McRae v Watson Wyatt Australia Pty Ltd
[2008] FMCA 1568
•1 December 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| MCRAE v WATSON WYATT AUSTRALIA PTY LTD | [2008] FMCA 1568 |
| TRADE PRACTICES – Where applicant made redundant from senior position claims representations or contractual terms relating to termination payment made – whether conversations said to constitute arrangements were as alleged by applicant – whether document prepared by applicant was made contemporaneously with conversations – whether document was deliberately interfered with – nature of representations – whether words used constituted supplementary oral term – whether applicant relied upon alleged representations in entering into contract of service – whether later service agreement containing ‘whole agreement’ clause superseded original arrangements – whether breach of s.53B Trade Practices Act – whether applicant mitigated loss – whether damages under s.82 need to be assessed where breach of contract found – method of calculating costs in Federal Magistrates Court. |
| Trade Practices Act 1974, ss.52, 53B, 82 Chitty on Contracts, 29th ed, Beale, Sweet & Maxwell Cheshire & Fifoot’s Law of Contract, 6th ed, Starke, Seddon and Ellinghaus, Butterworths Trade Practices Law, Heydon, Ed Thomson Law Book Co, vol 2 Catanzariti J, (2008) Law Society Journal Civil Procedure Act 2005 (NSW), s.100 Federal Magistrates Court Rules 2001 Federal Court Rules |
| Qantas Airways Limited v Gama [2008] FCAFC 69 Concut Pty Ltd v Worrell [2000] HCA 64 Pappas v Soulac Pty Ltd (1983) 50 ALR 231 Sanders v Glev Franchises Pty Ltd [2002] FCA 1332 General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FCR 164 Henjo v Collins Marrickville Pty Ltd (1988) 39 FCR 546 Gould v Vaggelas (1985) 157 CLR 215 Nielsen v Hempston Holdings Pty Ltd(1986) 65 ALR 302 Johnson Matthey v AC Rochester Overseas Corp (1990) 23 NSWLR 190 Skywest Aviation Pty Ltd v Commonwealth of Australia (1995) 126 FLR 61 State Rail Authority of NSW v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 at 177 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Russell v Trustees of the Roman Catholic Church of the Archdiocese of Sydney & Anor [2008] NSWCA 217 Russell v Trustees of the Roman Catholic Church for the Archdiocese of Sydney & Anor [2007] NSWSC 104 Salton v New Beeston Cycle Company [1899] 1 Ch 775 Namol Pty Ltd v AW Baulderstone Pty Ltd (1993) 119 ALR 187 GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 688 Walker v Citigroup Global Markets Pty Ltd [2005] FCA 1678 Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388 |
| Applicant: | KATHRYN ANN MCRAE |
| Respondent: | WATSON WYATT AUSTRALIA PTY LTD |
| File number: | SYG 3894 of 2007 |
| Judgment of: | Raphael FM |
| Hearing dates: | 18, 19, 20 August, 29 October 2008 |
| Date of last submission: | 29 October 2008 |
| Delivered at: | Sydney |
| Delivered on: | 1 December 2008 |
REPRESENTATION
| Counsel for the Applicant: | Ms L Clegg |
| Solicitors for the Applicant: | Carroll & O’Dea |
| Counsel for the Respondent: | Mr R Crow |
| Solicitors for the Respondent: | Mallesons Stephen Jacques |
ORDERS
Respondent to pay applicant $106,615.38 for breach of her contract of employment dated 18 July 2000.
Respondent to pay applicant $13,903.96 interest to judgment.
Costs reserved.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 3894 of 2007
| KATHRYN ANN MCRAE |
Applicant
And
| WATSON WYATT PTY LTD |
Respondent
REASONS FOR JUDGMENT
I propose to divide these reasons into the following headings: Introduction, History, Disputed Evidence, Discussion, Mitigation and Costs.
Introduction
Ms McRae sues her former employer for damages she alleged she sustained when on 14 August 2007 she was made redundant from her position. She claims that when she negotiated her employment with the managing director Mr Dillon he represented to her that in the event of her being made redundant she would receive a severance payment no less valuable than what she described as the ‘industry standard’ of
3 weeks’ pay for each year of service. She makes this claim under ss.52 and 53B and 82 of the Trade Practices Act 1974 (Cth) (the “Act). Alternatively she claims that the arrangement made with Mr Dillon constituted either a term of her employment agreement or an enforceable warranty. The respondent denies both the arrangement and its possible effects. It says further that any such arrangement was superseded by a new employment agreement in 2004 that did not contain any such arrangement and was said to be “the whole agreement”.
History
In this section I will set out what I believe to be the uncontroversial history of the applicant’s employment prior to and with the respondent. There is sufficient of this type of evidence to create a history in which the contested evidence can be seen in context.
In 1988, after deciding not to continue with a law degree at the University of Sydney, Ms McRae accepted a role in the graduate program at National Mutual Holdings Ltd (“National Mutual”). In December 1988 she commenced work in the Corporate Superannuation area of that company. In that position she had contact with some major corporate clients of National Mutual, such as Ten Network Holdings Ltd and Hilton Hotels Pty Ltd. Some of the client companies began retrenchment programs and she was required to explain to staff how superannuation retrenchment benefits were calculated. In about 1991 National Mutual itself began a retrenchment program in order to reduce the size of its workforce in Sydney. Under the program staff could apply for voluntary redundancy through a scheme that was communicated extensively to staff. The redundancy terms and conditions were not included in the staff contract but were published separately. A copy of those conditions as they applied to Levels G and F in the organisation is in evidence. The benefit was a payment in lieu of notice plus a severance payment of three weeks for every year of service capped at a total of 75 weeks. Ms McRae applied for this redundancy program but was not accepted. She continued to work with National Mutual, being promoted from time to time. Between 1993 and 1995 she studied for a Diploma of Superannuation Management.
In about 1995 the Superannuation Division of National Mutual was purchased by Buck Consultants Pty Ltd (“Buck”). There were further retrenchments arising out of that purchase. The applicant was not made redundant by Buck. In March 1996 the applicant left Buck and took a position with Prudential Life Insurance Ltd (“Prudential”). On 9 October 1996 Ms McRae was retrenched from Prudential. The payment terms determined by Prudential for her were 8 weeks’ salary in lieu of notice and 3 weeks’ salary for every year of completed service with a minimum of 12 weeks. Upon leaving Prudential Ms McRae went to work again for Buck as a consultant until December 1996 when she was offered a position as a relationship manager in the Corporate Superannuation and Institutional Investment Division of State Street Ltd Australia (“State Street”). Whilst at State Street Ms McRae worked on the Coca Cola Amatil superannuation fund account. In the second half of 1997 the applicant was approached by Buck to return to work with them as a superannuation consultant on their part of the Coca Cola Amatil superannuation fund account. She accepted this offer and returned to Buck around October 1997. In October 1998 she was promoted to
Level 2 from Level 3.At the end of 1998 Buck informed staff that it was to be taken over by NSP Lewis Pty Ltd and that there would be a merged company to be known as NSP Buck Pty Ltd (“NSP Buck”). This was the Australian arm of a global corporation specialising in human resources management including superannuation. Senior staff were offered new contracts with NSP Buck which were required to be signed by June 1999. The applicant and some colleagues took advice from Clayton Utz about the contract because they were concerned that any existing benefits that they had should be preserved. One of the matters of concern was retrenchment benefits. The applicant resigned from NSP Buck on 16 July 2000 before there was complete resolution of all the issues relating to her contract. Ms McRae resigned from NSP Buck because between May and June 2000 she was approached by Ms Pauline Durant, a senior consultant at Watson Wyatt Australia Pty Ltd (“Watson Wyatt”), the respondent Ms McRae’s manager at NSP Buck had just resigned from that company to join Watson Wyatt and he was also the plan actuary for the Coca Cola Amatil superannuation plan. The applicant and Ms Durant met for coffee and matters progressed to the stage where it was suggested that she meet Mr Andrew Dillon, who was then described as the managing consultant to the company in Australia. This meeting took place in about the third week of May at the boardroom of Watson Wyatt. The interview was successful because shortly thereafter Ms Durant advised Ms McRae that she was going to be offered a job by Watson Wyatt and there then commenced some pre-contract negotiations on the form of a draft contract that had been provided to Ms McRae.
Importantly, a telephone conference call was arranged between Ms McRae and Mr Dillon, who was in Melbourne, on 12 June 2000.
It is the content of that telephone call that forms the basis for the applicant’s claim in these proceedings and I will discuss the evidence relating to it in the next section of these reasons. When the applicant informed her current employer of the approach by Watson Wyatt, it offered her an increase in pay. Ms McRae seriously considered remaining with NSP Buck because of concerns which she had about moving to a smaller organisation. Ms McRae told Watson Wyatt about the improved offer from NSP Buck. A dinner was arranged at the Rockpool restaurant between herself and Mr Dillon. Mr Dillon promised that Watson Wyatt would match the increased salary offered by NSP Buck. Ms McRae decided to join Watson Wyatt. She signed a contract on 18 July 2000. The terms of this contract had been agreed between her and Mr Dillon in the telephone conversation. The written contract did not contain any terms as to redundancy.
Ms McRae remained with Watson Wyatt in a senior position for approximately seven years. She was entitled to participate in the company’s bonus scheme and she assisted in the sales pitch that it put up for the Coca Cola Amatil superannuation plan. When the company won the contract she worked on it. She had responsibilities in regard to the online interaction between superannuation fund members and their fund that was being administered through Watson Wyatt. She led a team of consultants.
Ms McRae had commenced her employment at Watson Wyatt on Band 3 but in December 2003 she was informed that she was to be promoted to Band 4. Around that time she was contacted by Ms Kathy Syben, the human resources manager of Watson Wyatt, and asked to sign a new non-compete clause. She did this as requested. There were then further conversations with Ms Syben concerning the signing of a new contract. A draft contract was prepared. It had not been signed by Mr Dillon. There were some areas in which the contract did not reflect the arrangements which had been made between the company and
Ms McRae in her original contract. Ms McRae discussed these with Ms Syben. A new draft contract was prepared and signed by Mr Dillon. It was by now February 2004. In February 2004 Mr Dillon left the company. He was by that time the managing director. He was not immediately replaced. There were discussions between Ms Syben and the applicant which resulted in her new contract as finally amended being constituted by the draft contract signed by Mr Dillon plus amendments. The circumstances surrounding the new contract are controversial and will be discussed in the next section.
Ms McRae continued with her employment at Watson Wyatt. In 2006 her team was particularly successful and she was given a substantial bonus. However, in 2007, the area in which she was working suffered a substantial loss over a proposed new project. On 14 August 2007 Ms McRae was informed that her services had been terminated by the company by reason of redundancy. By that time Mr Andrew Boal had become the managing director. Ms McRae was not required to work out any period of notice and left the company that day. Following her termination there were meetings between herself and the company and Employee 11* concerning the termination payment. Ms McRae had initially been offered a termination payment of 3 months’ notice, which was the period nominated in her contract and one which she had negotiated with Mr Dillon when she joined the company, plus one month’s severance payment. Ms McRae did not believe this accorded with the arrangement she had originally made with Mr Dillon that she claimed would be at least 3 weeks for every year of service. The negotiations did not progress well. Eventually the company offered Ms McRae an extended superannuation benefit provided that she sign a deed of release. It did not offer her any additional severance payment. Ms McRae did not accept the offer. Since leaving Watson Wyatt Ms McRae has not been further employed in the superannuation industry. She has started a consultancy and has undertaken some work of that type.
Evidence
Any discussion of the evidence in a judgment must be informed by the pleadings. Any dispute on the evidence must be seen in the context of those pleadings and it is only necessary to consider extraneous evidence if that assists in interpreting the evidence given on the salient points. In particular, a decision-maker’s view about the credibility of a witness may be illuminated from his or her responses to questions on topics that might not be strictly germane to the pleaded issues.
In this case, the substantive issues between the parties relate to what occurred in the negotiations for Ms McRae’s employment with Mr Dillon, and the extent to which he made legally enforceable representations to her about benefits that she might receive should she be made redundant. In relation to any representations found to have been made it is alleged in the respondent’s defence that they were made on reasonable grounds. Ms McRae alternatively alleges that the arrangements with regard to redundancy were either express terms of the contract or enforceable warranties. The respondents deny the pleaded arrangements. The defence also alleges that Ms McRae made a further contract on 6 February 2004, which superseded the first contract and contained the entire agreement between her and her employer regarding her terms and conditions of employment. Other evidentiary matters that could have importance, depending on my findings concerning the representations made, are whether there was an industry standard of redundancy payments and whether payments made upon the redundancy of other employees during Ms McRae’s employment evidenced a course of conduct confirmatory of the existence of a redundancy policy within the company. Included in this is the extent to which other employees who were themselves being made redundant or who made enquiries about redundancies were misled as to the existence of a corporate policy.
In paragraph 5 of the Further Amended Statement of Claim (“FASC”) Ms McRae alleges that in the conversation with Mr Dillon on 12 June 2000 (“the telephone conversation”) he represented to her:
(a) That Watson Wyatt always looked after its staff.
(b) Watson Wyatt had a very generous redundancy policy compared to the industry
standard.(c) In the unlikely event that her position was made redundant,
Ms McRae would be well looked after.(d) Watson Wyatt did not include redundancy policy in contracts of employment.
Ms McRae had received a letter of offer from Watson Wyatt dated 5 June 2000. She was not entirely happy with the letter and so the telephone conversation with Mr Dillon was arranged. It is Ms McRae’s evidence that there were a number of matters which she wished to discuss with him and she jotted these down on the envelope that contained the letter of offer. That envelope is in evidence, both in its original form and in a laminated version. In the top left hand corner is a list of matters which Ms McRae said she jotted down for discussion with Mr Dillon. The list is written in a blue biro. It is as follows:
“probationary period
standard
termination <
redundancy
sick leave
level?
less for 5-7 years
superannuation <
leave loading – factored in
non compete
Bonus @ 15%”
The words next to “termination” (“standard” and “redundancy”) are clearly written in a different biro. There is also written at the top of the envelope in black biro with a line going down to the word “termination” the words “check put in”. The rest of the top of the envelope is taken up with some notes in blue biro on the banding with Mr Dillon’s contact numbers in black biro and then some other notes enclosed in a boundary in blue biro. Underneath those notes there is written in green the words:
“Redundancy
- look after staff”
and some other words which I cannot clearly read. These are said to be notes of the conversation with Mr Dillon. On the left-hand side of the envelope underneath the blue list are some other words in green relating to banding with some doodling on it. Ms McRae said that these words were written during the conversation with Mr Dillon. Underneath that are some more words in green which Ms McRae said are her notes of the conversation. They include the words “Leaving secure employment”, “prefer not to have probationary”, “can’t afford one months. I’d feel comfortable with 3 or 4 months”, “sick leave – don’t expect to take any – 12 days”.
It is Ms McRae’s evidence that this document corroborates her version of the conversation with Mr Dillon and in particular that she raised with him the question of redundancy. Ms McRae says that redundancy was a matter of some concern to her given what had been occurring in the industry and this concern was heightened by the fact that she had recently purchased a home and was now responsible for the repayment of the mortgage. She deposes to the fact that she told Mr Dillon that she felt that she was leaving a secure employment with NSP Buck that she said:
“With that in mind I’d like to talk about not just the terms of my contract but some of the broader policies that could affect me.”
She asked Mr Dillon to remove the probationary period. He agreed to do this. She asked him to change the notice period to 3 months. He agreed to do this. Later she agreed with Mr Dillon that the 3 months’ notice would apply only to her being given notice by Watson Wyatt and that she would only have to give one month’s notice to the firm. They then turned to the question of redundancy, in respect of which her evidence contained in her affidavit is as follows:
“With regard to termination in the event of redundancy, I then said words to the effect:
“Thanks Andrew. And whilst we’re on the subject of leaving Watson Wyatt, I’d like to understand what would happen in the hopefully unlikely event that I were to be made redundant. Whilst I obviously do not currently foresee being made redundant at Watson Wyatt, I have learned from my previous jobs that you cannot necessarily foresee all circumstances that can affect the company’s future. Fore example, I would never have foreseen Buck being taken over by NSP. In the companies I’ve worked for to date, I’ve always been entitled to what I believe is the industry standard of a minimum of notice period plus three weeks for every year of service. Does this also apply at Watson Wyatt, and would you consider putting the redundancy terms in my contract?””
Ms McRae dealt with sick leave, in respect of which Mr Dillon agreed to remove the phase-in period for sick leave contained in the letter of offer and they then discussed banding. Leave loading was discussed, as was superannuation, but these did not give rise to any changes in the contract. In regard to the non-compete clause, Mr Dillon agreed to adjust the non-compete clause to reflect its application to clients who Ms McRae brought to the company within her first 12 months of employment. They then discussed the mobile phone and Mr Dillon agreed to make an exception and alter the contract so that mobile phone personal calls were also paid for. Finally Mr Dillon agreed that Ms McRae’s Flight Lounge membership should be paid, even though normally this was only done for persons on Band 4.
It is not denied by the respondent that the changes to the contract referred to in Ms McRae’s affidavit did occur. What is said is that there was no agreement, nor were there representations, concerning superannuation.
Ms McRae gave her evidence first. Before her cross-examination commenced, she gave some explanation of her recollection of the timing of the writing on the envelope. She thought that the writing in green “leaving secure employment to come and work”, “prefer not to have probationary” etc was written prior to the conversation with Mr Dillon when she was talking with another employee of Watson Wyatt, Ms Colette Colman. She thought that the list in green headed by the word “Redundancy” on the mid right-hand side of the envelope had been made during the telephone conversation with Mr Dillon. She was not sure whether the words “brought client with me”, which are also written in green next to the address label on the right-hand side, was written before or after the telephone conversation. Ms McRae’s cross-examination commenced with questions about the envelope. The respondents had sought to have the envelope examined by forensic handwriting experts. This had been permitted by the applicant, but before the envelope was handed over she had marked some of the green-inked handwriting with a yellow fibre-tipped marker. It would appear from an affidavit 27 June 2008 by Michelle Novotny, a handwriting expert, that by doing this she prevented an analysis of the age of the ink (see paragraph 12 of Exhibit MN3 to the affidavit). It was to be the respondent’s case that I should draw an inference from this action that Ms McRae did not want the document examined to compare the age of the inks used, because that would have established that some of the writing had occurred at a later date and was placed on the envelope for the purpose of enhancing her claim.
Ms McRae was asked first why she changed pens so many times. She said that she was not specifically taking notes, but she was at her desk where there were many pens and she just picked up pens and wrote something. She picked up the green pen first and then picked up a blue pen. When she was cross-examined about the highlighting of some passages on the original document, she claimed that she did not believe that the highlighting would affect the tests. She had obtained confirmation that no chemical tests on the documents were going to be done and she knew that before the highlighting took place. She said that she had put the highlighting on because it was her intention to have the document forensically examined to rebut any claims by the applicant. The parts that were highlighted were those parts which she wished to have examined. She accepted that highlighting was an error but said that she did not think that it would affect the visual scanning of the document. It was suggested to her that it appeared implausible that anyone who accepted the need to preserve the document would then go and highlight significant parts. She agreed and repeated her regret that this had been done, but was firm in maintaining her position that it was done innocently.
Ms McRae was not clear exactly when each piece of writing was committed to paper. Some may have been written before the conversation, some during and some after. She said that she wrote some things as a reminder or note, some because she was bored with the conversation with Mr Dillon, particularly when he went on at some length about banding, and she said that she remembered the conversation very clearly even after eight years.
I was impressed with Ms McRae as a witness. She was open and firm in her answers. It seems to me quite clear from the fact that she retained a large number of old documents from previous employments that she was a meticulous person in regard to her personal affairs.
I accept her evidence that when she was negotiating with Mr Dillon the possibility of redundancy was a matter of concern to her. She was in an industry in which redundancy appeared to be rather common. It had occurred in a number of her other places of employment. Likewise, I accept her concern about moving from a place where her employment appeared secure to a newish and smaller company. It is conceded that in the conversation Ms McRae negotiated several changes to the draft agreement. It is quite clear to me that the company wanted to employ her. Notwithstanding some evidence later given by Mr Dillon that he did not employ people in order to use them to poach clients, I am inclined to the view that he was interested in putting together a team of people who had previously worked for Coca Cola Amatil. He did do that and shortly thereafter Coca Cola Amatil became a client. Ms McRae was an important part of that team.
The allegations made against Ms McRae are very serious. They are effectively that she has forged a document by placing on it writing that was not originally there. Allegations of that seriousness require the most convincing evidence. I have, of course, had regard to the views expressed by the Full Bench of the Federal Court in Qantas Airways Limited v Gama [2008] FCAFC 69 and the real meaning of the Briginshaw test as articulated in Branson J’s judgment (with whom French and Jacobson JJ agreed on this point at [110]). In considering this element of the respondent’s case I have not adopted a different standard of proof but have accepted the need for any evidence that will convince me upon the balance of probabilities to be cogent and persuasive. Because I accept Ms McRae as a witness of truth, and because it seems to me that the respondent does not deny that some things were written on that envelope at the relevant time, I find it inherently improbable that she would, some seven years later, seek to make additions to the envelope for the purposes of enhancing her claim.
The significant representation made by Mr Dillon in relation to redundancies has already been extracted. He was responding to Ms McRae’s suggestion that there was an industry standard and that it was three weeks for every year of service. Ms McRae based her understanding of this standard on the National Mutual document and on the treatment of persons who had previously worked with National Mutual and who were made redundant when that part of the organisation was sold into Buck and later NSP Buck. I do not think it is necessary to determine whether there is in fact an industry standard, I rather doubt that there is, because Ms McRae had put a figure to Mr Dillon of three weeks, and it was that figure that I believe is referred to in his response.
Mr Dillon gave evidence about the conversation. In regard to his evidence I noted that he appeared to suffer from a genuine inability to recollect matters. For example, he had no recollection of an important employee, Ms Kirk. He said he did not believe that he had the conversations deposed to by the applicant nor “would have spoken about a redundancy policy as we didn’t have one.” I am of the view that in the spirit of the negotiations he had with Ms McRae he may well have given her the indications constituted in the alleged representations. I have expressed the view that I was impressed with Ms McRae as a witness, both as to her credibility and as to her recollection. On that basis I prefer her evidence to Mr Dillon’s and accept that he made the representations about redundancy. The findings that I have made about the envelope and notes contained thereon corroborate Ms McRae’s evidence that redundancy was a matter for discussion and I accept that it was discussed. I would also note that the detailed Schedule of payments made to persons whose positions became redundant whilst Mr Dillon remained Managing Director of Watson Wyatt bears out his statement that the employees were “well-looked after.” I do not believe that the respondent has provided sufficiently cogent and persuasive evidence of the actions of
Ms McRae that I should draw the inference or make the finding it seeks.
A significant piece of written evidence was put to Mr Dillon whilst he was in cross-examination. This was a document described as a script for conversations between Mr Dillon and persons whose positions were to be made redundant. There are several of them exhibited. They all have a section for questions that might be asked by the redundant employee. The are entitled “Restructuring script”. In answer to the likely question “Severance package – how did we come up with it?” it is suggested that Mr Dillon says:
“We weighed up our legal obligations (we are not under any obligation to provide severance) against the service that she has provided to us in the time that he [sic] has been here. We also looked at accepted industry practice. We feel comfortable this is a reasonable package.”
Ms Syben, who prepared the scripts, had previously given evidence that she did not believe there was an industry practice. In response to my questions as to whether or not this statement was then misleading, she agreed that it was.
In regard to the pleaded particulars, I accept that the respondent through Mr Dillon represented to the applicant that:
(a) The respondent always looked after its staff.
(b) The respondent has a very generous redundancy policy compared to the
three weeks per year of service the applicant claimed was the industry
standard.(c) In the unlikely event that the applicant’s position was made redundant the
applicant would be well-looked after.(d) The respondent did not include the redundancy policy in contracts of
employment.The representation in bold is my finding in respect of the pleaded particular.
I am also of the view that the statement, which Ms McRae accepts was made by Mr Dillon, that “We do not put redundancy terms into the contract” was not intended by Mr Dillon, nor understood by Ms McRae, to mean that the arrangement did not constitute a contractual term. Arrangements between an employer and an employee are frequently not committed to writing at all and it is not unusual that some terms of an agreement are left out of a written contract. It is accepted by all that the agreement to pay the Qantas Club and the telephone bills was not included in the contract with Ms McRae but it was honoured. I am unable to see why the promise concerning redundancy should be treated any differently. Agreements of this type are known to the law and can be seen by their acceptance in Concut Pty Ltd v Worrell [2000] HCA 64 at [23] per Gleeson CJ, Gaudron and Gummow JJ, referring to Castlemaine Tooheys Ltd v Carlton & United Breweries Ltd (1987) 10 NSWLR 468.
While I have described the words used by Mr Dillon variously as representations and as contractual terms, I propose to deal with their legal effect in the discussion section of these reasons.
The next piece of disputed evidence with which I am required to deal is that surrounding the signing of the second contract in 2004. Ms Syben gave evidence for the respondent in relation to this aspect of the matter. She had prepared an affidavit sworn on 30 June 2008. Ms Syben joined Watson Wyatt in 2002 so she was not involved in the preparation or signature of Ms McRae’s first contract. She tells of her practice in relation to contracts and states that she knows of no written or unwritten redundancy policy, nor has she seen or heard of a Watson Wyatt contract of employment including express entitlements to severance payment in the event of termination on the ground of redundancy. She does admit that on two occasions she had made offers of employment that provided for additional benefits in the event of redundancy, although these offers were not accepted. She says that she was not aware of any “industry standard” for redundancy entitlements.
At paragraph 25 of her affidavit, Ms Syben refers to a number of employees who received payment from Watson Wyatt when their employment was terminated by reason of redundancy. Employee 1* received a termination payment equal to 75% of his annual total remuneration package, having worked at Watson Wyatt for nine years. That is approximately one month for each year. Employee 2* worked for a year and five months and received a month’s extra pay. Employee 3* received 20 weeks’ pay for voluntary redundancy, having been employed for nine years and three months. Employee 4*, Employee 5* and Employee 6*, who had been employed for between eight months and one year and eight months received one month’s pay. Employee 7* received two months’ pay after working for four years and eight months. Employee 8* received a month’s pay after working for a year and three months and Employee 9* received five months’ extra pay after working for one year and three months. In paragraph 26 she refers to the other employees who had been made redundant and payments made to them. It seems clear to me that whilst there was no application of a particular policy in relation to these payments, or a formula, the amount negotiated was on average around 3-5 weeks per year of employment. In paragraph 27 of her affidavit she says:
“All employees whose positions became redundant between 1 July 1999 and 31 December 2007 were paid an amount in excess of their contractual entitlements. However, these payments were made on a case-by-case basis according to their particular circumstances.”
Some of those circumstances included people who might have made claims against the company for wrongful dismissal or other grounds. The action taken by Ms Syben and the company following Ms McRae’s redundancy would appear to be consistent with the arrangements discussed in the affidavit save that the offer made to Ms McRae was not consistent with previous offers or the contractual arrangement that she had asserted. The money was also to come partly from the Watson Wyatt pension fund and not from the company itself. It would not be available to Ms McRae until retirement.
In December 2003 Ms McRae was promoted from Band 3 to Band 4. She received a congratulatory email from Mr Dillon. The document says:
“Please note for bonus purposes your new Band level has a target bonus of 25%.
All other terms and conditions remain the same as detailed in your current letter of offer. The confidentiality and non-compete agreement remains in full force and effect.”
Ms McRae says that in early January Ms Syben contacted her and told her that it was necessary for her to sign the new non-compete clause as a result of her change in band. Ms McRae deposed that Ms Syben then told her that she did not have a copy of the original contract and asked her to sign a new contract. Ms McRae deposes to the fact that she was surprised by this, but agreed to do it provided that there was no change to her terms of employment. She considered the arrangements administrative only, because they were being made not by her Managing Director Mr Dillon, but by the HR officer. She did not recall any discussion with Mr Dillon about a new contract. Ms Syben does not agree with that recollection. She had different reasons for proposing the new contract, saying that the position title, reporting lines and changes to the role were out of date. She does agree that she said:
“We are not intending to change any other term.”
The contract Ms McRae signed is exhibited to her affidavit as KMO15. It states that the letter confirms her terms and conditions of employment and supersedes her signed letter of offer dated 26 June 2000. It makes no mention of the position title, makes no mention of reporting lines, nor changes to Ms McRae’s role. It does not include the terms concerning payment of the Qantas Lounge fees and the mobile phone calls, but these continued to be paid. It does include one matter that Ms McRae recalls asking for, namely the continuation of payment for job-related educational courses up to the value of $4,600.00 per annum and the notice period (three months for the company, one month for her) that she had negotiated in 2000 were also included. The contract contains an entire agreement clause which states:
“Except as otherwise modified by changes in legislation, this letter sets out the entire agreement with you regarding the terms and conditions of your employment with the company.”
This agreement is also annexed to Ms Syben’s affidavit and it is in identical form.
In February 2004 Mr Dillon suddenly left the company. No new managing director was appointed immediately. Ms Syben appeared anxious to tidy up Ms McRae’s contract. Amendments had been made to it to include the term about the payment for study and this new page was inserted into the agreement that had already been signed by Mr Dillon. Ms McRae countersigned the document and it was put into the HR files. In the respondent’s written submissions dealing with the formation of the 2004 agreement, it says this:
“She did not query the ‘entire agreement’ clause. Even if she had been induced by Ms Syben’s statement to accept this clause, she lost nothing as a consequence. She claims to have had three contractual entitlements that were not contained in the 2000 contract, namely payment of her personal mobile phone expenses and fees for use of an airline customers’ lounge, and a redundancy benefit. She lost nothing by accepting the ‘enitre agreement’ clause because the respondent continued to pay the mobile phone expenses and airline lounge fees and, contrary to her claim, she never had a contractual entitlement with respect to redundancy at all. In 2000 she had asked for the inclusion in her written contract of a redundancy benefit, and Mr Dillon had refused it; see the submissions below, in relation to paragraph 15(d) of the FASC.
Ms Syben’s representation was honoured. The 2004 contract did not change the applicant’s terms and conditions.”
The purport of this submission seems to be that the “entire agreement” clause included those benefits which were the subject of a parol agreement coexistent with the written agreement signed in 2000. So that if I was to find an additional benefit related to redundancy, that would likewise be included or, possibly more accurately, would not be excluded, by the existence of the whole agreement clause. I will return to this finding, which I regard as crucial, in the discussion section of these reasons. In so far as any evidence relating to the signing of the second agreement is disputed, I prefer that of Ms McRae, that the second contract was not meant to reduce any of the terms and conditions of her employment which she had originally negotiated with Mr Dillon. I am supported in that by Mr Dillon’s own evidence that the contract was not to change other than to give effect to the promotion [T58 19/08/08]. I would also find that whilst Ms Syben’s evidence confirmed that there was no written redundancy policy to give benefits on a fixed formula, there was a practice, and if an employee was dismissed by reason of redundancy, a payment over and above the notice period would be made. The exact amount of the payment might depend upon the strength or otherwise of each individual’s bargaining position. It is even possible that the script prepared by Ms Syben for Mr Dillon would raise in the minds of employees of the company a legitimate expectation that they would be treated in accordance with “industry practices”. For reasons which I will discuss more fully in the next section but which will be clear from what I have already said, I do not think Ms McRae needed to avail herself of this because I am satisfied that she was given assurances of a redundancy payment by Mr Dillon when she took up her employment and this assurance was never revoked either by express agreement or by the signing of the new contract. It is a fundamental principle of employment law that an employer cannot unilaterally change the terms and conditions of a contract of employment: see Chitty on Contracts, 29th ed, Sweet & Maxwell at [1297] and the authorities cited therein. See also Cheshire & Fifoot’s Law of Contract, 6th ed, Butterworths at 194.
Discussion
It will be recalled that in paragraph 24 I found that Mr Dillon represented to the applicant:
(a) the respondent always looked after its staff
(b) the respondent has a very generous redundancy policy compared to the
three weeks per year of service the applicant claimed was the industry
standard(c) in the unlikely event that the applicant’s position was made redundant the
applicant would be well-looked after.(d) the respondent did not include the redundancy policy in contracts of
employment.Do these statements constitute either actionable representations, warranties, contractual terms, or all? The respondent argues that representations of this type are incapable of being proved to be correct or incorrect, were accepted by the applicant as being vague and imprecise, and constituted mere puffery. Puffery is not actionable: Pappas v Soulac Pty Ltd (1983) 50 ALR 231 at 234-5 per Fisher J (“Pappas”). In Sanders v Glev Franchises Pty Ltd [2002] FCA 1332 (“Sanders”) at [270] Kenny J approved of the statement made by Davies and Einfeld JJ in General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FCR 164 at 178 that:
“Each of the representations falls to be considered in the light of the particular facts and “in the light of the ordinary incidents and character of commercial behaviour”.”
Kenny J went on to quote extensively from Pappas before concluding that the representations he was being asked to consider as mere puffery were in fact overtaken by a disclosure document and were therefore not relied upon. Pappas and Sanders were both cases of representations made by real estate agents. The particular facts of the instant case are far different. The representations made by Mr Dillon were made in the context of specific questions and an expressed concern on the part of Ms McRae to protect her position in the event of redundancy. I am of the view that taken together they constituted a clear representation that in the unlikely event that she was made redundant, Ms McRae would receive at least 3 weeks’ salary for each year of service as an additional severance payment. Whilst I accept that some of the constituents of this representation, in particular the representation that “You would be well looked after” by itself cannot be proved to be true or false, the whole is far more than:
“ … the type of introductory comments in the nature of puffery made at the start of negotiations for the purpose of attracting the interest of a possible purchaser.” Pappas at 234.
The respondent then argues that even if the representations were actionable, they were not relied on by the applicant in deciding to enter into employment. It is said that the applicant was not in an inferior bargaining position, and that of the two “[i]t was Mr Dillon who was the more anxious to reach agreement.” The respondent argues:
“There was no reason why she could not have asked for and insisted on the inclusion of a redundancy benefit in her contract if, as she now claims, it had been important to her.”
I accept that Mr Dillon was at least equally as anxious as Ms McRae for her to be employed by Watson Wyatt. That is why I believe he made the representations that he would make a redundancy payment to her in the unlikely event of her position being terminated for this reason. On the other hand Ms McRae knew that terms such as these were rarely put in contracts of employment and she was prepared to accept his assurances as forming the basis of a side agreement which included the other benefits that had already been discussed. Ms McRae gave evidence that receiving assurances about redundancy was important to her because she felt that she had that benefit at NSP Buck and other conditions of employment of that company were very similar to those being offered by Mr Dillon. I am satisfied that Ms McRae would not have entered into the contract if it had not been made. Ms McRae gave as one explanation for not insisting on the term being in her contract that it might show a lack of confidence in her ability. The respondent argues that this explanation is unconvincing because Ms McRae did insist on the removal of a probationary period and on the inclusion of the longer period of notice of termination which, it said, were both as likely to send the same message to Mr Dillon. I do not think that these arguments really go to the question of reliance. They go more to an argument as to why it was unlikely that Ms McRae required and obtained the assurances which she did. I have already discussed this and come to a conclusion about it. These arguments did not impress me then and do not constitute grounds for a finding that Ms McRae did not rely upon the representation.
The respondent then argues that the move to Watson Wyatt was because the applicant was getting bored with NSP Buck and was looking for a greater challenge, and that she obtained career advantages by moving to Watson Wyatt. It argues that she might have been out of a job at NSP Buck had the Coca Cola account moved to Watson Wyatt with Mr Burnett. These are all good additional reasons why Ms McRae would accept the job offer from Mr Dillon, but they do not exclude her relying on his representations about a redundancy package when she committed herself to the change. The application of the common law principle to trade practices matters that a representation does not need to be the sole inducement that leads to the formation of a contract; it must be a ‘real’ inducement in the sense that it “materially affected the representee’s decision to contract” (see Heydon, Trade Practices Law, vol 2 at 11-7551) was approved of in Henjo v Collins Marrickville Pty Ltd (1988) 39 FCR 546 where Lockhart J (with whom Burchett J agreed) referring to Gould v Vaggelas (1985) 157 CLR 215 (where this principle was articulated by Wilson J) and Nielsen v Hempston Holdings Pty Ltd(1986) 65 ALR 302 said at 96:
“These decisions support the view that recovery under s 52 is founded by the applicant's actual reliance upon the misleading or deceptive conduct of the respondent, although that conduct was not the only factor in the applicant's decision to enter a particular agreement, and although the applicant did not seek to verify the representations or did so inadequately and so failed to discover their falsity.” [emphasis added]
The respondent argues that the applicant accepted that Mr Dillon’s representations were vague and imprecise. It concludes that they were only the subjective opinions of Mr Dillon at the time. Ms McRae is quite clear about what she thought those representations added up to; a severance package of at least three weeks per year of service:
“[T45] So the generosity which you say he mentioned could have applied to any of those things?--- I had specifically referenced the amount payable on severance however in my question to him.
The question that he was responding to, according to your evidence is:
Does this also apply to Watson Wyatt and would you consider putting the redundancy terms in my contract.
?---Yes.
And according to your account of this, he specifically replies to the second half – or second limb of that question by saying:
We don’t include redundancy terms in contracts.
?---That’s right.
Yes. And do you say that he’s responded to this first half of the question:
Does this also apply at Watson Wyatt?
?---Yes, I do. Cause I asked him whether the industry standard ---
Where does he say:
That we pay three weeks for every year of service.
?---His question needs to be read in response to mine.
I see.”
The individual constituents of the representation may have been imprecise or vague, but the whole was not. Ms McRae had told Mr Dillon what she understood the ‘industry standard’ to be. He responded to that proposition.
The respondent then turns to the new contract and the entire agreement clause. The submissions made (paragraph 33(5)) are to the effect that as Ms McRae did not make reference to the redundancy arrangements, she did not rely upon them. I have already discussed this new agreement. I am satisfied that Ms McRae saw it only as a formality and that it did not change things from the original agreement other than to formalise her promotion and new pay scales. Ms Syben, by her own evidence, did not know of the arrangement between Mr Dillon and Ms McRae about redundancy and so she could not have intended that it be excluded by use of the ‘entire agreement’ clause. The things she said the contract was being drawn up for were not included in the contract, nor were the benefits she accepted that Ms McRae was entitled to. I am unable to see how the entering into the new agreement terminated any reliance Ms McRae might have had upon her old arrangements with Mr Dillon. Nor did the clause have the effect of negating any contractual term or warranty relating to the payment of redundancy benefits.
The respondent then argues that Ms McRae would have known from arrangements or negotiations that were carried out with other employees, particularly Employee 12*, that redundancy coverage was not provided by Watson Wyatt. In particular, the respondent argues that paragraph 59 of the applicant’s first affidavit claiming that the email “confirmed to me that Watson Wyatt’s redundancy provisions included a formula based on years of service” was an untenable conclusion to have reached. It may have been a conclusion that was difficult to reach on the wording of the email from Ms Syben and Employee 12*, but it was not an untenable conclusion to have reached from the conduct of Watson Wyatt during the years that she was an employee. I have already referred to the large number of former employees who received severance payments. Whilst Ms McRae may not have been able to deduce that there was a redundancy policy of the type she knew existed for some time at National Mutual, she could well have been confident that the arrangement made by Mr Dillon and herself was not inconsistent with the conduct of the company going forward.
The respondent makes much of the fact that there was no redundancy policy placed on the respondent’s intranet site known as “Insight” and of Ms McRae’s failure to take up with people she knew were being made redundant and who might have received some benefits the question of the existence of a written policy. In my view too much has been made of the word “policy”. That word does tend to assume something that has been reduced to writing and that was made available to all. The word “policy” is frequently used as a synonym for the word “practice”. If the latter word had been used by Mr Dillon, it would probably have been more accurate. In my view the practice of the company, as evidenced by the actual severance payments, including the one made to Employee 10* was one of making such payments. This would reinforce Ms McRae’s confidence in the representations she had received.
The respondents then turned to the topic of whether the representations were misleading and deceptive. They make much of the fact that severance payments were made to people on termination and that their treatment was generous. This is not denied, but again it is necessary to look at the representations in their particular context. Ms McRae was not asking for the assurances on behalf of every other employee of Watson Wyatt; she was asking for the assurances for herself. She wanted to be clear what her position would be if she was made redundant. Mr Dillon was negotiating with Ms McRae. She was not a Union or staff representative. She was an individual whom he wished to employ. Any representations he may have made about what happened in the event of redundancy would have been representations about what he would do for her on the basis of what he did for others. This seems to me the real weakness of the respondent’s case. It tells that the representations were not false and points to payments made. That is correct. But Ms McRae did not receive the benefit of those payments, although it had been represented to her that she would. What was offered to her was a very much smaller payment than three weeks per annum, not wholly paid by the company but paid by the superannuation fund out of its accumulated reserves.
The respondent has deconstructed the representations and sought to show that in regard to each part thereof, the applicant was not misled. The first representation is that the respondent always looked after its staff. This representation was made in the context of redundancy, not in any other context. Its truth in any other context has no bearing in the context of redundancy. As I have said, in the context of the negotiations that took place, there must be implied into any representation as to the generality, a representation to the specific contractor. The respondent did not “look after” Ms McRae so far as her redundancy was concerned. It made an offer of one month’s severance pay and then when she complained changed this to an offer that was:
(a) Less than she believed she had contracted for or had been represented she would receive;
(b) Not wholly paid by the company;
(c) Only given in consideration for a deed of release.
The second representation, that the respondent had a very generous redundancy policy compared to the three weeks per year of service the applicant claimed was the industry standard, may or may not have been true. Its importance lies in its relationship with the third representation “in the unlikely event that the applicant’s position was made redundant, the applicant would be well looked after”. This representation implies that the applicant would receive at least three weeks per year of service in the unlikely even that she was being made redundant. That was a representation made to her in relation to her employment and falls squarely within the provisions of s.53B of the Act:
“A corporation shall not, in relation to employment that is to be, or may be, offered by the corporation or by another person, engage in conduct that is liable to mislead persons seeking the employment as to the availability, nature, terms or conditions of, or any other matter relating to, the employment.”
The fourth representation was that “the respondent did not include the redundancy policy in contracts of employment”. The respondent seeks to have read into that representation a refutation of the three representations made above. It seeks to say that that the statement means that there is no redundancy policy, or at best, that any redundancy policy is non-contractual. Having found that the first three representations were made, it is simply not logical to put that meaning on the fourth. On the other hand, the meaning the applicant seeks to draw from the statement, that this arrangement is not included in the written contract between the parties, but exists as a supplementary parol arrangement, as the payment for the Qantas Club Lounge and the telephone existed, is comprehensible and consistent.
I have dealt above with the claims made under ss.52 and 53B of the Act. I have come to the conclusion that the evidence points to Mr Dillon having made actionable representations to Ms McRae in the course of negotiations for her contract of employment. I have found that the second contract of employment containing the ‘entire agreement’ clause did not negate those representations by superseding it. I have found that whilst the representations themselves appeared to be made in the general, they were in fact intended to be applied specifically to Ms McRae. Before I turn to the question of damages I should consider whether there was a contractual term relating to this benefit and, if there was, what that term was.
In the conversation between Ms McRae and Mr Dillon, the final terms of the agreement were negotiated. Some of those terms were placed into the written contract the parties signed. At least two of the terms were not. It is accepted by the respondent that notwithstanding that those terms were not contained in the contract, they were part of the contract and the benefits negotiated for were given. There is no principle of law which prevents a contract being partly oral and partly in writing. There is no ‘entire agreement’ clause in the first contract. I am satisfied that it is implicit in what Mr Dillon said to Ms McRae that he, on behalf of Watson Wyatt, agreed to an additional term in the contract whereby, “in the unlikely event” that she was to be made redundant, she would receive an additional severance payment over above her notice period of not less than three weeks’ salary for each year of service. The applicant has sought to construct the term so that the words “at least” mean that the applicant would get more, and urges me to make an award of four weeks’ salary for each year of employment. I do not propose to do that. I believe that the words spoken may have provided an indication to Ms McRae that more than the three weeks that she referred to as the “industry standard” might be paid, or that some other benefits might be given, but the extent and nature of those benefits are too vague to constitute a firm contract. There are all sorts of ways in which a company paying off someone who is redundant can do better than give three weeks’ salary for each year of employment. These range from offering a higher weekly figure for each year of employment to offering continued use of the company motor vehicle, computer or mobile phone. It could be the provision of some sort of consultancy service to assist the employee to obtain another position. I am satisfied that had Mr Dillon still been the managing director when Ms McRae was made redundant, she may well have received a sum in excess of three weeks per annum served. But I do not believe Mr Dillon’s successor should be bound by any more than the minimum agreed, and that was three weeks.
The respondent’s case against the existence of the supplementary parol term is firstly that there was no agreement between the applicant and Mr Dillon made in the telephone conversation. I believe that there was. The words used by Mr Dillon in response to Ms McRae’s questions about redundancy were intended to, and did constitute an offer and acceptance of the additional parol term of three weeks salary per year of service. Ms McRae had made it clear this was what she wanted,
Mr Dillon had said nothing that would have led her to believe it would not be paid. Secondly, the respondent says that the representation that these terms were not included in the contract meant that any such arrangement was not contractual. I have found that this was not what Mr Dillon intended to mean, nor what Ms McRae understood it to mean. The third defence to the imposition of this contractual term is that it was superseded by the second contract in 2004 which contained an ‘entire agreement’ clause. I have already explained that I am of the view that the real effect of this document was to note Ms McRae’s new position in Band 4 and that there was no intention on the part of the company to exclude a continuation of the supplementary parol agreements relating to the Qantas Lounge, the telephone and severance pay in the event of redundancy. It is important to remember in this regard the evidence of Mr Dillon; that he did not expect the new document that he was signing and whose signature the company relied upon was to change Ms McRae’s conditions of employment in any way. He was the managing director, he was the guiding mind of the company, not Ms Syben. So far as it is necessary I would repeat here the comments I made in [32] of these reasons that the respondent’s own submissions appear to concede the contractual force of the arrangement should I find it to have been made, which I do.
The respondent has also argued forcibly against any suggestion by the applicant that there existed a promissory estoppel or estoppel by convention in relation to the representations made by Mr Dillon. These arguments were used to refute the suggestion made by the applicant in her written submissions that the representations amounted to a warranty and therefore a term of the employment contract. She argues that the representations constituted a warranty by Mr Dillon amounting to a guarantee that the Watson Wyatt redundancy policy (more generous than three weeks per year of service) would apply to
Ms McRae in the event that she was made redundant. She argues that all the elements of an express pre-contractual term or warranty were present because:
“It was reasonable for Ms McRae to conclude that Mr Dillon intended to guarantee its truth at the time, it was no mere puffery, there was close proximity between the making of the warranty and the entering into of the contract and the subject matter of the statement or warranty was important. “
In his written submissions counsel quoted extensively from the decision of McLelland J in Johnson Matthey v AC Rochester Overseas Corp (1990) 23 NSWLR 190 at 195-6 approved in Skywest Aviation Pty Ltd v Commonwealth of Australia (1995) 126 FLR 61 at 103-5. McLelland J expressed concern of a “serious threat to the stability of commercial relationships and dealings” where the results of intricate negotiations were reduced to writing, being subject to the risk of estoppel said to arise out of the original negotiations. His Honour quoted the views of Kirby P in State Rail Authority of NSW v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 at 177 which affirmed the dangers of using pre-contract negotiations as a basis for estoppel. Mr Crow pointed to the need for “clear and convincing proof of a common intention of the parties not reflected in the written document”.
Although it would be axiomatic from these reasons that I accept there was clear and convincing proof of the common intention of the parties I do not think there is any necessity for me to step gingerly through the estoppel minefield in this case, because I prefer the interpretation of the conversation between Mr Dillon and Ms McRae as a conversation in which a supplementary oral agreement was made which contained three terms, the first being that Ms McRae’s Qantas Lounge fees would be paid, the second being that her personal telephone calls on her mobile phone would be paid for, and the third being that she would be paid a severance payment in the event of redundancy of not less than
3 weeks’ pay for every year of service. I prefer this interpretation of the conversation than to it constituting a warranty that induced Ms McRae to enter into the contract. I am satisfied of the existence of a contract made partly orally and partly in writing, the oral part of which contained the promise in relation to redundancy. This promise does not have to be set up as an estoppel, it is a term of the agreement: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 61-62 per Gibbs CJ.
Paragraphs 16-22 of the FASC, excluding paragraph 21, constitute a claim for payment of what is described as a superannuation redundancy benefit. Paragraph 16(b) of the FASC articulates the claim:
16(b) in the event of the termination of an employee’s employment on account of redundancy, gave the necessary approval to the Trustee of the Fund to exercise its discretion to increase the termination benefit payable to members of the Fund to the actuarial reserve, which resulted in the relevant employee receiving an additional superannuation benefit upon termination of employment (the superannuation redundancy benefit).
…
20. Upon the termination of the Applicant’s employment the Respondent did not approve the superannuation redundancy benefit payable to the Applicant.
Particulars
The Respondent made payment of the superannuation redundancy benefit conditional upon the Applicant executing a Deed of Release: email f[rom] Kathy Syben to the Applicant dated 20 August 2007.
Upon realising that the Trustee had paid the superannuation redundancy benefit to the Applicant, the Respondent cancelled the cheque and payment: email from Jill green to the Applicant dated 7 December 2007.
22. By declining (or reversing) the approval of the superannuation redundancy benefit, and by reason of the matters pleaded above, the Respondent:
(a) engaged in conduct, in trade or commerce, that was contrary to section 53B of the Act;
(b) engaged in conduct, in trade or commerce, that was misleading or deceptive or likely to mislead or deceive contrary to section 52 of the Act;
(c) breached the term pleaded at paragraph 15(a) that the Applicant was entitled [to] the benefits of membership of the Fund;
(d) acting in an arbitrary and capricious manner, breached the implied term of mutual trust and confidence pleaded at paragraph 15(b);
and/or
(e) acting in an arbitrary and capricious manner, breached the express terms pleaded at paragraph 15(c) that the Respondent would act with honesty, integrity, in good faith and would act ethically in connection with employment.”
This benefit was referred to by me earlier in these reasons. It will be recalled that Ms McRae was offered an increase in her superannuation benefits if she agreed to sign a deed of release. Evidence was given that this increase in benefit was provided to a colleague of Ms McRae’s, Employee 11*, who was made redundant at the same time. But Employee 11* did sign the deed of release. In Ms McRae’s case, she was actually notified of the decision to increase her superannuation benefit, but this was later withdrawn because no approval for the trustees to do this had come from the company. Ms McRae was required to be a member of the Watson Wyatt superannuation fund. There was provision in the trust deed (clause 24(11)) which allowed the trustee (with the approval of the member’s employer and the advice of the actuary) to increase the benefit payable to any member by such amount as it thought fit. There was evidence that increasing the value of a member’s benefit to the “actuarial reserve” was something that the trustee might do on occasion when recommended by the employer.
There is nothing in the deed which guided the employer as to the exercise of its discretion whether to approve or not approve an additional payment. Thus, there was nothing in any contractual arrangement that I have found to exist that would require the employer to give its consent or prevent it from not giving its consent, or giving its consent on condition that the applicant entered into a deed of release. I am unable to see how the failure of the employer to give its approval constituted misleading or deceptive conduct under s.52 of the Act, because I am unaware of any representation made to the effect that it would give its approval otherwise than on terms that Ms McRae would not accept. Likewise, I am unable to see how a refusal to give the approval constituted conduct that was contrary to s.53B of the Act as the actions of the company were not actions “in relation to employment that is to be or may be offered”. I do not believe there is any dispute that the applicant was entitled to the benefits of the fund as pleaded in paragraph 15(a) of the FASC, but there are limitations upon this particular benefit, and there is no rule of the fund requiring the extra payment to be made. The applicant directed her most energetic representations to the alleged breach of the term of mutual trust and confidence which she said was an implied term of the contract. This is a term which is not without its difficulty: see Russell v Trustees of the Roman Catholic Church of the Archdiocese of Sydney & Anor [2008] NSWCA 217 (“Russell”) and the discussion of the matter in Catanzariti J, “Implied duties of employers in contracts and limitations on damages claims” (2008) Law Society Journal at 46-47. On these pleadings, if the implied term exists, it is alleged to have been breached by the respondent acting in an arbitrary and capricious manner. What is considered to be arbitrary and capricious is the refusal of the company through its managing director Mr Boal to give the applicant this benefit unless she signed the deed of release and not considering Ms McRae’s personal circumstances. The applicant argues that “the breach arose from the fact that Mr Boal conceded that “it did not occur” to him that “it might be proper to minimise adverse consequences of redundancy when he made the call not to approve the payment of the enhanced benefit””. Basten JA articulated his understanding of the alleged implied term in Russell at [32]:
“Although there were said to be two implied terms, it is probably sufficient to identify them as a single obligation. Thus, in Eastwood v Magnox Electric plc [2005] 1 AC 503, Lord Nicholls of Birkenhead stated at [11]:
“The trust and confidence implied term means, in short, that an employer must treat his employees fairly. In his conduct of his business, and in his treatment of his employees, an employer must act responsibly and in good faith. In principle, this obligation should apply as much when an employer exercises his right to dismiss as it does to his exercise of other powers of his which affect a subsisting employment relationship. It makes little sense, for instance, that the implied obligation to act fairly should apply when an employer is considering whether to suspend an employee but not when the employer is proposing to take the more drastic step of dismissing him.””
before saying at [33]:
“Recognising that an employer may act with reasonable and proper cause to pursue its own interests, whether or not they are adverse to those of the employee, and may terminate the employment at any time without cause on giving notice, casts some uncertainty on the scope and extent of the implied duties. In Australia, they have enjoyed more limited recognition than in the UK and have usually been called in aid to identify the kind of conduct of an employer sufficient to constitute “constructive dismissal”, which the employee can treat as a repudiation of the contract of employment: see Easling v Mahoney Insurance Brokers[2001] SASC 22 ; 78 SASR 489 at [99] (Olsson J); Thomson v Orica Australia Pty Ltd[2002] FCA 939; (2002) EOC 93–227; 116 IR 186 at [141] (Allsop J); Martech International Pty Ltd v Energy World Corporation Ltd[2007] FCAFC 35 (Moore, Tamberlin and Gyles JJ); Hem, Re Coulco Trading Pty Ltd v Cant[2007] FCA 81 ; 159 IR 113 at [20]–[23] (Finkelstein J); Delooze v Healey[2007] WASCA 157 at [32] (Wheeler JA, Steytler P agreeing). In Hem, on facts not so distant from the present case, the employee was accused by his superior of being a thief, without justification. The Court accepted that such conduct could constitute constructive dismissal because it constituted conduct inconsistent with the mutual trust required for the employment relationship.” [emphasis added]
If, notwithstanding Basten JA’s recognition that an employer may act in its own interests, one was to accept an implied term as defined by Rothman J at first instance in Russell v Trustees of the Roman Catholic Church for the Archdiocese of Sydney & Anor [2007] NSWSC 104 at 117 as:
“import[ing] a requirement that the person doing the act exercise prudence, caution and diligence, which would mean due care to avoid or minimise adverse consequences to the other party.”
I do not believe that the actions of Mr Boal breached even this obligation. What Mr Boal did was to decline to provide Ms McRae with a benefit that was within his absolute discretion. When a benefit such as this is declined, there are no adverse consequences. Nothing has been taken away from the employee that she had or was entitled to. I also think that taking Mr Boal’s answer, that it did not occur to him that it might be proper to minimise adverse consequences of redundancy when he made the call not to approve the enhanced benefit, in isolation does not examine the proper nature of the decision. Mr Boal knew that he had the power to approve a benefit, but he sought to pursue the company’s interest in regard to it. He sought to obtain for his grant of approval an equivalent benefit to the company from the signature upon a deed of release. When he became aware that the signature would not be forthcoming, he declined to grant approval. I do not think there is anything in the exercise of his discretion in this way which would offend against the principle of good faith and mutual trust if such a term exists in contracts of employment. Taking due care to avoid or minimise adverse consequences to Ms McRae does not exclude taking the same amount of care to avoid adverse consequences to the company of which Mr Boal was the managing director. The fact that Ms McRae thought that the benefit was not worth the consideration was a decision of hers. It was a decision which these reasons have vindicated but it does not follow that the offer was itself made in bad faith.
Assessment of damages
The assessment of damages for what I consider to be the breach of contract is simple. I have found that the agreement was that in the event that Ms McRae was made redundant she would receive an additional payment of not less than three weeks’ salary for every year of her employment. She commenced employment on 31 July 2000, she was declared redundant on 14 August 2007, she had worked for Watson Wyatt for 7 years and 14 days. Is the entitlement one for a completed year of service, or does the benefit accrue throughout the year? In Salton v New Beeston Cycle Company [1899] 1 Ch 775 Cozens-Hardy J considered the case where directors’ remuneration was set by the Articles of Association in the following way:
“The board shall be entitled to receive by way of remuneration in each year £5000.00.
…
The plaintiff contended that Lord Norreys was entitled to one equal sixth share of remuneration at the rate of 5000l. a year from incorporation of the company to the date of winding up. … Against this it was argued that at the utmost only one year’s remuneration could be claimed, and that there is no apportionment in respect of an incomplete year. This seems to me to be right. Art. 81 does not give remuneration at the rate of 5000l a year but only provides that the board should be entitled to receive by way of remuneration in each year 5000l. I see no grounds for extending this language, or for holding that any remuneration can be claimed except for a complete year.”
It could be said that his Honour’s views reflected those of society at the turn of the nineteenth century. It could be argued that the accrual of benefits, particularly statutory benefits such as holiday pay and long service leave is now the norm, and thus there should be implied into the phrase “year of service” an accrual provision. But perhaps this is not necessary. Ms McRae made reference in her conversation with Mr Dillon to companies that she had previously been employed by. We know that she was particularly referring to National Mutual. The National Mutual policy that was produced as Annexure KM001 of her affidavit states:
“Severance pay
Three weeks salary for each year of service subject to a minimum of three weeks and a maximum of 75 weeks and pro rated for each completed month of service in the final part-year of service.”
Whilst I am of the view that it would be appropriate to imply such a term into Ms McRae’s agreement and would award damages on that basis this does not change the calculation because Ms McRae did not complete a further month of service after 7 years. The amount payable based upon her last salary is $264,000.00 ÷ 52 x 3 x 7 = $106,615.38 to which should be added interest which, in accordance with the practice in the Federal Court is to be determined at the rate specified for the Supreme Court of New South Wales: see, in this regard, Namol Pty Ltd v AW Baulderstone Pty Ltd (1993) 119 ALR 187; GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 688. Interest in the Supreme Court of New South Wales is now dealt with by s.100 of the Civil Procedure Act 2005 (NSW) for interest up to judgment. For the relevant period the rate is 10% commencing upon the date of her termination of employment to the date of judgment $13,903.06.
Damages for the breach of ss.52 and 53B have been the subject of considerable argument. The respondent’s position is articulated in paragraphs 53-56 of its written representations:
“The applicant’s damages claim is misconceived. If the respondent had been in breach of the Act, her loss is not the expected but unrealised future monetary benefit the subject of the impugned representation. Instead, it is the loss occasioned by her reliance on the representation. It is the loss suffered by her as a result of engaging in the conduct induced by the representation, instead of some other course of conduct. Relevantly, it is the shortfall, if any, between her remuneration from the respondent and that which she would have earned had she remained in the employment of NSP Buck.
In Henville v Walker, a case concerning a breach of s.52 of the Act, McHugh J said (2001) 206 CLR 459, per McHugh J at 502 (Gummow J agreeing at 507):
“132 In this case, the most appropriate approach is to identify what Mr Henville has suffered by way of prejudice or disadvantage in consequence of altering his position by reason of the breach of the Act. The measure of that loss is not determined by reference to what he would have received if Mr Walker’s representations had been true … Similarly, the wrong which s 52 of the Act prohibits is the making of, not the failure to honour, the false representation [citation omitted]”
The applicant has called no evidence of what she would have earned had she remained in the employment of NSP Buck. She has not proved any relevant loss or damage.
When she commenced employment with the respondent, her salary was higher than the salary she had been offered by NSP Buck. It is therefore likely that she has suffered no loss at all.” [footnotes omitted]
The applicant on the other hand argues that it is open to the court to award the full expectation/loss of bargain damages or
“[t]he alternative course is to introduce a measure of reliance damages (based upon what the applicant asserts she gave up when she left her employment at NSP Buck) basing the formula on three weeks per year of service”.
The respondent suggests that the best articulation of the calculation can be found in the decision of Kenny J in Walker v Citigroup Global Markets Pty Ltd [2005] FCA 1678 at [113] (“Walker”):
“In this case, it is necessary to determine what Mr Walker would have done if he had not relied on the representation made on 13 February 1998. If he established that he would probably have secured employment with ABN AMRO, then he might have succeeded in obtaining an award of damages commensurate with the salary and other benefits that he would thereby have gained. This is consistent with the approach recommended by the Full Court (Carr, Moore and Marshall JJ) in O’Neill. In that case, the applicant sought damages under s 82 of the TPA for a contravention of s 52, constituted by the respondent’s misrepresentations about his security of employment if he accepted its job offer. The court said (at 466):
“There ultimately appeared to be no issue that the Federal Magistrate might assess damages in the following way. The misleading and deceptive conduct led Mr O’Neill to leave his secure employment and take other employment with MBF. He therefore left a job at a particular level of remuneration and took up other employment which came to an end a little over 2 years later. He was then employed in occasional temporary employment and then in more permanent employment. Any loss he suffered was the loss flowing from him relying on the misleading and deceptive conduct. One way the loss could be quantified would be to ascertain the difference (if any) between the salary he would have been earning in employment with National Mutual and the income he then received in the position with MBF and in the employment he entered or might enter after being made redundant by MBF. The damages would be the difference over the period it was likely Mr O’Neill would have stayed in employment with National Mutual.””
When Walker went on appeal [233 ALR 687] the Full Bench Gyles, Edmonds and Greenwood JJ awarded contract damages and said in relation to the Act:
“ The finding as to the assessment of damages in contract has an impact upon the TPA issues. It is now accepted by Walker that there should not be double recovery for economic loss. As our assessment of damages for breach of contract exceeds the damages awarded by the primary judge for economic loss in respect of the TPA liability, it follows that damages under the latter head are academic. There is no question of insolvency of either respondent. That directly responds (in the new context) to the first ground of appeal by Citigroup Australia.
The second ground of appeal by Citigroup Australia concerns the precise methodology of calculating the damages, given the findings as to individual integers – particularly that relating to the treatment of the redundancy payment received by Walker. That question is now moot and does not require resolution.”
In the instant case I have found that the representations made by Mr Dillon about redundancy pay would not have led Ms McRae to rely on the receipt of a sum greater than three weeks per year of service. I have also found that the representations did not affect the alleged implied term of mutual trust and confidence contained in the contract of employment. In those circumstances, howsoever the damages under s.82 are calculated, they could not exceed the damages awarded for the breach of contract and as in Walker, an assessment of these damages and a discussion as to the manner in which they are properly assessed is moot.
Mitigation
Ms McRae’s evidence relating to mitigation is contained in her affidavit of 11 August 2008. She established a “job alert” with seekexecutive.com, she reviewed job advertisements in the printed newspapers including the Australian Financial Review and the Sydney Morning Herald, she spoke to five headhunters and expressed interest in a number of positions detailed in paragraph 3(b) of her affidavit. She spoke to colleagues in her own network and finally established her own company, HR Projects Pty Ltd and marketed its capacity in Australia, the region and the United States. Draft accounts as at 30 June 2008 indicating an accumulated loss of the company of $20,390.00 which is only to be expected for a new business. This is not to say that the company did not have any work. Ms McRae exhibited invoices for consultancy work that the company undertook.
The respondent criticised the actions of Ms McRae claiming, through Ms Syben, that she would have been able to obtain employment in a much wider area of work than Ms McRae appeared to have canvassed. The applicant objected to Ms Syben giving this evidence and I dealt with the matter in a ruling which I set out below:
“Yesterday afternoon, Ms Kathryn Ann Syben was called to give evidence. She is the national human resources manager of the respondent. At paragraph 109 of her affidavit, there commences a short section concerning the applicant’s efforts to mitigate her loss in this case. At paragraph 109, the witness states:
“In my opinion, someone with the skills and experience of the applicant would have no difficulty obtaining employment commensurate with her employment at Watson Wyatt.”
At paragraph 110 the witness states that she has extracted a number of advertisements from various websites and:
“I list below the jobs that were advertised that day, 23 June 2008, on Seek Executive, which the applicant, in my opinion, would be a prime candidate by reason of her experience and qualifications.”
A list is then set out. She continues:
“These are jobs which were advertised on linked-in for which the applicant, in my opinion, would be a prime candidate by reason of her experience and qualifications.”
A further list is then set out.
The applicant objects to this evidence on the ground that it constitutes opinion evidence excluded by the provisions of s.76 of the Evidence Act 1995. The respondent first suggested that the witness is qualified to give the evidence as an expert citing her job description found at paragraph 5 of her affidavit. Nowhere in that job description or in the evidence adduced by the respondent is there any reference to a degree or other grounding of the type of specialised knowledge required to justify the exception to s.76, found in s.79, nor was the witness qualified in accordance with the provisions of the Federal Court Rules 1979. Later, the respondent resiled from the submission that the witness was a specialist within the provisions of s.79.
I did question the witness myself as to her knowledge of the particular jobs that were being advertised because it seemed to me that, in order for her to say, as she purported to, that the applicant would be a prime candidate for those positions, she would have to know a lot about them and the applicant’s personal qualifications. As a result of my questioning in respect of the two or three jobs that I referred to, I concluded that this would be a very slow method of going about the exercise and the appropriate way to look at it is to consider the applicant’s objection first. To do otherwise is effectively to accept the witness’s ability to give the evidence and then to test its validity.
To my mind, the evidence is clearly that of opinion. There is no detailed assessment of each of the jobs or an explanation in respect of each as to what particular qualities the applicant would bring to it so that she would be considered a prime candidate. As the paragraph is drafted, it is clearly deficient. Given the fact that this case has been many months in preparation and is being conducted by skilled legal practitioners I would not be prepared to grant leave to expand upon the affidavit for the purpose of further convincing me that this witness had any real insight of value into the ability of the applicant to obtain these or any other positions.”
I am satisfied from the evidence of Ms McRae that she has made efforts to mitigate her loss. Her success in obtaining further employment or payment for consultancy services has been limited. I do not believe that any reduction in the damages awarded should be made for a failure to mitigate. This is perhaps just as well because the difficulty in assessing mitigation in a case such as this is very high. What if Ms McRae had obtained, and obtained speedily, a new position paying a salary of $50,000 more per annum than she had been paid at Watson Wyatt. Would this have sounded in mitigation? It seems to me that the answer to this lies in whether the loss to Ms McRae is a loss on capital or revenue account; Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388. In my view Ms McRae’s loss was on capital account. The severance payment was a one-off payment for being made redundant with the upset and indignity that that decision involved for the applicant. She was compensated for her loss of employment by payment of the notice money. The payment on capital account should be mitigated by another payment on capital account and not on revenue account. If she had been paid $200,000.00 for signing on with a new employer shortly after she had left Watson Wyatt then I believe appropriate mitigation might have occurred and any claim that she had for the breach of contract would be reduced by the amount of her sign-on payment. Of course, in this case no sign-on payment was made because no permanent position was found.
Costs
Ms McRae has substantially succeeded in her claims. She should be entitled to her costs. I do not think that this is a case in which the fixed costs regime found in Schedule 1 of the Federal Magistrates Court Rules 2001 (Cth) is appropriate. I believe that the applicant should be entitled to the benefit of a taxation under the Federal Court Rules if her costs cannot be agreed with the respondent. However, it is important to maintain a difference between the cost of appearing before the Federal Magistrates Court and that of appearing before the Federal Court. The Federal Magistrates Court was set up in order to provide quicker, cheaper, and simpler resolution of disputes. The costs of the applicant, if they are to be taxed, should be taxed at 80% of the Federal Court rate.
*Names withheld for privacy and commercial in confidence reasons
I certify that the preceding fifty-seven (57) paragraphs are a true copy of the reasons for judgment of Raphael FM
Associate:
Date: 1 December 2008
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