ACT”, was appointed as the regional general manager of South Australia. Not long thereafter, in August 2014, he had a discussion about what additional amount he was going to be paid for taking on responsibilities in relation to South Australia with Mr Declan Ramsay, the “Executive General Manager (Business Solutions Australia)” of CSG, to whom Mr Leahey directly reported.
On 10 October 2014, Mr Leahey was provided with a draft Scorecard for FY2015 and, shortly thereafter, had a conversation with Mr Ramsay about his draft Scorecard, during which he and Mr Ramsay wrote on the draft Scorecard with suggested changes. It will be necessary to return to the issue of the Scorecard for FY2015 in more detail (and make additional findings) in Section E below.
Nothing of any enduring relevance occurred until 1 September 2015, when Mr Leahey participated in a performance review with Mr Ramsay (September 2015 Meeting). Mr Ramsay raised no significant issues in relation to Mr Leahey’s performance. During the September 2015 Meeting, Mr Leahey again enquired about an increase to his base salary for managing South Australia, about payment (or more properly, the finalisation of payment) of the FY2015 STI and also details in relation to what needed to be achieved in order to obtain the FY2016 STI. The conversation, to the extent that it related to the FY2016 STI, was as to the provision of a Scorecard referable to that year.
On 16 September 2015, Mr Leahey received an assessment of his performance against what was said to be the Scorecard for the FY2015 STI. At around that time, Mr Leahey telephoned Mr Ramsay and disputed that the FY2015 Scorecard (that had been used to assess his performance for FY2015) was the Scorecard that had previously been provided to him, and disputed how his performance had been assessed.
It was around this time, in September 2015, that Mr Mark Thomas joined CSG in a senior management role with the title (reflecting the peculiar lexicon of modern management) of “Chief People Executive”.
On 26 October 2015, Mr Ramsay sent Mr Leahey an email setting out options for payment of the FY2015 STI. It was as follows:
As per our conversation on 16th September please see the below summary:
Attached are the 2 versions of the STI for FY15.
1. The official STI that was reviewed and approved by the CEO
2. The second [STI] that was re done by you and I. (PDF you provided to me)
I have also provided a spreadsheet of the 3 different outcomes of the 2 STI’s [sic] above and a DR proposed
1.First one is the one approved by CEO stating an amount of -$42 887 is owing by you to CSG due to the pre-payment
2.A DR proposed showing a payment to you from CSG of $27 113 after pre-payment and also a Q1 16 pre-payment with no further pre payments to bring in line with all others in the Business. Total payable to you by CSG of $77 114 – TO BE APPROVED BY CEO
3.A FL proposed as per the STI you provided me showing an amount owing by you to CSG (including a Q1 16 advance payment) of -$63 486.
Can you please advise what option on the spreadsheet FL STI – 1, 2 or 3 you are suggesting we take to the CEO for approval.
Once we receive your suggestion this will be presented to the CEO for final approval and payment depending on the option you select. This will then close out FY15. If you have a different view can you please document it in detail for our consideration.
We are then happy to have a conversation regarding the FY16 STI structure, the base pay plan amount and the company policy around payment policy and industry benchmarking.
The day after, Mr Leahey responded to Mr Ramsay’s email, and made an enquiry about his remuneration in which he stated, among other things, that:
I am aware that I technically did not meet the criteria for this part of the incentive payment (that is, the FY2015 STI) but I never received a salary increase for taking on the South Australia part of the business and this was something that I had requested and discussed with you and HR several times. I strongly feel that with SA I have turned an underperforming part of the business around and deserve some compensation.
I understand that with the nature of business things change including targets but I also feel that targets need to be fair and achievable. Sales is an incentive driven business and receiving targets in November each year does not make things easy, it would be preferable to commence the year with agreed targets in place and not have to wait 4 months into the year to find out what target numbers are…
In relation to the structure of FY16 I am more than happy to get in line with the rest of the business and look forward to sitting down with you and [Mr Thomas] to work out the best way to do this…
It is important to put this email into some context. It was copied to Mr Thomas and the reference to getting “in line with the rest of the business” was a reference to the fact that Mr Leahey had been paid his STI on account during the year, rather than being paid after the final determination of quantum after the end of the financial year. The evident frustration of Mr Leahey in relation to finalisation of his FY2015 STI and the belated setting of targets was entirely understandable. It was now October 2015, well into the second quarter of FY2016, and yet the position as to the FY2015 STI had not been finalised (let alone targets set for FY2016). This is against the background that the STI Schedule (Exhibit B, page 76) had made clear that amounts were to be paid to Mr Leahey progressively on account by reference to achievement to date. Further, all “other bonus entitlements will be paid after the annual declaration of the financial results (late August)” (underlining added). How could CSG assess an additional bonus when it was tardy in resolving the final amount paid by way of STI?
The STI was a very important part of Mr Leahey’s agreed contractual remuneration. It is apparent that within the management of CSG there was a view that the payment of STI was a form of pure discretionary bonus; indeed, from time to time, there was reference to the STI payment being a ‘bonus’ (see, for example, the reference in [39] above where the underlined word ‘other’ implicitly suggests the STI is a species of ‘bonus’, or the evidence of Mr Thomas extracted at [59] below). Indeed, it was often referred to as a ‘bonus’ during the course of hearing by Counsel for CSG. On one level this is explicable as it was not the same as base salary and the amount of payment was dependent on achievement of financial and non-financial performance targets. Moreover, it seems to me that discretionary considerations would come into play when EBITDA targets were very substantially exceeded (see the ‘Divisional (Additional) Incentive’ at Exhibit B, page 77). This ‘Divisional (Additional) Incentive’ received no attention in the case, because EBITDA never reached the level which would have meant it became relevant.
Having noted this, at least insofar as Mr Leahey was concerned, there was a contractual obligation to pay the STI upon achievement of KPI targets and, as I explain below, an obligation to discuss and then set ‘agreed’ targets in a timely way in order to allow Mr Leahey to obtain the benefit of the Employment Agreement. As it turns out, it appears that a consequence of management treating the STI as though it was a pure discretionary bonus caused dilatoriness and uncertainty in setting targets, of which Mr Leahey complained. The confusion as to the FY2015 Scorecard – which was still being debated four months after the end of the FY2015 financial year (see [37] above) – is a case in point: these were supposed to be prospective KPI targets against which an employee was to have his or her contractual remuneration later assessed and (at least with respect to Mr Leahey) was to be monitored and paid progressively throughout the year. It seems remarkable that the affairs of CSG were being conducted in such a way as to result in the uncertainty that Mr Leahey had to endure. It is perhaps stating the obvious to remark that a ‘target’ as used in the present sense is, as a matter of ordinary English, a goal or object aimed at or to be attained. Leaving aside for a moment the content of any contractual obligation, to set targets after the time has passed during which efforts could be made to meet them is not only intuitively odd but is also behaviour apt to cause the sort of uncertainty which is a cause of some of the problems that have arisen in this case. In making this comment I am conscious, as is evident in the following paragraph, that budgets were no doubt distributed in a timely way. However, the remuneration structure set up by the Employment Agreement, properly construed, necessarily required the question of KPIs to be looked at ex ante and not ex post (at which time final assessment against those targets would occur). Another apparent manifestation of the view that STI payments were purely discretionary was the diktat, which later emerged, without any reference to CSG’s contractual obligations (to at least Mr Leahey), that no FY2016 STI payment would be made (see [59]-[60] below).
In any event, returning to the narrative and the FY2016 year, on 2 November 2015, Mr Leahey had an exchange of emails with Mr Ramsay in which Mr Leahey noted that he was on target to exceed his budget for New South Wales (with a possibility of exceeding budget if certain deals went through), and would only be slightly behind budget for the Australian Capital Territory and South Australia. The email chain acknowledged that Mr Leahey was unlikely to hit his so-called ‘EBITDA number’ for New South Wales and Mr Ramsay noted that Mr Leahey was “[$]1M behind” budget.
On 3 November 2015, Mr Leahey sent an email to both Mr Ramsay and Mr Thomas requesting payment of his FY2015 STI, as well as following up on the email he had sent on 27 October 2015. In this email, Mr Leahey noted: “I really need to get paid”.
On 23 November 2015, for the first time, Mr Leahey attended a meeting (November 2015 Meeting) in which any performance issues were raised with him. That meeting had been arranged to discuss the finalisation of issues relating to the FY2015 STI issue and also, it seems to me, the outstanding issue of finalisation of the targets for the FY2016 STI. Two days later, Mr Leahey received an email from Mr Ramsay summarising what were said to be the “key messages” that arose from the meeting held on 23 November 2015. This is an important email, which usefully sets out how CSG perceived its ‘reward structure’, and is worth extracting at some length:
[Mr Leahey]
As promised, I have documented the key messages from the discussion [Mr Thomas] and I had with you on Monday 23rd November 2015. I have done this so there is a clear understanding of expectations and where we stand so we can now move forward in a positive manner.
Remuneration
To summarise your remuneration is:
Salary $250,000 pa
Superannuation $19,307 (this is the current legislative Superannuation cap)
STI $250,000 pa split (20% company performance, 80% Divisional performance)
LTI 457,143 Performance Rights under the 2012- 2015 plan
While much of our discussion was remuneration related it is important to acknowledge that CSG’s reward structure is important to our ‘high performing’ culture. As discussed by any standard your remuneration package is a significant one. The base salary which is guaranteed compensates for what are the base expectations as outlined in your position description. The STI is designed to reward outperformance in the short term with a heavy weighting on individual contribution. The LTI provides longer term balance to short term decisions and encourages common purpose across the executive group regarding the creation of shareholder value. I stress, however, it is the achievement of the results that generate the rewards - not the reverse of this.
(emphasis in original)
After then dealing with details concerning the FY2015 STI and the FY2016 STI, Mr Ramsay went on:
To give you every chance of success and allow you to focus on the largest area of opportunity, management of the Adelaide office will be reallocated to allow you to concentrate on NSW.
[Mr Thomas] also spoke about leadership and accountability for the local culture. It is an important component of your role to ensure we have a professional and constructive environment that allows all CSG people who work from the Sydney office to maximize their performance. You cannot underestimate the impact that your leadership style and behaviours have on other staff. We discussed a number [sic] general examples including perceptions of others being important at times (even if reality is different) and I ask you reflect upon these. Having positive constructive discussions with people and stamping out/not fuelling the gossip will go a long way to addressing this. In an effort to improve this we also agreed for you to transition your office into a common meeting room and you will move out to the sales floor to be involved in the day to day. Can you please do this ASAP.
In summary, getting results and creating the right culture in tough times are leadership qualities that are required of all senior managers. We need you to rise to the challenge, by leading from the front in these areas and displaying the ‘can do’ attitude we know that you possess. NSW represents the largest market and potential opportunity for CSG; and under your leadership you have the opportunity to not only be personally very successful but to ensure that this success flows through to CSG and the team.
A considerable amount of time was spent on evidence which went to the issue of the allocation of revenue for the purpose of meeting targets which, as would already be evident, were material to a particular regional general manager meeting annual revenue targets.
I accept that there was a mutual understanding between the parties, being a mutually known fact, existing at the time of the entry into the Employment Agreement that, as a general proposition, revenue derived from one geographic region would be allocated towards the revenue budget of the regional general manager for the state or territory in which the head office of the customer was located. Although there was some confusion in the evidence about the precise scope of this established practice, it seems to me plain that this ‘rule’ existed, at the time of the Employment Agreement, given:
(a)the evidence of Mr Leahey, gleaned from industry experience of twenty years and, in particular, his evidence that the practice reflected his understanding at the time he performed the role of regional general manager as a contractor before entry into the Employment Agreement;
(b)the evidence of a current regional general manager for Victoria, New South Wales and the Australian Capital Territory, Mr Paul Williams; in this regard I note that Mr Williams was an impressive witness who did not seem to have any doubt as to the existence of the practice (at least during the time that the Employment Agreement was in existence); of course, any understanding of Mr Williams of contemporary practice, or practice after the entry into the Employment Agreement, is not relevant to determining what was a common understanding at the time the Employment Agreement was struck, but there is nothing about Mr Williams’ evidence that suggests that the practice had somehow changed over time;
(c)Mr Ramsay’s evidence, which was somewhat consistent with that of Mr Williams;
(d)commercial commonsense, in that if one has a regional general manager, then revenue generated is likely to be allocated by reference to the region or regions for which that manager is responsible.
It is apparent, on the evidence, that the mutually known fact as to the rules as to revenue allocation, at the time of entry into the Employment Agreement, were as explained by Mr Williams (T 142):
…wherever head office is, that that’s where the lead should go to, or the opportunity go to ..... we’re really talking about new business here. It’s not existing. So any new business lead that comes in, it typically will go to the RGM (regional general manager) of the head office of that area. Then if – if there was a time when, say, for example, I had a really good relationship with the new business opportunity, then I would liaise locally with the – with the RGM in that space and tell them about the opportunity, and then I would still probably own it and run with it, and then we would – we would split the revenue fifty-fifty.
Mr Williams agreed that the practice that the revenue goes where the head office is located geographically was well established and further explained the rationale as being (T 142):
…it’s a little bit around a cultural thing as well, because we don’t really want sales people going all around Australia and going at whatever opportunity they can get. But we don’t want to lose the opportunity as a business. So if we can win it, we absolutely want to win it.
The apparent exception to the general geographic allocation rule would be when one regional general manager was responsible for the introduction of a ‘deal’ and there would be a discussion, at the time of the introduction of the deal, between the introducing regional manager and the regional general manager in whose area the head office of the customer was based, for a 50/50 revenue split to be agreed. There was some effort to suggest that this arrangement was not operative when a deal was introduced by a person other than a regional general manger (for example, the CEO) but I do not believe that this was established on the evidence at all (let alone established as a mutually known fact at the relevant time). The well entrenched rule made commercial sense; not only because the management of the business was organised on geographical grounds, but also, as explained by Mr Williams, there was the need to ensure that sales people did not run all around Australia trespassing on the turf of others.
Notwithstanding this, in November 2015, CSG did not allocate certain sales to Mr Leahey, which had the effect of impacting upon Mr Leahey’s ability to achieve his budgetary targets for FY2016. This departure from established procedure caused some tension. Not only did Mr Leahey consider that what occurred was unfair; according to Mr Williams, he also considered that the diversion of revenue for what was described as the ‘Queensland deals’ (Queensland deals) was unfair to Mr Leahey (T 148):
Because we – we were told that the – the rules were in play; that head office is where the head office is, and if someone has an opportunity to go in there, if we get a lead to go into that space, it goes to that territory. And I thought it was against the – the spirit of what – what the rule was.
I should pause here to note that in referring to the subjective views of Mr Leahey and Mr Williams and dealing with their views as to what happened, I am not having regard to irrelevant post-contractual behaviour for the purpose of construing the Employment Agreement: see Agricultural & Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570 at 582 [35] (Gummow, Hayne and Kiefel JJ). Nor am I having regard to the idiosyncratic views as to fairness, which is similarly beside the point in a commercial world governed by the objective theory of contract formation. The relevance of this subjective evidence is limited to its use and weight in corroborating the other evidence that the rule (as explained by Mr Williams and Mr Leahey) was well entrenched and was a mutually known fact at the time of entry into the Employment Agreement. More generally, the extrinsic evidence as to revenue allocation to which I have referred is admissible to identify the meaning of those descriptive terms in the Employment Agreement as relate to revenue and KPIs; the evidence also relates to the “genesis” and the “aim” of a transaction (objectively ascertained) to show the principled attribution of meaning to revenue targets and KPIs, and to reject a meaning contrary to the established practice (which would be inconsistent with the terms of the bargain objectively ascertained): see DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423 at 429 per Stephen, Mason and Jacobs JJ. There is no need in this case to enter upon discussion about the so-called ‘ambiguity gateway’; the terms of the Employment Agreement are what reasonable persons in the position of Mr Leahey and CSG would have understood them to mean, considering the surrounding circumstances and the commercial purpose and objects to be achieved by the Employment Agreement: see, for example, Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; (2017) 91 ALJR 486 at 491 [16] (Kiefel, Bell and Gordon JJ). Provisions as to KPIs and revenue allocation are to be construed by reference to the commercial purpose sought to be achieved, on the basis that the parties intended to produce a commercial result, which made commercial sense, and one which is consistent with the commercial object of the Employment Agreement which allowed an important part of the remuneration to be struck for a regional general manager, by reference to regional revenue targets: Ecosse at 491 [17].
Before leaving the rule as to revenue allocation, for completeness, I should note that there was a suggestion made on behalf of CSG that the Business Solutions Division of CSG was not focused on print and non-digital technologies. The reason why Mr Leahey was not allocated revenue for the Queensland deals was because those deals represented a new area of growth for CSG outside of the Business Solutions Division, in which Mr Leahey operated. It was said that the Queensland deals represented the development and growth of the Digital Display Division (which was not established until 1 July 2016). It followed that there was nothing arbitrary or capricious about CSG exercising its management prerogative to allocate the Queensland deals to a manger with the requisite skills to conduct those deals, given their intrinsic nature.
Although the evidence was far from pellucid, I accept that CSG may have been moving away, for sound commercial reasons, from allocating revenue on simply a regional basis. The difficulty for CSG is that the Employment Agreement, for reasons I will detail below, was based on a remuneration system which had, as one component of that remuneration (the STI), targets or KPIs based on the common understanding and established practice that deals would be allocated according to their regional location, subject to providing some previously agreed 50/50 variation in the event the deals were introduced through the work or contacts of another regional general manager. I will return to this subject in Section E below in the context of dealing with the FY2016 STI.
Returning to the chronology, again, on 11 December 2015, Mr Ramsay informed Mr Leahey that his EBITDA FY2016 performance was behind budget.
On 29 March 2016, Mr Leahey sent an email to Mr Ramsay, Mr Thomas and Ms Kerin requesting details about his FY2016 STI. The response of Mr Thomas to this email was to send an email to Mr Ramsay (not copied to Mr Leahey) which was in the following terms:
Firstly, if i am not mistaken when we meet [sic] with [Mr Leahey] last year on his 2015 bonus that he was unhappy with, I believe you spoke about his current targets. You said to him something along the lines of…….“you don’t have them in writing but you know your targets don’t you [Mr Leahey]? …”
I remember this because you repeated this 3 or 4 times before he agreed. (and you were also concerned he was behind budget for the current year when we spoke to him).
Secondly, Julie-Ann’s call but I don’t think it appropriate or should be expected by [Mr Leahey] that the CEO gets involved in setting his targets.
Mr Ramsay’s response, the next day, was as follows:
Yes [Mr Thomas] correct on both points.
He knows his targets and i have no intention of troubling the CEO with this.
I also find his timing incredibly poor based on the previous note about a Syd MA.
Shortly thereafter, Mr Thomas responded to Mr Ramsay:
[Mr Ramsay]
Thanks. I suspected that we would both be on the same page. I will leave to you to deal with as this is essentially a line management issue but happy to be involved however if you want some support in a meeting with him.
Let me know
The reference by Mr Ramsay to incredibly poor timing was never really explained. In any event, on 16 May 2016, Mr Leahey received an email from Mr Domenic Capaldi, the “Financial Performance Manager” of CSG, stating that there would be “[n]o bonus accrual in FY16”. This was a reference to the FY2016 STI. This was not peculiar to Mr Leahey; the evidence of Mr Ramsay (T 247) and Mr Thomas (T 263) was that there were no FY2016 STI payments made. The decision was apparently made by the CSG Executive Team (which included Mr Thomas) because of budgetary pressure to make a forecast that had been made to the Australian Securities Exchange (ASX). This can be seen from the following extract from the evidence of Mr Thomas (T 264):
HIS HONOUR: … the board was faced with a situation presumably where it gave guidance to the market, and it had become apparent that if you paid out the STIs, that guidance would have to be revised or, alternatively, a decision would be made not to make the guidance, in which case the forecast would… have to be amended. And there was a decision taken on that basis, as I understand it, is that right?---That’s correct, your Honour.
Did you know from your own involvement in that process whether any consideration was given as to whether or not, in respect of some or other contracts, there was a contractual obligation to pay STIs or was it just regarded as a purely discretionary matter?---It was regarded that it was a discretionary thing. It’s very typical in businesses…that companies don’t hit their target, particularly the core financial ones, that there are no bonuses across the piece.
One could be forgiven for thinking that this apparent lack of concern for compliance with its contractual obligations to its employees was a somewhat cavalier approach to be taken by a public company towards its obligations to its employees (or at least those employees who had contracts in a form similar to the Employment Agreement). In any event, the immediate response of Mr Leahey was to email Mr Capaldi to ask him to clarify what “no bonus accrual in FY16” meant and to telephone Mr Ramsay with the same query (T 132). Mr Ramsay responded by indicating (somewhat surprisingly, in the light of Mr Capaldi’s definitively worded email) that he was still trying to find out what was happening in relation to the FY2016 STI.
On 18 May 2016, Mr Leahey participated in a performance interview with Mr Thomas. This interview was part of a programme of interviews that Mr Thomas had decided to undertake in order for him to be apprised of the individual characteristics of relevant managers. It formed part of a process whereby Mr Thomas prepared a “Talent Review and Organisational Structure” document (Talent Review document) which was an analysis of what was described as the “Quality of Leadership and how we structure the business”. As part of what was called (in Americanised ‘HR speak’) a “snapshot of bench strength”, the review process identified features relevant to the individual performance of senior management. Eventually an appraisal document was prepared by Mr Thomas which was described as a “Performance/Values Matrix: Senior Management” (Matrix) (Exhibit B, page 269B), which indicated three categories, providing a ranking of those senior managers who: (a) had peaked/been over-promoted at their current level; (b) had the potential for growth at their current level; or (c) had the potential for more senior roles, with development. Mr Leahey was eventually identified by Mr Thomas, partly as a result of highly subjective assessments, as falling in the first of the three categories, that is, a person whose performance had peaked or a person who had been over-promoted at his current level.
During the course of a wide ranging discussion, Mr Leahey said to Mr Thomas, among other things, that there was too much focus on getting the sales numbers on target (prima facie, a somewhat surprising remark from a salesman) and that Mr Leahey felt he had lost enthusiasm for his current role. This last comment came to be characterised by Mr Thomas, in an expression redolent of the ambiguous nature of these assessments, as Mr Leahey saying he had “lost his mojo” (T 294).
I accept that these comments caused Mr Thomas some concern as to the suitability of Mr Leahey for further advancement within CSG and contributed to him genuinely forming the view that Mr Leahey was a less valuable manager than others. After this assessment was complete, Mr Leahey’s position was identified, along with others, for redundancy in a possible restructure.
There was evidence that during this meeting, Mr Leahey indicated that he wished to remain with CSG for ten years (T 115). Although Mr Thomas did not record this comment in his notes, I accept that Mr Leahey did make this comment but it is hard to be certain of the context and whether that was a reference to a continuing relationship as an employee performing the tasks he was then performing. Whatever the context, it is clear that Mr Thomas took away from the meeting an impression that Mr Leahey lacked enthusiasm for his current role.
In late April or early May 2016, Mr Leahey was walking past the CSG boardroom and chanced upon seeing a ‘Power Point’ presentation which reflected the organisational effect of the possible restructure, which reduced the number of regional general managers within the business.
On 24 June 2016, Mr Ramsay sent an email to the regional general managers setting out a table indicating the performance of the master sales agents in each territory. This analysis did not reveal that Mr Leahey’s master sales agents were performing any worse than, for example, those reporting to Mr Williams.
On 7 July 2016, the Brisbane Incident occurred (which I will address, in detail, in Section E) and a fortnight later, Mr Thomas and Mr Ramsay met with Mr Leahey and had a lengthy discussion. Again, this is an important meeting, and it is necessary to set out a number of the matters discussed.
Prior to doing so, it is convenient to again interrupt this factual summary to make a point about the evidence of this meeting. At the time the hearing commenced, Mr Leahey proposed to tender a transcript of the meeting which he had recorded covertly. Despite no objection being taken by CSG to the tender, I indicated that, even absent objection, I was concerned as to whether it was appropriate that I receive the material (or that it be in a party’s possession) given the provisions of ss 11 and 12 of the Surveillance Devices Act 2007 (NSW) (SDA). The SDA contains a prohibition on communication or publication of private conversations and prohibits a person possessing a record of a private conversation recorded by the use of a listening device in contravention of Part 2 of the SDA. Section 12 relevantly provides:
12 Possession of record of private conversation or activity
(1) A person must not possess a record of a private conversation…knowing that it has been obtained, directly or indirectly, by the use of a listening device…in contravention of this Part.
Maximum penalty: 500 penalty units (in the case of a corporation) or 100 penalty units or 5 years imprisonment, or both (in any other case).
(2) Subsection (1) does not apply where the record is in the possession of the person:
(a) in connection with proceedings for an offence against this Act or the regulations, or
(b) with the consent, express or implied, of all of the principal parties to the private conversation or persons who took part in the activity, or
(c) as a consequence of a communication or publication of that record to that person in circumstances that do not constitute a contravention of this Part.
It eventually became apparent that there was a further telephone recording (see [88(c)] below) that had also been obtained in circumstances which appeared potentially to be in breach of Part 2 of the SDA.
Although I indicated that in these circumstances it would necessary for me to perhaps conduct a voir dire (or, in any event, to rule on the admissibility of this material), my concerns were rendered otiose because each party to the relevant recorded conversations, through their legal representatives, expressed that they were content (and hence provided their explicit consent) for the Court to be provided with the recorded material or otherwise implicitly provided their consent by originally recording the conversation. I consider this to be sufficient, given the terms of s 12(2)(b) of the SDA, to allow the Court to receive the recordings and, given that there was no objection, the relevant recordings were admitted into evidence.
Returning to the terms of the conversation, the following occurred:
(a)After an exchange of pleasantries, the meeting commenced with Mr Ramsay noting that “what we’re doing here today mate is having a conversation about what happened, two weeks ago, on Thursday” (Exhibit B, page 306), relating to the Queensland Incident; this was described as the first part of the conversation and then, “as per [Mr Thomas’] email” it was suggested there would be a “broader conversation” about what Mr Leahey wanted to do including, ominously, “what you want to do with your life” (Exhibit B, page 306).
(b)Mr Thomas then said, after speaking to witnesses, that the material he had obtained “puts us in a really difficult position” and referred to the expectation that as a “Senior Manager in the business, that we can’t have people punching other people in, what could be perceived as a violent way” and that “we can reasonably conclude that your actions were totally inappropriate” (Exhibit B, pages 306-7).
(c)It was then said this conclusion as to what had occurred did not leave CSG with a “lot of room to move and it is a likely outcome is that we see it as gross misconduct and, as you’re probably aware, gross misconduct means that your employment will be terminated and terminated with effect immediately. It means that there would be no notice paid and it would have to be some other implications for you and…we shouldn’t beat around the bush on that. That is with respect to your last tranche of performance rights because under the rules of the Plan; gross misconduct…the words are actually “a wilful breach”. The Directors don’t have any choice or any discretion on the matter, you automatically get classed as a bad leaver” (Exhibit B, page 307).
(d)Mr Leahey then referred to the fact that he had not had a chance to respond to the allegations and that this was the first time that he had sat down and been told of the conclusions reached by CSG (Exhibit B, page 308). Mr Thomas responded by saying that he had put the allegations to Mr Leahey on the telephone, noted that there was no CCTV footage of the event, then said he had spoken to a number of “independent people” and that “we can only come to the conclusion, what we’re entitled to do if you think if [sic] an Employment Law perspective, we can come to what is a reasonable conclusion and we have concluded, on what we’ve found” (Exhibit B, page 309).
(e)There was then a discussion concerning whether or not Mr Leahey had been provided with procedural fairness, at which point Mr Thomas responded, curiously, that the obligation to give procedural fairness only applies in certain circumstances, not present here, where unfair dismissal laws applied (Exhibit B, page 310).
(f)Mr Thomas then moved away from the discussion of the incident by saying “what I was trying to paint to you is a picture [Mr Leahey], if we go down that path and that’s the conclusion, the end outcome. We don’t have any flexibility or the Board won’t have any flexibility” and if he was terminated on grounds of “serious misconduct” it had to be reported to the CSG Board (Board) and “[t]hat is just the rules of the Plan. No one has got any flexibility…” and he would be deprived of his entitlements under the LTI Plan (Exhibit B, page 311).
(g)Mr Thomas then moved to the previous comments that had been made to the effect that Mr Leahey had had a “gutful” of the current job and that he was better off going back to being a master agent (Exhibit B, page 312).
(h)Following a discussion of performance and enquiries by Mr Leahey as to whether or not he was being fired based on his performance, Mr Thomas then said “we as a [sic] executive team and business, have lost confidence. Now the path then is that we would issue notice under your contract which [sic] are obviously entitled to do…with four weeks’ notice and then parties can go their separate ways. The difficult [sic] or if I highlight a [sic] issue with that, is that we run into a similar problem as the last scenario around the incident that when we go to the Board because we have to tell them that once [sic] of the performance rights holders has left. The problem that we run into as soon as they ask why, why has the person we [sic] left. We say on the scenario I’ve just painted; on the performance of [Mr Leahey] over the last couple of years but particularly the last year has fell [sic] well short of expectation. The problem with that is that again, the Directors will look at definitions of a good leaver or bad leaver and I will quote here “dismissal due to poor performance shall be considered a bad leaver” and…once you’re a bad leaver, the rights lapse…” (Exhibit B, page 313 – I note, incidentally, that it is unclear from what, if any, document Mr Thomas was quoting).
After painting these scenarios, Mr Thomas then turned to resignation. He said (Exhibit B, page 314):
One of the things that often happen in this situations, [sic] similarly we’ve had at discussions with other people that have been confronted with that choice, people say “okay what’s the situation if I resign”. Unfortunately, if that’s what you chose to do, that doesn’t help us to a great degree because voluntary resignation is also a bad leaver. Right that’s the rules of the Plan.
All of the above was prologue to Mr Thomas then suggesting a way forward, which he was entreating Mr Leahey to take. Again this was introduced by explaining that the consequences of a termination effective “immediately with no notice for gross misconduct” was said to be that although CSG would be obliged to pay amounts for annual and long service leave and statutory requirements, the shares (that is, I infer, the Participation Rights) “would still lapse”. Mr Ramsay then noted that that the shares (which I interpolate would be obtained upon exercise of the rights under the Rules attaching to the Participation Rights) were worth about $200,000 (Exhibit B, page 314).
Finally, the point of the conversation was reached. It was said that an alternative was being presented to Mr Leahey to “try to come up with a way that at least can protect the shares”. The alternative option presented was for Mr Leahey to sign an agreement (the terms of which were not discovered or put in evidence) which effectively said the parties had mutually agreed to separate. Again, this alternative option was presented in the context of a representation being made to Mr Leahey that if he simply resigned, that course would “vacate the shares” (Exhibit B, page 314).
If the alternative option was taken up and such a release was signed, Mr Thomas indicated that he, Mr Ramsay and also the CEO would be prepared to recommend to the Board that Mr Leahey be treated as a ‘Good Leaver’ which would then “preserve your shares” and that an agreement would be reached about exiting the business. Allied to this proposal was the opportunity for Mr Leahey to return to becoming a master agent with CSG (Exhibit B, page 315).
The reaction to these entreaties (for that is what they were) was for Mr Leahey to continue to dispute the version put to him concerning the Brisbane Incident and to deny that there was anything wanting in his performance. Mr Thomas then returned to the alternative option, saying, in my view less than accurately, that “I’m not trying to force you down a particular path” adding that “[i]f I was in your shoes, I think it is a pretty clear decision, I know what I would do, but we’re trying to put it out there so you can decide” (Exhibit B, page 325).
In short, the apparent alternative option put to Mr Leahey was for him to sign an agreement effecting mutual releases in a way which was said to secure him financial benefits that would not otherwise be available to him if he adopted another course of action, such as resignation or if he was dismissed on notice because of CSG’s lack of confidence in him. As part of the deal, he would also be appointed a master agent.
I do not consider that these discussions reflect well on CSG in general, and Mr Thomas in particular, and I will return to what I will describe as the “Exit Discussion” later in these reasons. In any event, no agreement was reached between the parties along the lines suggested and on 23 August 2016, Mr Leahey’s employment was terminated by the Termination Letter, the relevant parts of which I have already set out at [4] above.
D RELEVANT APPROACH TO FACT FINDING ON ADVERSE ACTION
I turn, in Issue 3 of Section E below, to my key factual findings relevant to the determination as to whether CSG acted in contravention of s 340 of FWA by taking adverse action because Mr Leahey had the Redundancy Workplace Right and/or made a complaint or enquiry in relation to his employment, being the STI Workplace Right, and in doing so exercised a workplace right.
In making the findings below as to the reasons why Mr Leahey was terminated, it is useful initially to reflect upon the principled approach to fact finding in an adverse action case. As was recently explained by Flick J in Australian Building and Construction Commissioner v Hall [2017] FCA 274 at [17]-[25], a number of matters need to be borne in mind when considering fact finding and onus when contraventions of the FWA are alleged, three of which merit mentioning and expanding upon here.
First, when making findings of fact, there is a necessity to have regard to the fact that while the standard of proof in this case is upon the balance of probabilities (Evidence Act 1995 (Cth) s 140(1)), the strength of the evidence necessary to establish a fact or facts on the balance of probabilities or the “degree of satisfaction that is required in determining that that standard has been discharged” varies according to the considerations listed in s 140(2) (see Qantas Airways Ltd v Gama [2008] FCAFC 69; (2008) 167 FCR 537 at 571 [110] per French and Jacobson JJ). Section 140(2) of the Evidence Act provides that, without limiting the matters that may be taken into account, the Court “is to take into account”: (a) the nature of the cause of action; and (b) the nature of the subject matter; and (c) the gravity of the matters alleged.
As the Full Court observed in Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission [2007] FCAFC 132; (2007) 162 FCR 466 at 480 [30]:
The mandatory considerations which s 140(2) specifies reflect a legislative intention that a court must be mindful of the forensic context in forming an opinion as to its satisfaction about matters in evidence. Ordinarily, the more serious the consequences of what is contested in the litigation, the more a court will have regard to the strength and weakness of evidence before it in coming to a conclusion.
As to the adverse action case, the alleged contraventions are of civil remedy provisions (see Part 4-1 of the FWA). They are, accordingly, serious: see Australian Competition and Consumer Commission v Australian Safeway Stores Pty Limited (No 3) [2002] FCA 1294; (2002) ATPR 41-901 at 45,414 [53] per Goldberg J. Having noted this, it is important not to overstate this factor or to generalise. Section 140(2) requires a fact-finder, in considering satisfaction of proof, to have regard to the truth, consistent with the accumulated experience of the courts, that such satisfaction is not a state of mind attained independently of the nature and consequence of the fact proved and the seriousness of an allegation made. As Dixon J famously explained in Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 at 362, the inherent unlikelihood of an occurrence must affect the answer to the question of whether the issue has been proved.
This is why, in having proper regard to s 140(2), it is not the end of the analysis to note that a suggested finding would amount to a contravention of civil remedy provision. All breaches of civil remedy provisions are not the same. Some might involve behaviour which, at one end of the continuum of possible contravening conduct, could be characterised as being misguided but morally benign, or, at the other end of the continuum, could be contravening conduct characterised as being seriously depraved. Although findings as to a contravention of the FWA are not findings lightly to be made, forming an opinion as to reasonable satisfaction about matters in evidence involves consideration of not only the consequence of such a finding but also the nature of the conduct. This is another way of saying that all of the s 140(2) mandatory considerations must be taken into account. Here the conduct alleged (although serious and unlawful) is not the type of conduct which, if proved, is so egregious that it would be regarded as conduct which, by its nature, human experience would suggest is inherently unlikely to have occurred.
Secondly, Division 7 of Part 3.1 of the FWA provides, among other things, that where, such as here, it is alleged that a person takes action “for a particular reason” then a person takes action “for a particular reason” if the reasons for the action include that reason: see s 360. Additionally, s 361(1) relevantly provides that if it is alleged that a person took action for a particular reason and, such as here, the taking of that action for that reason would constitute a contravention, “it is presumed that the action was…taken for that reason… unless the person proves otherwise”. As French CJ and Crennan J explained in Board of Bendigo Regional Institute of Technical and Further Education v Barclay [2012] HCA 32; (2012) 248 CLR 500 at 506 [5], the task of a court in a proceeding alleging a contravention is to determine, on the balance of probabilities, why the employer took adverse action against the employee, and to ask whether it was for a prohibited reason or reasons which included a prohibited reason. The imposition of the statutory presumption in s 361, and the correlative onus on employers, means that direct evidence of state of mind, intent or purpose of the decision-maker will bear upon the ultimate determination as to why the adverse action was taken. This is a question of fact, to be answered in the light of all the proved facts: see Barclay at 517 [44]-[45]. Put another way, whether a respondent in the position of CSG has discharged its onus is a question to be resolved at the end of a proceeding and upon consideration of the entirety of the evidence adduced: Construction, Forestry, Mining and Energy Union v Anglo Coal (Dawson Services) Pty Ltd [2015] FCAFC 157; (2015) 238 FCR 273 at 279 [27] per Jessup J.
Thirdly, related to the second point, is that in order to invoke the reverse onus of proof, an applicant need only establish that “the evidence is consistent with the hypothesis” that a respondent was actuated by a proscribed reason. That is, Mr Leahey will succeed, if the evidence is consistent with the hypothesis that CSG was actuated by a proscribed reason, and that hypothesis was not displaced: see General Motors-Holden’s Pty Ltd v Bowling (1976) 12 ALR 605 at 617; (1977) 51 ALJR 235 at 241 per Mason J.
E DETERMINATION OF THE ISSUES OF LAW AND FACT
Issue 1: What happened and what CSG believed happened at Brisbane
Given the alleged centrality of the Brisbane Incident to the decision-making processes of CSG, as reflected in the Termination Letter (see [4] above), it might have been anticipated that precisely what occurred on 7 July 2017 at a CSG work function in Brisbane would have been the subject of a significant factual contest.
As it turned out, CSG did not call any evidence from alleged eye-witnesses to the Brisbane Incident and the evidence of what occurred is best gleaned from:
(a)paragraphs [73]-[90] of Exhibit A (being the outline of Mr Leahey’s evidence) and Mr Leahey’s cross examination;
(b)the oral testimony of Mr Daniel Bogdan, who was called by Mr Leahey; and
(c)the transcript of a recorded telephone conversation between Mr Trevor Gow and Mr Thomas, which comprised pages 294-6 of Exhibit B.
A review of all the evidence, including this material, establishes that what occurred was as follows: Mr Nick Dalton (a sub-agent of a Queensland master agent) approached Mr Leahey. Mr Dalton and Mr Leahey had a conversation, which was witnessed by Mr Gow and Mr Bogdan. During the course of that conversation, Mr Dalton said to Mr Leahey something to the effect of “I don’t like you”. Following a further brief conversation, Mr Dalton then initiated physical contact by grabbing Mr Leahey’s ear, tugging it while saying “are you deaf and stupid”? Mr Leahey then told Mr Dalton not to touch him again, but notwithstanding that comment, Mr Dalton again approached Mr Leahey and invaded his ‘personal space’, at which time Mr Leahey pushed Mr Dalton away with an open hand. Mr Gow and Mr Bogdan then intervened.
I am conscious of the fact that Mr Dalton was not called to give evidence and I have not had the opportunity of hearing his version of events. Notwithstanding this, I have to make findings on the basis of the evidence that was adduced before me and there was no substantial contest about the fact that the Brisbane Incident occurred in the way I have recounted, or the account which emerges from the evidence of Mr Leahey, Mr Gow and Mr Bogdan. Although various other accounts were given in information conveyed to CSG during the conduct of the inquiry into the Brisbane Incident, those representations were the subject of a limitation pursuant to s 136 of the Evidence Act. It is notable that, in closing submissions, Counsel for CSG submitted, in my view sensibly, that CSG:
…recognise[d] where the direct evidence as to what happened in relation to the [Brisbane Incident] lies and that the Court may form a view that the incident occurred as generally described by [Mr Leahey].
The distinct question as to what the decision-makers within CSG believed occurred is somewhat more complicated. The significance of a finding as to what CSG believed potentially has relevance in two ways. First, there was a suggestion by CSG that this question has some importance to the determination of the LTI Plan claim (a submission I reject below). Secondly, the question of whether CSG actually believed Mr Leahey had engaged in misconduct was said by Mr Leahey to be material, as it was alleged to bear rationally upon whether the evidence of the decision-makers as to the motivation for terminating his employment ought to be accepted.
Accordingly, I now turn to the question of whether Mr Thomas genuinely believed that Mr Leahey engaged in conduct which could be characterised as “inappropriate physical force against one of CSG’s sub-agents” (as described in the Termination Letter).
What is clear is that Mr Thomas is the relevant focus of this inquiry as Mr Ramsay did not conduct any investigation of the Brisbane Incident and there was no detailed evidence about what Mr Ramsay was told or what he subjectively believed in relation to the Brisbane Incident. To the extent that Mr Ramsay had a view, I am satisfied that this view was informed by what he had been told by Mr Thomas In short, he deferred entirely to Mr Thomas in relation to what happened in Brisbane and as to the appropriate remedial response.
To my mind the most unsatisfactory aspect of the evidence of Mr Thomas with regard to the Brisbane Incident is the tension between the contention that Mr Leahey had engaged in conduct which amounted to a common law assault which was completely unacceptable to CSG and the notion that CSG was entirely sanguine with the idea that Mr Leahey continue to represent CSG as a master agent. There was an attempt to reconcile these two positions by suggesting that a higher standard of conduct was expected of an employee rather than a consultant, but given the nature of the conduct as characterised by CSG and the repeated assertions that the conduct was sufficiently serious so as to justify summary termination, that explanation seems to me to ring very hollow.
I am satisfied that Mr Thomas did attempt to conduct an inquiry into the Brisbane Incident. Mr Leahey asserts that the inquiry had been prejudged and, in any event, was conducted maladroitly. CSG countered this suggestion by submitting that any notion that Mr Thomas prejudged his investigation was misplaced. CSG contended that the evidence demonstrates that Mr Thomas made a genuine effort to conduct a proper investigation including relying on enquiries made by another employee, Ms Bree Grindlay, and by conducting his own enquiries of persons who witnessed the Brisbane Incident, giving proper weight to the accounts of witnesses whom Mr Thomas considered to be independent of both the protagonists. CSG submitted that Mr Thomas “considered and weighed up the different accounts in a reasonable manner and formed a view on what happened which was reasonably available to him on the material he had”.
The submissions of Mr Leahey deal with the investigation of Mr Thomas in a highly critical way. Mr Leahey contends that Mr Thomas ignored what are said to be glaring inconsistencies in the account given by Mr Dalton, and chose to accept more incriminating versions of events, despite these inconsistencies. Similarly, Mr Leahey contends that Mr Thomas chose to identify a minor inconsistency between Mr Bogdan’s version of events with that of Mr Leahey in order to justify his reason for disbelieving Mr Bogdan and Mr Leahey, and irrationally discounted the corroborating version of events given by Mr Gow. A particular illustration of the flawed way that Mr Thomas approached the investigation is that the transcript of the recorded communication between Mr Thomas and Mr Gow demonstrates that Mr Thomas’ notes included words not said by Mr Gow, namely, inserting the word “flicked” in preference to the word used (“grabbed”) in the context of Mr Gow describing what Mr Dalton did to Mr Leahey’s ear.
On balance, I think there is merit in the contention of CSG that Mr Thomas did investigate, in good faith, what happened. Although it is possible to point to some logical flaws in the reasoning process of Mr Thomas, and a somewhat troubling inaccuracy in the notes recording Mr Gow’s version of events (which did have the effect of downplaying Mr Dalton’s actions), I accept the evidence of Mr Thomas that he genuinely believed that Mr Leahey had acted inappropriately in relation to the Brisbane Incident.
What I do not accept, however, is that Mr Thomas considered the behaviour of Mr Leahey to be as egregious as CSG and Mr Thomas then made out. If Mr Leahey had been regarded by Mr Thomas as a valuable employee, rather than one who had been over-promoted, I do not believe that CSG would have regarded the behaviour, although unfortunate, as being sufficiently serious to justify serious disciplinary action, let alone summary termination. In this sense, CSG opportunistically fastened onto the Brisbane Incident as a partial justification for taking a step to dismiss Mr Leahey in circumstances, as I explain, where CSG wished to part company with Mr Leahey as a senior manager.
Issue 2(a): The relevant decision-makers
In answering Issue 2, I will consider two questions, being: (a) who decided to terminate Mr Leahey’s employment; and (b) why was Mr Leahey’s employment terminated?
By the time of final submissions, Mr Leahey submitted that Mr Ramsay and Mr Thomas were joint decision-makers, but recognised that Mr Thomas took the greater role in the making of the decision. The position of CSG was to submit that the decision-maker “was either Mr Thomas (with significant input from Mr Ramsay) or that Mr Ramsay and Mr Thomas were joint decision makers”.
The evidence of Mr Ramsay was that “[u]ltimately the decision was made by [Mr Thomas]” (T 195). Mr Thomas gave evidence that the “decision was made between myself and Mr [Ramsay]” (T 287). Determining whether the decision-maker was Mr Thomas (with significant input from Mr Ramsay) or whether the decision was a joint decision, is not without difficulties. I had originally inclined to the view that if a so-called ‘sole’ decision-maker asserts that another person also made the decision, this was a fairly good pointer to the fact that the decision was made jointly. However, upon reflection and having considered their respective roles and reviewed their respective oral evidence closely, I consider the evidence of Mr Ramsay is likely to be correct and that the decision was made by Mr Thomas (albeit with input from Mr Ramsay on the financial aspects of Mr Leahey’s performance). Mr Ramsay’s evidence was less than clear on the point, but I do not think the input of Mr Ramsay went so far as a definitive recommendation.
I have explained the principled approach to determining the entitlement of Mr Leahey to claim damages in relation to the breach of the Employment Agreement by CSG in not providing Mr Leahey, in a timely fashion, with a finalised Scorecard for the purposes of FY2015 and FY2016. In accordance with the agreement reached between the parties, it is hoped that, given these matters of principle have now been resolved, the parties can now agree on an appropriate resolution of the issues as to quantum. On any view of it, the amounts in dispute do not seem to me to justify further disputation, upon proper consideration being given by the parties to their obligations in accordance with the overarching purpose pursuant to Part VB of the FCCA.
Issues 5 & 6: Was summary dismissal justified?
Given what I have found in relation to Issue 1 as to what happened in relation to the Brisbane Incident, and my finding as to what CSG believed happened, the answers to Issues 5 and 6 are clear. Mr Leahey’s behaviour was not, for reasons I have explained, such as to have justified summary dismissal, nor did CSG, through Mr Thomas, believe that it was behaviour that was sufficiently serious to justify dismissal without notice.
Issue 7: Is Mr Leahey entitled to the LTI Amount?
It is necessary to set out some of the aspects of the Rules in order to ascertain whether Mr Leahey is entitled to be paid the LTI Amount. The relevant definitions are as follows:
Bad Leaver means a Participant who ceases to be an Eligible Employee in any of the following circumstances:
(a)the Participant’s employment or contractual relationship is terminated, or the Participant is dismissed from office, due to:
(i)serious and wilful misconduct (including, without limitation, fraud and dishonesty);
(ii)material breach of the terms of any contract of employment, office or services entered into by the Company (or another member of the Group) and the Participant;
(iii)gross negligence; or
(iv)other conduct justifying termination of employment, office or contractual relationship without notice either under the Participant’s contract of employment, office or services, or at common law;
(b)the Participant resigns from his or her employment or office or terminates his or her contractual relationship; or
(c)the Participant is ineligible to hold his or her office for the purposes of Part 2D.6 of the Corporations Act.
…
Good Leaver means a Participant who ceases to be an Eligible Employee and who is not a Bad Leaver, and, to avoid doubt, includes where a Participant’s employment, office or contractual relation ceases due to death, permanent incapacity, redundancy, bona fide retirement, or any other reason the Board determines in its sole and absolute discretion.
…
Performance Right means an option granted under these Rules (in particular, Schedule 1) to acquire one or more Shares, by transfer or allotment in the absolute discretion of the Board.
In addition to these definitions, the following operative provisions are relevant:
9. Miscellaneous
9.1 Rights of Participants
Nothing in these Rules:
(a) …
(b) …
(c) …
(d) …
(e) may be used to increase rights of compensation or damages in any action brought against a member of the Group in respect of any termination of employment, office or contractual relationship;
(f) confers any legal or equitable right on an Eligible Employee whatsoever to take action against any member of the Group in respect of their employment, office or contractual relationship; or
(g) confers on an Eligible Employee any rights to compensation or damages in consequence of the termination of their employment, office or contractual relationship by any member of the Group for any reason whatsoever including ceasing to have rights under the Plan as a result of such termination.
…
Schedule 1 – Performance Rights
…
7. Forfeiture of Performance Rights
7.1 Good Leaver
(a)Unless otherwise stated in the Invitation, within 20 days of the Participant becoming a Good Leaver, the Board shall issue a written notice to the Participant notifying the Participant that the following Performance Rights shall not be forfeited:
(i) those Performance Rights which have vested; and
(ii) those Performance Rights which the Board can determine with certainty would have satisfied the applicable Vesting Conditions notwithstanding the relevant testing period has not expired.
(b)All Performance Rights held by a Participant other than those the subject of the Performance Right Retention Notice will be forfeited.
(c)Subject to the Corporations Act, the Listing Rules (where applicable) and any other applicable laws and regulations, the Board may determine that some or all of the Performance Rights retained by a Good Leaver are deemed to have vested.
7.2 Bad Leaver
Unless otherwise stated in the Invitation, or determined by the Board in its absolute discretion, a Performance Right held by a Participant will be forfeited immediately on the date that the Participant becomes a Bad Leaver.
Two issues arise between the parties in relation to the entitlement of Mr Leahey to be paid the LTI Amount. The first is whether Mr Leahey was a Bad Leaver or a Good Leaver. In this regard, it was accepted by CSG (consistently with the definitions set out above) that unless Mr Leahey was properly classified as a Bad Leaver, he must be regarded as a Good Leaver.
The second question (which arises only if Mr Leahey is classified as a Good Leaver and hence is prima facie entitled to the value of his vested Performance Rights), is as follows: is Mr Leahey, by reason of the terms of cl 9.1 of the Rules, prevented from seeking relief to obtain the value of the Performance Rights?
I will deal with each of these arguments separately.
Was Mr Leahey a Bad Leaver?
The contention of CSG that Mr Leahey did, by his participation in the Brisbane Incident, engage in serious and wilful misconduct or a material breach of the terms of the Employment Agreement or other contract justifying termination of employment (Disentitling Conduct) has already been rejected. This is not the end of the issue, however, because CSG alternatively submits that, notwithstanding that Mr Leahey did not actually engage Disentitling Conduct, Mr Leahey is nonetheless to be classified as a Bad Leaver, if CSG had “a reasonable basis for believing, and did in fact believe, that the [Brisbane Incident] occurred”. Fundamental to this alternative submission, of course, is the notion that CSG did have a reasonable basis for believing (and did, in fact, believe) that Disentitling Conduct had occurred.
Of course, as by now should be apparent, the argument of CSG fails at the outset. For one thing, it was never explained by CSG who, for the purposes of this alternative argument, formed the view that the Disentitling Conduct had occurred. Reference is made throughout the Rules to various opinions and decisions being made by the Board. No evidence was led by CSG as to the opinion of the Board as to what occurred in relation to the Brisbane Incident nor did CSG seek to prove that there had been any delegation by the Board as to the formation of that opinion. Doing the best I can, I assume it is said that because Mr Thomas had the relevant view (and held it reasonably), this view could be attributed to CSG for the purposes of the Rules. The legal basis of this apparent assumption in the argument was never articulated, but, in any event, it fails on the facts. I have found that Mr Thomas did not form the bona fide view that Disentitling Conduct occurred (in the sense that he did not subjectively believe that the Brisbane Incident constituted conduct which would have been regarded as serious and wilful misconduct, a material breach of the terms of the Employment Agreement, or other conduct justifying summary termination – see [98] and [144]-[145] above).
Leaving aside these problems, CSG’s case is not tenable because even if Mr Thomas or the Board had believed the Disentitling Conduct occurred, this is not the point. The Disentitling Conduct did not occur as a matter of objective fact and there is nothing about the definition of Bad Leaver which, as a matter of ordinary construction, suggests that the question of whether a participant is a Bad Leaver is to be determined by the subjective and attributed view of CSG rather than an objective determination as to whether or not the conduct which would give rise to an employee being classified as a Bad Leaver had, in fact, occurred.
Both parties relied upon Bartlett v Australia & New Zealand Banking Group Ltd [2016] NSWCA 30; (2016) 92 NSWLR 639. It is not entirely clear why. As I explained in Avenia at [205]-[208], in Bartlett, the New South Wales Court of Appeal concluded (in the circumstances of a specific contractual power) that for the employer to summarily dismiss an employee it was necessary to establish that serious misconduct had, in fact, occurred: see 648-649 [30]-[34] per Macfarlan JA. The Court also discussed, at length, an alternative argument and noted that, even if it was sufficient for the employer to dismiss the employee summarily based on the employer’s opinion that the employee had committed serious misconduct, the formation of that opinion had to be reasonable (see 651-652 [49]) and, it was found that in the circumstances of the case, an inadequate investigative process and lack of procedural fairness meant that the employer did not act reasonably when forming its opinion.
This discussion, in the context of a different contract, is beside the point. This aspect of the case falls to be considered by reference to an orthodox reading of the definitions of the Rules. Those provisions, both textually and contextually, make it plain that the relevant Disentitling Conduct must have occurred as a matter of objective fact.
There is no substance in CSG contending that Mr Leahey was a Bad Leaver.
Contractual Bar on Recovery
Starting from the now established premise that Mr Leahey was a Good Leaver, the contention by CSG that he should nevertheless be prevented from recovering the LTI Amount might be thought to be a point not exactly dripping in merit.
It is fair to say that I was not assisted by the submissions of either party in relation to this point, which was only raised squarely during the course of the hearing. The position of CSG was expressed to be as follows:
To put it simply, the Rules must be interpreted and applied on the basis that they mean what they say and, in particular, that nothing in the Rules confers on the [Mr Leahey] “any rights to compensation or damages in consequence of the termination of their employment…including ceasing to have rights under the Plan as a result of such termination”.
It was said, for this reason, that even if there had been a breach of the Rules “it is not a breach which is actionable by the [Mr Leahey] or entitles him to any damages”.
The submissions of Mr Leahey were similarly economical. They were that:
…on its proper construction (and having regard to the manner in which exclusion clauses should be read [see Darlington Futures Limited v Delco Australia Pty Limited [1986] HCA 82; (1986) 161 CLR 500 at 510]) all clause 9.1 of the [Rules] does is confirm that the Rules themselves do not confer any additional legal or equitable rights upon a Participant.
However, that does not mean that a Participant who has been granted performance rights pursuant to (as in this case) an employment contract, invitation, letter or application that was accepted is then denied the ability to bring a cause of action when the other party to the agreement breaches the [Rules].
The issue is somewhat different to that addressed by the parties.
The first point is to ascertain the nature of the rights of Mr Leahey and this inquiry commences with understanding the commercial context of the LTI Plan. As noted in [26] above, the 24 June 2013 letter had explained that Mr Leahey had been selected to apply for Performance Rights under the LTI Plan. These Performance Rights were said to allow him to “recognise [his] time with CSG by rewarding [him] with rights which will allow [him] to share in the growth and value of CSG and strengthen the link between [his] performance and remuneration”. Hence, the LTI Plan was an integral part of the long term remuneration of Mr Leahey. As was explained by Mr Ramsay following the November 2015 Meeting (see [44] above), the 457,143 Performance Rights formed part of Mr Leahey’s remuneration and the LTI “provides longer term balance to short term decisions and encourages common purpose across the executive group regarding the creation of shareholder value”.
Of course, as is common with such schemes, the way this is achieved is by allowing participants to enjoy the benefit of any appreciation in the value of the ordinary shares in CSG traded on the ASX. The Performance Rights confer the right upon participants, subject to the Rules, to obtain shares in CSG upon exercise of their Performance Rights. Clause 6.1 of Schedule 1 of the Rules provides that within 10 business days “after the valid exercise of a Performance Right” by Mr Leahey, CSG was obliged to “issue or cause to be transferred to [Mr Leahey] the number of Shares to which [Mr Leahey] is entitled for no further consideration”. Properly characterised, prior to such an exercise, Mr Leahey enjoyed a right to require due performance of the obligations of CSG under the Rules but did not have any legal or equitable interest in an ordinary share of CSG (see cl 3.1 of Schedule 1 of the Rules which provides that prior to a Performance Right being exercised in accordance with cl 5 of Schedule 1, Mr Leahey does not have any such proprietary interest).
Not surprisingly, given the commercial context, people leaving CSG in ‘bad’ circumstances are treated differently in the Rules from those leaving in ‘good’ circumstances, subject to an overall discretion retained by the Board to not necessarily require forfeiture of Performance Rights of a Bad Leaver.
Of particular relevance, cl 7.1 provides that unless otherwise stated in the invitation (not the case here), within 20 days of Mr Leahey becoming a Good Leaver, the Board shall issue a written notice to Mr Leahey notifying him that the Performance Rights which have vested “shall not be forfeited”.
This notification has not occurred because CSG wrongfully asserted and maintained that Mr Leahey was a Bad Leaver. Moreover, there is no evidence of Mr Leahey seeking the exercise in accordance with the Rules of his vested Performance Rights (I infer for the same reason). Hence, at least so far as the evidence reveals, cl 6.1 has not been formally engaged.
In these circumstances one would have assumed that declaratory relief would have been the orthodox relief sought, clarifying that Mr Leahey was a Good Leaver and making plain his entitlement to exercise his Performance Rights (and/or ancillary relief compelling CSG to comply with its obligations under the Rules). This did not occur because the parties, pragmatically, reached agreement that if it was determined that Mr Leahey was a Good Leaver, Mr Leahey would be entitled to payment of the LTI Amount (being, I infer, the value of the shares as at the time that Mr Leahey would hypothetically have exercised his Performance Rights).
CSG’s argument that the Rules prevent Mr Leahey from recovering the LTI Amount must be determined by reference to the actual legal and equitable rights of Mr Leahey to enforce the obligations of CSG pursuant to the Rules, and not by reference to the abstraction that the parties have pragmatically agreed as reflecting, by consent, the appropriate relief in the event that Mr Leahey has not forfeited his Performance Rights. The submissions of the parties did not recognise this distinction, which has caused some confusion.
As to the three particular clauses relied upon by CSG (which I have set out in full at [249] above), none have application so as to prevent Mr Leahey exercising his Performance Rights and obtaining the value of shares in CSG.
First, as to cl 9.1(e), the action brought by Mr Leahey is not a claim for damages brought against CSG “in respect of any termination of employment, office or contractual relationship”. Properly analysed, the claim made by Mr Leahey is to enforce the obligations of CSG pursuant to the LTI Plan. If Mr Leahey had properly been categorised as a Good Leaver, the vested Performance Rights of Mr Leahey were not to be forfeited.
Secondly, as to cl 9.1(f), Mr Leahey is not, properly analysed, taking action in respect of his “employment, office or contractual relationship”. What Mr Leahey seeks to do is to realise the benefit of the exercise of Performance Rights already vested in him pursuant to the terms of the Rules. It is the vesting of the Performance Rights which gives rise to his present rights under the Rules where (as I have found) those Performance Rights have not been forfeited.
Thirdly, as to cl 9.1(g), again, for reasons I have already explained, despite the pragmatic agreement that Mr Leahey can obtain the monetary equivalent of the value of the shares he would obtain upon exercise of the Performance Rights (in lieu of relief in the nature of specific performance), the rights of Mr Leahey are not rights to compensation or damages in consequence of the termination of employment, office or contractual relationship. Damages are not sought by reason of the fact that Mr Leahey has ceased to have rights under the LTI Plan as a result of his termination; rather, he seeks to obtain the benefit of the Performance Rights which remain by reason of the fact that he was a Good Leaver.
The suggestion that Mr Leahey, even though a Good Leaver, could somehow be prevented from recovering the benefit of his already vested Performance Rights would be an extraordinary result, given the importance of this part of the remuneration to the overall bargain between the parties. Although the agreement between the parties, reached in an effort to narrow issues, has framed the agreed relief in a particular way, the principled legal analysis is that Mr Leahey, a Good Leaver, is entitled to exercise his Performance Rights in accordance with the Rules. It follows (and not because of the Rules but given the subsequent agreement between the parties), that the value of these non-forfeited Performance Rights can be expressed in monetary terms and hence that Mr Leahey is entitled to the LTI Amount.
F CONCLUSION AND ORDERS
I have determined the issues agreed by the parties as necessary to resolve the matters of principle that divide them. Plainly, Mr Leahey will be entitled to judgment in a sum to be calculated but the parties will need to determine the amount to be paid by way of FY2015 and FY2016 STI in order to determine the amount of any judgment.
These reasons are very lengthy. This is because the parties were unable to reach any sort of consensus as to the basic terms of their contractual relationship. It is a matter of concern that superior court litigation lasting in excess of seven days would be required to resolve a dispute of this type. It seems to me that this is a further example where a number of points of little financial consequence are run, which might not have been litigated if the parties were conducting litigation in the absence of the protection against adverse costs contained in s 570 of the FWA. As I have previously noted (see Avenia at [280]) this can have the “unintended effect of encouraging the perpetuation of litigation that would be settled in circumstances where a party was at risk of adverse costs in the usual way”.
I do not consider it appropriate that I presently make any observations concerning the costs of the hearing. Nor do I seek that any material be filed in support of any application for costs to be made in accordance with s 570 of the FWA, given that there may be some prospect that one or other party may wish to rely on otherwise privileged communications in support of any application: see McDonald v Parnell Laboratories (Aust) (No 2) [2007] FCA 2086; (2007) 164 FCR 591 at 598-9 [27]-[31] per Buchanan J; Melbourne Stadiums Ltd v Sautner [2015] FCAFC 20; (2015) 229 FCR 221 at 255 [166]-[168] per Tracey, Gilmour, Jagot and Beach JJ.
In all the circumstances, I propose to list the proceeding for a case management hearing at 10:15 am on 29 September 2017 for orders and directions to be made as to the future conduct of the proceeding. This will allow time to ascertain whether a consensus can be reached as to the orders to be made disposing the proceeding. If no consensus can be reached, it will then be necessary for me to hear further argument upon the quantification of the damages to be paid to Mr Leahey and then, following the determination of this issue, to consider the question of whether any order for costs should be made.
I certify that the preceding two hundred and seventy-nine (279) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee. Associate:
Dated: 18 September 2017
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