Narrow Fabrics Manufacturing Pty Ltd v Kahwajian

In *Narrow Fabrics Manufacturing Pty Ltd v Kahwajian*, the New South Wales Court of Appeal considered an appeal from a decision of the District Court concerning a dispute between a company and its former employee. The core of the disagreement related to the employee's entitlement to a bonus payment upon termination of his employment.

The primary legal issue before the Court of Appeal was the proper construction of the employment contract, specifically the clause governing the payment of a discretionary bonus. The court was required to determine whether the employer's discretion in awarding the bonus was absolute or whether it was subject to implied terms of good faith and reasonableness, particularly in the context of the employee's termination.

The Court of Appeal held that while the bonus clause conferred a discretion upon the employer, this discretion was not unfettered. Applying established principles of contract law, the court found that the employer was bound to exercise its discretion in good faith and not arbitrarily or capriciously. The court reasoned that the employer's refusal to pay the bonus, based on reasons that were not genuine or were demonstrably unreasonable in the circumstances, amounted to a breach of the implied term of good faith. Consequently, the employer was liable to pay the bonus to the former employee.