FEDERAL CIRCUIT COURT OF AUSTRALIA
| RUSSO v WESTPAC BANKING CORPORATION | [2015] FCCA 1086 |
| Catchwords: CONSUMER LAW – Application by former employee of respondent seeking payment of ex gratia bonus payments following employee’s retrenchment – whether respondent employer obliged to not act capriciously, arbitrarily or unreasonably when assessing employee’s performance – whether capricious, arbitrary or unreasonable actions of employer can be remedied by Court when employer maintains absolute discretion in respect of such decisions – whether employer breached Australian Consumer Law in relation to its conduct when deciding whether to award retrenched employee ex gratia bonus payment – application allowed. |
| Legislation: Competition and Consumer Act 2010 (Cth), ss.4, 31, 18 Federal Circuit Court of Australia Act 1999 (Cth), ss.42, 43 |
| Applicant: | GIULIO RUSSO |
| Respondent: | WESTPAC BANKING CORPORATION ACN 007 457 141 |
| File Number: | SYG 799 of 2012 |
| Judgment of: | Judge Lloyd-Jones |
| Hearing dates: | 23 & 24 April 2013, 28 November 2014 |
| Date of Last Submission: | 28 November 2014 |
| Delivered at: | Sydney |
| Delivered on: | 12 May 2015 |
REPRESENTATION
| Counsel for the Applicant: | Mr Y. Shariff |
| Solicitors for the Applicant: | Gillis Delaney Lawyers |
| Counsel for the Respondent: | Mr M. Seck |
| Solicitors for the Respondent: | Henry Davis York |
ORDERS
The Respondent pay the Applicant the sum of AUD$70,000 within 28 days of today’s date.
The Respondent pay the Applicant’s costs and disbursements of and incidental to the Application as agreed or taxed.
The Application be otherwise dismissed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 799 of 2012
| GIULIO RUSSO |
Applicant
And
| WESTPAC BANKING CORPORATION ACN 007 457 141 |
Respondent
REASONS FOR JUDGMENT
Introduction
On 12 April 2012 the applicant, Giulio Russo (“Russo”), filed an application in this Court against the respondent, Westpac Banking Corporation ACN 007 457 141 (“Westpac”), seeking relief under the Competition and Consumer Act 2010 (Cth) (the “ACL”). The proceedings involve a claim made by Russo in respect of an unpaid bonus entitlement for the Westpac financial year, between 1 October 2010 and 30 September 2011 (“FY 2010/2011”). Russo’s claims are based on a contractual claim for breach of contract and a claim under the ACL. In short, Russo contends that Westpac breached certain express and implied contractual terms in relation to the payment of his bonus for FY 2010/2011 and/or engaged in misleading or deceptive conduct in relation to his bonus entitlements.
Westpac, in opening submissions, states that the central question in these proceedings is whether a decision made by Westpac not to exercise its discretion to make an ex gratia incentive payment to a retrenched former employee, Russo, under a non-contractual policy breached Russo’s contract of employment. Russo disputes that characterisation on the basis that the short term incentive payment is one based on contract. Westpac in support of its position relies on a matrix of documents that cover the numerous aspects of its employment relationship with Russo and has defended the proceedings on a rigorous interpretation of, and reliance on, those documents. The strict interpretation of the matrix of documents is advanced as being technically correct, however, they appear to operate in a vacuum with key staff members not comprehending the content and operation of that matrix of documents.
For reasons outlined below, it can be seen that there has been a clear disconnection between Westpac’s employment policies and the actions of its employees in carrying out these functions. This is most apparent in the actions of Daniel Musson (“Musson”), who was Russo’s one-up manager during the period relevant to these proceedings.
Ms Kathryn Salter (“Salter”), the other key Westpac witness was, at the time of the hearing, head of Human Resources at BT Financial Group Private Wealth (“BT”) (a wholly owned subsidiary of Westpac). She stated that she had held various human resource roles for a number of years and claimed to have a fair degree of familiarity with the human resource roles within the banking and finance industry. Under cross-examination Salter demonstrated a detailed knowledge of the contents and relationship of all the documents forming part of the matrix. However, despite this structure of interrelated documents it became apparent that members of the organisation did not adhere to the requirements of the highly structured contents of the matrix. Notwithstanding, Westpac advances its case on the basis of strict adherence to the precise wording of the document tendered in a void from the actual events.
The hearing did not fully occupy two days but the parties filled in excess of 180 pages of written submissions together with a further set of submissions addressing a High Court decision that affected the law and its interpretation concerning implied terms of mutual trust and confidence. I have substantially relied on these respective submissions to cover the arguments presented which are not readily summarised.
The claim advanced by Russo is that Westpac breached the express contractual terms by failing to pay Russo a bonus for FY 2010/2011. Westpac claims that Musson’s exercise of discretion in concluding that no incentive payment should be paid to Russo was reasonably open to him on all the evidence. Musson admitted that he had breached the applicable policies and that his discretion has miscarried in the sense considered in Silverbrook Research Pty Ltd v Lindley [2010] NSWCA 357 (“Silverbrook”). He admitted that if he had properly complied with his obligations, Russo would have received a higher rating and in all likelihood would have been paid a bonus. Westpac argues that Russo is inviting the Court to create a contractual liability in relation to matters which the parties had expressly agreed would be in the “absolute” or “complete” discretion of Westpac, and under documents expressly stated not to have any contractual force. Westpac maintains that it did not act dishonestly or improperly in deciding not to exercise its discretion not to make an ex gratia incentive payment to Russo, and that it made a business judgment open to it based on evaluating the available information.
The Statement of Claim was filed on 12 April 2012, pleading the following grounds:
1. At all material time the respondent was a company duly incorporated and able to sue and be sued in and by its corporate name and style.
2. At all material times the respondent was a corporation for the purposes of the Competition and Consumer Act 2010 (Cth) (‘the Act’).
3. At all material times, Mark Smith (‘Smith’) and Daniel Musson (‘Musson’) were authorised servants or agents of the respondent.
A. Contractual Terms and Representations
4. On or about 15 May 2009 the applicant and respondent entered into an agreement whereby the applicant was employed by the respondent as Senior Manager, Sales (‘the Employment Contract’).
5. The terms of the Employment Contract were:
(a) partly in writing constituted by:
(i) A document called “Employment Agreement” and a letter dated 15 May 2009 (‘the Engagement Letter’);
(ii) Correspondence between the respondent and the applicant in or about November of each year of his employment in relations to the applicant’s remuneration;
(iii) Letter from BT Financial Group to the applicant dated 27 May 2009;
(iv) A document called BT Financial Group Incentive Plan 1 (‘the GIPA Rules’);
(v) A document called Performance and Remuneration Review 2011 People Leader Guide (‘the People Leader Guide’);
(vi) The redundancy policy of the respondent (‘the Redundancy Policy’);
(b) partly oral and constituted by conversations between the applicant and Musson in or around May and October/November each year (‘the Review Conversations’); and
(c) partly implied as a matter of law, by virtue of the relationship of master and servant existing between the applicant and the respondent.
6. It was an express term of the Employment Contract that the applicant’s remuneration as Senior Manager, Sales would consist of:
(a) A fixed salary; and
(b) an annual bonus.
Particulars
The term is in writing and/or oral. It is evidenced by:
(i) the Engagement Letter; and/or
(ii) the GIPA Rules; and/or
(iii) the People Leader Guide; and/or
(iv) the Redundancy Policy; and/or
(v) the Review Conversations.
7. Further, there were express term of the Employment Contract that the applicant would be paid an annual bonus in accordance with the GIPA Rules, the Redundancy Policy and the people Leader Guide.
Particulars
The terms were in writing and recorded in the Engagement Letter, the People Leader Guide, the Redundancy Policy and the GIPA.
8. Further, there were express terms of the People Leader Guide and the GIPA Rules that:
(a) The applicant would have an individual performance agreement in place at the beginning of the financial year of the respondent;
(b) At the beginning of each financial year the applicant would formulate with Musson a score card specifying individual performance objectives and target performance levels consistent with business and term goals (‘the Agreed Scorecard’);
(c) The Agreed Scorecard was to be managed in the respondent’s intranet People Express System (‘People Express” by Musson (or other superior to the applicant);
(d) The applicant would have access to Musson’s comments on the applicant’s performance in respect of (a) and (b) at all time on People Express;
(e) At the end of the financial year, the applicant’s performance would be assessed against his Agreed Scorecard;
(f) Musson would document performance appraisals of the applicant at mid-year and at the end of the full financial (‘Musson Appraisals’);
(g) The Musson Appraisals would be recorded in People Express as the agreed means of communicating to the applicant his performance against his Agreed Scorecard;
(h) In determining the amount of annual bonus payable to the applicant, the respondent would take into account various factors including the performance of the respondent, the performance of the BT Financial Group and the performance of the applicant against the Agreed Scorecard from the Musson Appraisals;
(i) If the applicant’s performance against his Agreed Scorecard was such that the applicant’s entitlements to the annual bonus was at risk, the respondent and/or Musson would provide the applicant reasonable assistance by way of coaching, guidance, training to enable the applicant to be paid his annual bonus; and
(j) If the applicant was retrenched the respondent would pay him the Annual Incentive.
Particulars
The terms were in writing and recorded in the Engagement Letter, the People Leader Guide, the Redundancy Policy and the GIPA.
9. Further, it was an express term of the Employment Contract that the applicant could utilise the respondent’s grievance procedure in relation to his assessment against the Agreed Scorecard and entitlement to the annual bonus.
Particulars
The term was in writing and recorded in the GIPA Rules published from year to year by the respondent.
10. It was an implied term of the Employment Contract that:
(a) the parties would treat each other with mutual trust and confidence and not in a manner such as to destroy the relationship between them;
(b) the respondent would act in good faith towards the applicant;
(c) the respondent would not exercise any discretion conferred upon it (including under the GIPA Rules) capriciously, arbitrarily or unreasonable;
(d) the respondent would not withhold the payment of the annual bonus to the applicant capriciously, arbitrarily or unreasonable; and/or
(e) the respondent would exercise any discretion conferred upon it honestly and conformably with the purposes of the contract of employment;
(f) the respondent would comply with its policies relating to employment published from time to time including the GIAT; and/or
(g) the respondent would, in the event that it sought to make a payment to the applicant in lieu of notice or by way of severance, calculate and pay the amount payable to the applicant on the basis of his total remuneration (including Annual Bonus).
B. Performance of the Contractual Terms
11. At all material times the applicant performed the functions and duties of his position as Senior Manager, Sales of the respondent.
12. On or about May 2011, Musson and the applicant participated in the applicant’s mid-year review.
13. From 1 October 2010 the applicant met the performance targets of the Agreed Scorecard for the respondent’s financial year 2010/2011.
14. On or about 22 September 2011, the respondent gave notice to the applicant that his role has been made redundant.
Particulars
Letter dated 22 September 2011 from the respondent to the applicant.
15. On or about 20 October 2011 the applicant’s employment was terminated by the respondent.
Particulars
Letter dated 20 October 2011 from the respondent to the applicant.
16. The respondent did not pay to the applicant his Annual Bonus.
C. Breaches of the Contractual Terms
17. In breach of the terms of the Employment Contract pleaded in paragraphs 6 and 7, the respondent failed to pay the applicant his entitlement to annual bonus for 2010/2011.
18. Further and in the alternative, between May 2011 and 22 September 2011, or alternatively between May 2011 and 20 October 2011, in breach of the terms of the Employment Contract pleased in paragraph 8, neither Musson nor any person on behalf of the respondent:
(a) documented the mid-year performance appraisal;
(b) recorded or completed the mid-year performance appraisal on People Express so as to inform the applicant in writing of any criteria that may disentitle him to the annual bonus;
(c) recorded or completed the mid-year performance appraisal on any other documentary system of the respondent so as to inform the applicant in writing of any criteria that may disentitle him to the annual bonus;
(d) communicated the mid-year performance appraisal to the applicant; or
(e) provided the applicant with reasonable assistance by way of coaching, guidance, training to enable the applicant to qualify to be paid his annual bonus.
19. Further and in the alternative, in breach of the term of the Employment Contract pleaded in paragraph 8, the respondent and Musson:
(a) failed to complete the applicant’s mid-year review on People Express so as to inform the applicant in writing of any criteria that may disentitle him to the annual bonus.
(b) failed to manage the Agreed Scorecard on People Express; and
(c) failed to inform the applicant that his performance on the Agreed Scorecard was such that his annual bonus was at risk; and
(d) failed to put in place any action including coaching, guidance, training or assistance to enable the applicant to qualify to be paid his annual bonus.
20. Further, in breach of the term pleaded at paragraph 9, the respondent did not complete the Agreed Scorecard prior to October 2011 so as to enable the applicant to raise a grievance with the respondent on its decision not to pay the applicant annual bonus for 2010/2011.
21. Further, in the premises pleaded at paragraphs 11 to 20, the respondent breached the terms of the Employment Contract pleaded at paragraph 10.
22. By reason of the breaches pleaded at paragraphs 17 to 21 the applicant has suffered loss and damage.
D. Competition and Consumer Law Claims
23. The respondent through its officers Smith and Musson represented to the applicant that:
(a) The applicant would have an individual performance agreement in place at the beginning of the financial year of the respondent;
(b) At the beginning of each financial year the applicant would formulate with Musson a score card specifying individual performance objectives and target performance levels consistent with business and terms goals (“the Agreed Scorecard”);
(c) The Agreed Scorecard was to be managed in People Express by Musson;
(d) The applicant would have access to Musson’s comments in the applicant’s performance in respect of (a) and (b) at all times on the People Express;
(e) At the end of the performance year, the applicant’s performance would be assessed against his Agreed Scorecard;
(f) Musson would document performance appraisals in writing which would be accessible at all times to the applicant at mid-year and at the end of the full year (‘the Musson Appraisals’);
(g) The Musson Appraisals would be recorded in the People Express System as the agreed means of communicating to the applicant his performance against his Agreed Scorecard;
(h) In determining the amount of the annual bonus payable to the applicant, the respondent would take into account various factors including the performance of the respondent, the performance of the BT financial Group and the performance of the applicant against the Agreed Scorecard from the Musson Appraisals; and
(i) If the applicant’s performance against his Agreed Scorecard was such that the applicant’s entitlement to the annual bonus was at risk, the respondent and/or Musson would provide the applicant reasonable assistance by way of coaching, guidance, training to enable the applicant to be paid his annual bonus.
24. The representations pleaded in paragraph 23 were made by the respondent and/or Smith and Musson in trade or commerce.
25. Further and in the alternative, the representations pleaded in paragraph 23 were made by the respondent in relation to employment that was to be offered by the respondent to the applicant within the meaning of section 31 of Schedule 2 of the Act (the Australian Consumer Law).
26. The representations pleaded at paragraph 23 were representations as to future matters, within the meaning of section 4 of the Australia Consumer Law and unless the respondent proves that it had reasonable grounds for those representatives, they were misleading by reason of the operation of section 4 of the Australian Consumer Law.
27. In reliance on the representations pleaded in paragraph 23 the applicant commenced and subsequently remained in employment of the respondent pursuant to the Employment Contract rather than seek employment elsewhere.
28. In reliance on the representations pleaded in paragraph 23 the applicant took no steps, or alternatively lost the opportunity to take steps, to remedy his performance so as to enable him to meet the requirement of the Agreed Scorecard.
29. In the circumstances of the termination of the Employment Contract and the failure of the respondent to pay the applicant his annual bonus for 2010/2011 the representations pleaded in paragraph 23 were:
(a) Misleading and deceptive;
(b) Liable to mislead persons seeking employment as to the availability, nature and terms and conditions of the employment; and/or
(c) Unconscionable within the meaning of the unwritten law,
in contravention of section 18 and/or section 31 of the Australian Consumer Law, and/or section 46 of the Fair Trading Act 1987 (NSW), and the applicant has suffered and continues to suffer loss and damage by reason thereof.
30. The Applicant claims orders for compensation and other relief from this Honourable Court pursuant to sections 236, 237 or 238 of the Australian Consumer Law and section 74 of the Fair Trading Act 1987.
E. Relief Claimed
3. The applicant claims:
(a) Damages for breach of the Employment Contract;
(b) Damages for breach of the Act;
(c) Interest at 8.5% per annum from 31 October 2011 to judgement and thereafter pursuant to the Federal Court of Australia Act, 1976 and Order 35 Rule 8 of the Federal Court Rules;
(d) Costs; and
(e) Interest on costs.
Procedural Background
This matter was first allocated to the docket of Smith FM with the first court date directions hearing set down for 11 May 2012. His Honour set out a procedural timetable and referred the matter for mediation. The mediation conference occurred on 19 June 2012 before a registrar of the Court, however, the matter was not resolved. The matter was relisted before Smith FM on 16 November 2012 where he made the following orders:
1. The hearing listed for 29 November 2012 is vacated.
2. The applicant must file and serve all evidence in reply no later than 23 November 2012.
3. The matter is listed for call-over before Lloyd-Jones FM on 4 December 2012 at 9.30am.
With Smith FM’s impending retirement, the matter was transferred to my docket and listed for call-over on 4 December 2012. The matter was listed for hearing and the following procedural orders were made:
1. The matter be listed for final hearing for two and a half days on 23 April 2013, 24 April 2013 and 26 April 2013.
2. Each party must, before 4:00pm on 16 April 2013, file a folder (or folders), fully indexed, paginated and labelled, containing a Judge’s copy of all the documents filed or intended to be filed or tendered by that party, to which reference may be made during the trial.
3. Each party must, before 4:00pm on 16 April 2013, file and serve of the deponents of the other party’s affidavits which are required for cross-examination, an estimate of the time required for such cross-examination and any re-examination.
4. Each party must, before 4:00pm on 19 April 2013, file and serve a list identifying each part of the other party’s affidavits to which objection is taken, and the basis for the objection.
5. Each party must, before 4:00pm on 19 April 2013, file and serve a summary list, no longer than 2 pages of the significant factual and legal issues which it perceived to be in, and a similar list of the significant factual and legal issues which it perceives not to be in dispute.
6. Each party must, before 4:00pm on 19 April 2013, file and serve their list of authorities, including references to relevant paragraphs or pages of any cited judgments, and to relevant sections of any cited legislation.
7. The Applicant must, before 4:00pm on 12 April 2013, provide a written outline of submissions intended to be relied upon in the course of the hearing to the Associate and to the Respondent.
8. The Respondent must, before 4:00pm on 19 April 2013, provide a written outline of submissions intended to be relied upon in the course of the hearing to the Associate and to the Applicant.
9. The parties must file before 4:00pm on 19 April 2013, an agreed timetable for the taking of evidence and submissions from both parties which will allow the matter to be heard within the two and a half days allocated for trial.
The hearing was initially set down for three days, however, the parties agreed to forego the third day and file written submissions as closing argument, instead. The following orders were made:
1. The Applicant file and serve his written closing submissions on or before 31 May 2013.
2. The Respondent file and serve its closing submissions on or before 28 June 2013.
3. The Applicant file and serve any written submissions in reply by 12 July 2013.
4. There be liberty.
In a letter to the Court from Gillis Delany Lawyers dated 9 August 2013 the applicant wanted the matter listed for further oral submissions. After some consideration I formed the view that it was unnecessary for the matter to be brought back before the Court, however, I agreed to allow the parties to file further written submissions and made the following orders:
1. The Applicant file and serve any further written outline of submissions on or before 13 September 2013.
2. The Respondent file and serve any further written outline of submissions in answer on or before 11 October 2013.
3. The Applicant file and serve any further written outline of submissions in reply on or before 25 October 2013.
4. Any further written outline of submissions to be no longer than 10 pages in length
Changes in the law and its interpretation
In the parties’ supplementary submissions referred to at [11] above, the parties sought to address the recent and significant decisions that reflected the change in relevant law and its interpretation. Mr Seck addressed two cases, the first being Commonwealth Bank of Australia v Barker (2013) 214 FCR 450 (“Barker FCAFC”) and the second being Gramotnev v Queensland University of Technology [2013] QSC 158 (“Gramotnev”).
Gramotnev is not a decision that reflects the change in the law or its interpretation as the decision simply reflects the application of the state of the law which is governed by principles laid down in Goldman Sachs JBWere Services Pty Ltd v Nikolich (2007) 163 FCR 62.
In Barker FCAFC the implied term of mutual trust and confidence was relatively breached because the majority of the Full Court found that the implied term required the Commonwealth Bank to take positive steps to consult with Mr Barker about alternative positions following the retrenchment of his position, and to give him the opportunity to apply for those positions: BarkerFCAFC at [131]. The majority took a different view to the trial judge in relation to the question as to whether the breach of non-contractual policy could give rise to a breach of the implied terms of mutual trust and confidence: BarkerFCAFC at [113]-[114]. It was argued on behalf of Russo, at the original hearing, that the implied term of mutual trust and confidence must be seen within the context of the other contractual terms agreed between the parties, as with the case in Barker FCAFC. In Barker FCAFC, for example, the breach of implied term of mutual trust and confidence was viewed within the context of clause 8 of the contract with Mr Barker which provided that where his position became redundant, and the bank was unable to place him in an alternative position, he was to receive redundancy payments calculated in a particular manner: Barker FCAFC at [27]-[28]. It was within this particular contractual context that the majority reasoned that the implied term of mutual trust and confidence required the bank to take positive steps to inform Mr Barker of redeployment opportunities and consult with him.
In Barker FCAFC, the implied term takes this context from the specific contractual terms. In the current proceeding, by reason of the express terms and the implied terms of mutual trust and confidence, Westpac was required to comply with the policies to determine Russo’s retrenchment entitlements, and to apply them fairly, honestly, reasonably, not capriciously, and not in a manner that would destroy the relationship of trust and confidence. Alternatively, as was the case in Barker FCAFC, Westpac has an implied duty to cooperate with Russo to ensure that he received the right or benefit of a proper exercise of that discretion and in conferral of a pro rata bonus: Barker FCAFC at [118]-[128].
After the filing of supplementary submissions addressing the changes in the law and its interpretation, the Court was advised that, in respect of the decision in Barker FCAFC, special leave was being sought in the High Court. This Court was requested to defer the handing down of its decision until the application and possible appeal were resolved in the High Court.
On 10 September 2014 the decision in Commonwealth Bank of Australia v Barker (2014) 312 ALR 356 (“Barker HCA”) was delivered, which unanimously allowed an appeal from the decision of the Full Federal Court of Australia and held that the term of mutual trust and confidence should not be implied by law in employment contracts.
The High Court provided a case summary [2014] HCASum 29 o Barker HCA in the following terms:
Stephen Barker’s employment with the Commonwealth Bank of Australia (“the Bank”) was terminated by reason of redundancy on 9 April 2009. On 2 March 2009, Mr Barker was told that his position was to be made redundant and that if he was not redeployed within the Bank, which was the Bank’s preference, his employment would be terminated approximately four weeks thereafter. Having been deprived of access to his Bank email account and voicemail, Mr Barker was not informed about an alternative position within the Bank until 26 March 2009. He was not contacted by the recruitment consultant involved in facilitating the recruitment process for that position, nor was the possibility of retraining for that role discussed with him.
Mr Barker commenced proceedings against the Bank in the Federal Court of Australia. He alleged that the conduct of the Bank was in breach of an implied term of mutual trust and confidence and resulted in him being denied the opportunity of redeployment. The primary judge held that there was a term of mutual trust and confidence implied in the agreement between Mr Barker and the Bank and that the Bank’s serious breach of its own redeployment policy amounted to a breach of that implied term. The Full Court, by majority, agreed that a term of mutual trust and confidence was implied by law into the agreement, but held that the primary judge erred in treating the term as co-extensive with an obligation to observe the redeployment policy. The majority held that the implied term required that the Bank take positive steps to consult with Mr Barker about alternative positions within the Bank and give him the opportunity to apply for them. By failing to make contact with him for a period which the primary judge had found to be unreasonable, the term had been breached.
By grant of special leave, the Bank appealed to the High Court. The question in the appeal was whether employment contracts contain a term of mutual trust and confidence implied by law that the parties will not, without reasonable cause, conduct themselves in a manner likely to destroy or seriously damage the relationship of trust and confidence between them. Allowing the appeal, the Court held that the proposed term was not necessary in the sense that would justify implying it by law into all employment contracts.
The parties requested that the matter be listed for approximately one hour for oral submissions on the effect of Barker HCA. A mutually convenient time for the submissions was listed on 28 November 2014.
For the purposes of these proceedings, Barker HCA addresses two key issues:
a)The proper approach for the recognition of the novel implied term in law; and
b)The existence of an implied term of mutual trust and confidence.
The High Court unanimously found that, under the common law of Australia, the class of contracts of employment did not contain an implied term of mutual trust and confidence.
In Barker HCA, their Honours French CJ, Bell and Keane JJ rejected the existence of the implied term on the basis that the implication did not meet the criteria of “necessity” for the recognition of novel implied terms in law. At [29] therein their Honours stated:
29. In Byrne v Australian Airlines Ltd, McHugh and Gummow JJ emphasised that the “necessity” which will support an implied term in law is demonstrated where, absent the implication, "the enjoyment of the rights conferred by the contract would or could be rendered nugatory, worthless, or, perhaps, be seriously undermined” or the contract would be “deprived of its substance, seriously undermined or drastically devalued”. The criterion of “necessity" in this context has been described as “elusive” and the suggestion made that “there is much to be said for abandoning” the concept. Necessity does, however, remind courts that implications in law must be kept within the limits of the judicial function. They are a species of judicial law-making and are not to be made lightly. It is a necessary condition that they are justifiedfunctionally by reference to the effective performance of the class of contract to which they apply, or of contracts generally in cases of universal implications, such as the duty to cooperate. Implications which might be thought reasonable are not, on that account only, necessary. The same constraints apply whether or not such implications are characterised as rules of construction.
(Emphasis added) (Footnotes omitted)
Then at [40] of Barker HCA French CJ, Bell and Keane JJ stated:
40. The complex policy considerations encompassed by those views of the implication mark it, in the Australian context, as a matter more appropriate for the legislature than for the courts to determine. It may, of course, be open to legislatures to enshrine the implied term in statutory form and leave it to the courts, according to the processes of the common law, to construe and apply it. It is a different thing for the courts to assume that responsibility for themselves. The mutual aspect of the obligation cannot be put to one side by characterising its operation with respect to employees as merely a restatement of the existing duty of fidelity. It is more broadly worded than that obligation. As Jessup J observed in his dissenting judgment in the Full Court, the proposed implied duty of mutual trust and confidence might apply to conduct by employees which was neither intentional nor negligent and did not breach their implied duty of fidelity, but objectively caused serious disruption to the conduct of their employer's business.
(Emphasis added) (Footnote omitted)
Then at [41] their Honours continued:
41. Importantly, the implied duty of trust and confidence as propounded in Malik is directed, in broad terms, to the relationship between employer and employee rather than to performance of the contract. It depends upon a view of social conditions and desirable social policy that informs a transformative approach to the contract of employment in law. It should not be accepted as applicable, by the judicial branch of government, to employment contracts in Australia.
(Emphasis added)
The plurality in Barker HCA also usefully noted that the implications of terms in fact involving an exercise in construction, not an examination of what it would have been reasonable for the parties to agree upon (at [22]; [25]).
Kiefel J found in Barker HCA that “more generally contracts of employment do not require such an implied term for their effective operation”. Her Honour also found that, in specific cases, a contract of employment did not require “for its efficiency” the implication of the term of mutual trust and confidence because it was inconsistent with other express terms contained in the applicant’s contract of employment (at [109]).
Gageler J also rejected the existence of the implied term of mutual trust and confidence. Like the plurality, he adopted the test of “necessity” in that “the requisite enquiry is informed by a consideration of what is needed for the effective working of contracts of that class”, including considerations of “justice and policy”, which must be “compelling” in the nature of the warrant and the implications (at [114]). His Honour found that, in the particular Australian statutory context, the implication of the term was not warranted (at [116]) because it created uncertainty in its terms and content (at [117]) and would impose a “common law policy choice” in an area of contentious legislative activity (at [118]). In rejecting the implied term, his Honour noted the inherent uncertainty of the actual obligations implied and adopted by the words of Jessup J in the Full Federal Court decision in observing that it had “the potential to act as a Trojan horse in the sense of revealing only after the event the specific prohibitions which it imports into the contract” (at [117]).
The consequences of the Barker HCA are addressed in further detail below.
Evidence
In support of the application, Russo filed and read the following evidence:
a)Affidavit of Giulio Russo, sworn 5 October 2012, filed 8 October 2012 (the “First Russo Affidavit”);
b)Affidavit of Giulio Russo, sworn 23 November 2012, filed 26 November 2012 (the “Second Russo Affidavit”); and
c)Applicant’s Court Book (“ACB”);
Westpac filed and read the following evidence:
a)Affidavit of Daniel John Musson, sworn 26 October 2012, filed 31 October 2012 (the “Musson Affidavit”) ;
b)Affidavit of Kathryn Salter, sworn 30 October 2012, filed 31 October 2012 (the “Salter Affidavit”);
c)Affidavit of Simone Hart, sworn 30 October 2012, filed 31 October 2012;
d)Exhibit 1 – Westpac Group Variable Reward Scheme Rules Dated 15 September 2012;
e)Exhibit 2 – Remuneration Policy Dated 10 August 2011;
f)Exhibit 3 –“KS-1”;
g)Exhibit 4 – Clearer version of Exhibit “KS-1”;
h)Exhibit 5 – Email to Ms McGuiness Dated 14 April 2011;
i)Exhibit 6 – Email to and from Salter Dated 18 April 2011; and
j)Respondents Court Book (“RCB”).
Background
I have adopted Russo’s submissions in outlining the background facts. Any discrepancy or disagreement by Westpac has been noted.
On or about 15 May 2009, Mr Russo and Westpac entered into a contract of employment (the “Employment Contract”). The Employment Contract provided:
In addition to your fixed package, you may be invited, from time to time, to participate in a variable rewards scheme. The details of the variable rewards scheme will be provided to you at the time you are invited to participate in the scheme. The eligibility to be considered for and the payment of any variable reward or inceptive payment is at the absolute discretion of Westpac.
(Annexure “C”, First Russo Affidavit, p.48)
In or about May 2009, Russo attended interviews with representatives of Westpac during which he was informed that his remuneration would consist of a fixed base component and eligibility to receive an incentive designed to provide competitive remuneration: First Russo Affidavit at [8].
The GIPA Plan
On or about 27 May 2009, after commencing employment with Westpac, Russo received an invitation to participate in the General Investment Incentive Plan (the “GIPA Plan”). In that letter, Westpac stated:
At BT Financial Group we aim to provide market competitive remuneration that reflects your performance and the performance of the business. Through our incentive plans we ensure that there is a transparent link between your performance and how you are rewarded.
Part of the transparency of the plan is to provide you with an incentive target. Your actual incentive will be determined in accordance with the Guidelines for your Incentive Plan…
The GIPA Plan Guidelines and Rules were enclosed with that letter, and provide as follows at clause 2:
BT Financial Group’s Incentive Plans provide transparency and alignment between individual employee performance, overall business outcomes and incentives.
The aims of the GIPA Plan are to:
·Align incentives to business and individual performance’
·Provide transparency in how incentives are determined;
·Positioning employee’s Total Reward relative to the market.
Clause 3(a) of the GIPA Plan provided that employees were to be informed at the beginning of each performance cycle of their incentive target for the performance year. Clause 3(b) then outlined that incentive payments would be linked to performance, namely, the group’s performance, the business unit’s performance and the individual employee’s performance. In respect of individual employee performance, the GIPA Plan relevantly stated that:
At the beginning of the performance year, each employee formulates with their people leader who gives a score card specifying individual performance objectives and target performance levels consistent with business and team goals.
The individual performance ratings for the purposes of the GIPA Plan were categorised as: outstanding, high achievement, effective, needs development and unsatisfactory. In addition to these performance ratings, the GIPA Plan also provided ratings for “values” as follows:
Employee performance will also be assess in the context of our values by receiving a rating of 3, 2 or 1. The behaviour rating will influence an individual employee’s incentive payout within the applicable payment range. No payment will be made for employees with a behaviour rating of 1.
Clause 3(c) of the GIPA Plan provided that the “performance period” for the GIPA Plan occurred between 1 October and 30 September, in line with Westpac’s financial year. Clause 3(d) outlined the indicative payment ranges that would be made in respect of incentive payments for the various ratings. For example, a rating of “Effective” would lead to an incentive payment of between 80% and 110% of the incentive target.
Clause 4(a) outlined eligibility to participate in the GIPA Plan and provided as follows:
The employee must meet all the following criteria:
· Have been employed in and engaged in active service in the BT Financial Group business for at least six months for the GIPA Plan performance period;
· Have an agreed score card established with their people leader;
· Be employed and have not have resigned as a permanent part time or full time employee of the Westpac Group on the incentive payment date;
· Have an incentive target under the GIPA Plan communicated to them in writing by their people leader;
The CEO, BTFG is the final arbiter of eligibility.
Clause 4(c) provided that an employee must achieve at least an “Effective” rating for their performance for the full year to participate in the GIPA Plan. Clause 4(d) then dealt with how performance was to be assessed and provided as follows:
People leaders are responsible for aligning their employees score card objectives with the business strategy of BT Financial Group. The people leader is also responsible for managing employees against these objectives and assessing their performance. The performance review process in continuous, with formal documented performance appraisals completed every six months.
The full year appraisal is the performance and behaviour rating which is recorded in the People Express system and communicated to the employee during the full year appraisal session.
Clause 4(k) of the GIPA Plan provided that “the CEO, BT Financial Group is the final arbiter of any decisions made in regard to the GIPA Plan”. Clause 4(l) of the GIPA Plan provided for a grievance resolution procedure as follows:
BT Financial Group seeks to provide a fair and efficient mechanism for dealing with any dispute relating to an employment matter. All employees may access the BT Financial Group Grievance Procedure to have any work related grievance dealt with. A work related grievance includes any behaviour, incident or circumstances an employee considers unacceptable.
In each of his previous years of employment prior to FY 2010/2011, Russo received an incentive payment pursuant to the GIPA Plan. In FY 2009/2010 Russo’s incentive payment was AUD$70,000: First Russo Affidavit at [11].
The Bancassurance Division
At the time Russo commenced employment as Senior Manager Sales, he reported to Mr Brendon Tobin, the head of General Insurance: First Russo Affidavit at [12].
In or about July 2010, Westpac restructured its general insurance business, dividing it into general insurance and distribution. The distribution division was referred to as the “Bancassurance Division”: First Russo Affidavit at [25]-[26].
In or about October 2010, Russo held a performance review meeting with Mr Smith and they agreed to a new scorecard for the purposes of FY 2010/2011. This scorecard is reflected in criteria contained in the final performance assessment documents for that Financial Year and against which Russo’s performance was measured: First Russo Affidavit at Annexure “R”, p.165.
In or about November 2010, Russo was advised by Mr Smith that Musson was to be employed to be the Head of the Bancassurance Division: First Russo Affidavit at [32].
On 3 December 2010, Russo received a letter from Westpac advising him that his incentive payment for FY 2009/2010 was AUD$70,000 and that his FY 2010/2011 Reward Target pursuant to the GIPA Plan was AUD$70,000: First Russo Affidavit at [30], Annexure “K”, p.133.
In or about November or December 2010, Musson raised with Russo proposed changes to the Bancassurance Division which would see the majority of employees who were reporting to Russo thereafter reporting to Musson: First Russo Affidavit at [35]. This restructure took effect in February 2011 and after that time, Musson took over complete leadership of the Bancassurance Division, with Russo now only in charge of approximately 5 employees: First Russo Affidavit at [39].
In or about March 2011, Russo was invited to participate in Westpac’s “Accelerated Leadership Program”: First Russo Affidavit at [41]. This was a program from employees whom Westpac considered to be future leaders.
The Mid-Year Performance Review
The way in which Russo’s employment performance review system worked was that, at the first instance, he was required to complete a self-assessment of his performance by accessing his “scorecard” on Westpac’s “People Express” internal system and entering comments about his performance by reference to the criteria against which his performance was to be measured, and was to give himself a rating for each criterion. What was next required was for Russo’s “People Leader”, Musson, to enter comments and ratings in response to Russo’s self-assessment. A performance review meeting would then take place.
By on or about 30 March 2011, Russo had completed his mid-year performance review by entering into his scorecard his views about his performance for the first six months of FY 2010/2011: First Russo Affidavit at [43].
His People Leader, Musson, was then required to enter his own responses to Russo’s comments and ratings. The evidence shows that for the mid-year review, Musson had completed his assessment, giving to Russo an “Effective” or higher rating for 8 out of the 10 agreed criteria contained in the scorecard: First Russo Affidavit, Annexure “W”, p.190. In short, Musson had rated Russo as being “Effective” or higher rating for 70% of his overall performance up until the mid-year review.
Musson alleges that he gave Russo an overall rating of “Needs Development”, but this was never disclosed to Russo. Shortly after these mid-year reviews had been completed on the People Express system, Russo met Musson and was told that his overall rating was “Effective”. Musson denies these assertions and it is a factual dispute that will require resolution.
Westpac argues that Musson’s decision to assign Russo this indicative rating of “Needs Development” was based on his perception of three main issues, namely:
a)Russo’s failure to ensure that the agreed sales targets were accurately recorded in a sales database known as Management Information Dashboard (“MI Dashboard”);
b)Russo’s failure to ensure that the correct commission fees had been agreed to and uploaded onto an internal database for the sales of a consumer insurance product known as Mortgage Secure; and
c)Russo signing off on a letter for the retrenchment of an employee, Deborah Peat, without proper regard for the business consequences.
Westpac submits that on 18 April 2011, Musson attended a meeting with Westpac’s Human Resources team and other People Leaders in the business unit to discuss the performance of persons who reported to them. These sessions are known as alignment sessions and were led by Salter, who was head of Human Resources for BT. The purpose of the alignment session was to ensure consistency in the mid-year performance appraisals and scores, and to assign rankings to employees based on position and on a distribution curve. During these sessions on an ongoing basis to reflect any changes that may result from discussions of each employee’s indicative performance and behaviour ratings.
Westpac contends that following the alignment sessions, Musson confirmed Russo’s mid-year performance rating as “Needs Development”, but downgraded his values score from a “3” to a “2”. These ratings were confirmed in contemporaneous email communications between Musson and Cathy McGuiness, Human Resources Consultant for BT. Musson finalised his rankings and comments for Russo’s mid-year performance scorecard, then submitted it to People Express. However, Musson mistakenly did not release Russo’s mid-year performance appraisal for viewing by Russo.
Westpac contends that in or around May 2011, Ms Salter had a discussion with Russo which gave her the impression that he did not understand that he had received a “Needs Development” rating in his mid-year performance review.
On or about 3 June 2011, Musson and Russo attended a meeting during which Musson informed Russo that he perceived that State Managers reporting to Russo were confused about their sales targets: Musson Affidavit at [87]. Russo disagreed with Musson’s assessment of the situation and sent an email to that effect which also attached various emails that Russo had sent to his subordinates informing them of their relevant sales targets: Second Russo Affidavit at [30] and Musson Affidavit at Annexure “DM-13”, p.89. Musson suggests that this meeting was an occasion where he told Russo that his performance was rated as “Needs Development”, but this is denied by Russo.
Final Year Review and Redundancy
On 17 August 2011, Westpac announced the merger of the Bancassurance Division with the superannuation, investment and advice teams to create a new team called “Bank Distribution”. As a result, Russo’s role as Senior Manager Sales Insurance and another position, National Sales Manager Customer Call Centres/Online were combined into a single role.
On or about 14 September 2011, Russo entered his self-assessment into the People Express system for his annual review: First Russo Affidavit at [49].
On or about 22 September 2011, Russo attended a meeting with Musson and Cathy McGuiness of Human Resources where was told that his position had been made redundant and that Westpac would seek redeployment for him: First Russo Affidavit at [50]. Russo was also told that other employees including Todd Richards, Arthur Fanos and Melanie Fernee were also to be retrenched: First Russo Affidavit at [51].
Westpac contends, as Russo had been retrenched before the payment date of 1 December 2011, he did not become eligible for consideration to receive an incentive payment under the GIPA Plan. Westpac argues that it had a discretion to make an ex gratia payment to Russo in respect of any short-term incentive payment under the Westpac Redundancy Policy.
Westpac argues that Musson then considered whether or not Russo should receive an ex gratia payment under the Westpac Redundancy Policy. In considering whether or not to exercise his discretion, Musson undertook an informal assessment of Russo’s performance for the whole of FY 2010/2011 as if he remained eligible to receive an incentive payment under the GIPA Plan. Musson determined that Russo should receive a provisional rating of an “Effective Low” on the basis that he had not implemented a call centre project effectively. Westpac submit that if Russo had continued to be rated as an “Effective Low”, he would not have been eligible to receive an incentive payment under the GIPA Plan, assuming he had remained employed on the payment date.
On or about 27 September 2011, Russo and Musson attended a meeting during which Musson conducted his annual review of Russo’s performance: First Russo Affidavit at [52]. By this time, Russo had already entered his self-assessment onto the People Express system: First Russo Affidavit at [49]. Westpac submit that Musson entered into People Express an indicative performance rating of “Effective Low” and a behaviour rating of “2” for Russo.
On or about 20 October 2011, Russo received a retrenchment letter notifying him that his retrenchment was to take effect on that day: First Russo Affidavit at [56], Annexure “S”, p.172. After receiving the letter, he logged on to the People Express system and noticed that his performance review had not been completed by Musson: First Russo Affidavit at [57]. Russo printed a copy of the performance review as it stood at that time: First Russo Affidavit, Annexure “T” at p.177.
Musson completed the annual performance review sometime later, and that for 9 out of 10 scorecards gave Russo an “Effective” or higher rating: First Russo Affidavit, Annexure “W”, p.190. On the weightings attributed to each criterion, this amounted to an “Effective” or higher rating for 90% of Russo’s performance criteria. The only criteria in respect of which Russo did not get an “Effective” rating was in relation to “people” for which an “Unsatisfactory” rating was given to Russo.
The evidence shows that Musson gave Russo a rating of “Effective Low” and a values rating of “2”: Musson Affidavit at [113] and [117]. After a realignment process engaged in by the Human Resources team, Russo was given a rating of “Needs Development” and a values rating of “1”: First Russo Affidavit at [123]. Westpac submits that on or about the last week of September 2011, Musson attended end of year alignment sessions with other People Leaders which were facilitated by members of Westpac’s Human Resources team. Before the alignment session, a PowerPoint document was created to reflect the performance achievements of each group (Salter Affidavit, Annexure “KS-7”). The presentation stated that Russo had been given a provisional rating of “Effective Low”.
Westpac argues that following discussions during the alignment sessions, Russo’s performance rating was downgraded relative to the rankings of others on the distribution curve to a “Needs Development” rating and his values rating downgraded to “1”. Westpac contends that Russo would not have otherwise been eligible to receive an incentive payment under the GIPA Plan for an additional two reasons: both his performance rating and his behaviour rating disqualified him. Musson decided not to exercise his discretion to make an ex gratia payment to Russo under the Westpac Redundancy Policy.
Russo challenges this performance assessment process.
The Redundancy Policy
Westpac published its Redundancy Policy that was applicable to its employees, including Russo: Musson Affidavit, Annexure “DM-19”, pp.123-138; Salter Affidavit, Annexure “KS-12”, pp.281-296. In relation to payment of bonuses in the event of retrenchment, the Redundancy Policy provided as follows:
Your People Leader will consider:
· Company/ division performance. Any payment you may receive will take into account year and forecast company/ division performance.
· Your most recent individual performance rating.
· Your retrenchment date. Payments will only be considered where you have worked more than 6 months of the financial year and more than half of the most recent performance period (whether this is a monthly, quarterly or bi-annual performance period) under your short term incentive scheme. If a payment is made, it will be pro-rated based on the time you have worked in the most recent performance period.
· Whether you might otherwise have received a payment under your short term incentive scheme if you had been employed by us as the usual payment date.
· Any other factors, in his or her discretion, your People Leader considers are relevant, for example the payment frequency of your short term incentive scheme and/or consistent with short term incentive decisions for other employees in your business in the same or similar circumstances.
If my People Leader considers it appropriate to provide me with a pro-rated payment, what approval is required?
Your payment will require your two-up manager and also General Manager approval.
In order for me to receive an approved pro-rated payment, what else do I need to do?
You will need to sign a Deed of Release prepared by Westpac. Your People Leader will provide you with the proposed Deed. If you do not sign the proposed Deed, you will not be eligible to receive the pro-rated payment.
Musson’s evidence is that he applied these terms to the Redundancy Policy to the determination of Russo’s bonus entitlement, but decided that Russo’s performance did not warrant payment: Musson Affidavit at [131]-[132].
The Westpac Group Variable Reward Scheme Rules
The Westpac Group Variable Reward Scheme Rules (the “Scheme Rules”) (Salter Affidavit, Annexure “KS-10” contained Version 0.9, dated 7 May 2010 with Version 1.0, dated 15 September 2010) (Exhibit “1”) is another document which sets out terms and conditions therein. Where there is any inconsistency with the GIPA Participant’s Guide, the Scheme Rules prevail.
Relevantly, the Scheme Rules provide inter alia that:
a)An employee’s variable reward payments will be reduced or forfeited where he or she has been assessed as performing below minimum expectations including:
i)Achieving explicit performance objectives;
ii)Not “Living the Values” (the name of Westpac’s code of conduct); or
iii)Receiving a behaviour rating of “1” unless approved by the Chief Risk Officer or Group Executive People and Transformation;
b)In order to be eligible for a variable reward payment, an employee has to be employed at the time the payment becomes payable;
c)The Remuneration Oversight Committee had the sole discretion to determine or vary the outcome in making a variable payment where an employee was not otherwise eligible to receive an incentive payment under the Scheme Rules;
d)Where an employee is retrenched, the employee may be eligible for a pro-rated cash variable payment on an ex gratia basis in accordance with Westpac’s policies as amended from time to time, and is subject to the discretion of the employee’s direct manager, two up manager and General Manager;
e)Westpac may change the variable reward payment targets, scheme rules and design at any time;
f)All variable reward payments under any scheme are made at the “complete discretion” of Westpac including the discretion not to make a variable payment in any year; and
g)The Westpac Board and Remuneration Oversight Committee has the “absolute discretion” to vary, defer, forfeit or withdraw any variable reward scheme, its rules, design, target objectives or payment.
Russo’s Submissions
The Contract Claim – Applicable Principles
The applicant argues that the fact that a bonus scheme is discretionary, or that the relevant contractual right is limited to an eligibility to participate in a bonus scheme, does not militate against it having contractual force, from a party acting in breach of its obligations and/or from an employee recovering damages (including for loss of a chance) in respect of such breaches. There are a number of cases where Courts have upheld and enforced discretionary bonus schemes. A detailed examination of these cases is necessary.
The Court of Appeal’s decision in Silverbrook is a case in point. In that case, Ms Lindley’s contract of employment provided as follows:
4. ANNUAL PERFORMANCE BONUS
4.1 Lindley will be eligible to receive the Annual Performance Bonus subject [sic] to clause 4.2 and 4.3.
4.2 Silverbrook will assess Lindley’s performance against set objectives at the end of each quarter commencing from the date of her employment. Provided her performance satisfies the set objectives and subject to clause 4.3, one quarter of the Annual Performance bonus will be paid to Lindley within 21 days of the end of each quarter.
4.3 The decision as to whether Lindley should receive the Performance Bonus is entirely within the discretion of Silverbrook. Lindley must be in the employ of Silverbrook at the time bonuses are determined to be eligible to receive the Annual Performance Bonus.
As to the discretionary nature of the entitlement, Allsop P (as he then was) (with whom Beazley JA agreed) held at [5]-[6] that:
5. …That the decision as to whether the respondent should receive the bonus was “entirely within the discretion of” the appellant should not be construed so as to permit the appellant to withhold the bonus capriciously or arbitrarily or unreasonably; it should not be construed so as to give the appellant a free choice as to whether to perform or not a contractual obligation. The relevant discretion should be understood against the proper scope and content of the contract. This was a bargained for bonus to be assessed against set objectives. Such a clause should receive a reasonable construction and not permit the appellant to choose arbitrarily or capriciously or unreasonably that it need not pay money the set objectives having been satisfied…
6 The discretion is to be exercised honestly and conformably with the purposes of the contract. There may be many circumstances in which it would be legitimate, and conformable with the purposes of the contract, not to pay the bonus. There may be financial stringency or misbehaviour by the respondent or some other consideration. It is unnecessary to explore the possibilities in detail. What, however, would not be permitted is an unreasoned, unreasonable, arbitrary refusal to pay anything, come what may. This would be a denial of the very clause that had been agreed. If these parties wished to make payment under the clause entirely gratuitous and voluntary such that payment could be withheld capriciously, notwithstanding the compliance with solemnly set objectives they needed to say so clearly.
(emphasis added)
The applicant argues that in assessing loss, the Court of Appeal in Silverbrook approached this on the basis of a loss of chance to earn a bonus. The fact that the bonus scheme was discretionary did not make it impossible to say that the chance had no value: Silverbrook at [8]. The opportunity or chance was measured by the probabilities and possibilities, including how the employer would or might have acted conformably with its contractual obligations: Silverbrook at [9].
Relevant Breaches
Russo argues that Musson has given evidence that the reason why he decided that Russo should not be paid a bonus for FY 2010/2011 was because:
a)Russo had been responsible for a misalignment of targets between the sales team and the Bancassurance Division: Musson Affidavit at [14]-[22], [30]-[31] and [134];
b)Russo had failed to attribute a proper value to one particular financial product known as Mortgage Secure: Musson Affidavit at [25]-[29] and [134];
c)Russo had approved a letter, being sent to an employee who had taken a career break, which authorised the payment of redundancy pay: Musson Affidavit at [32]-[35] and [134];
d)Russo has “misled” Musson about a project as the Call Centre Project: Musson Affidavit [113] and [134]; and
e)Russo had failed to assist Mr Kallos in handover of certain work consequences upon Russo’s retrenchment: Musson Affidavit at [109] and [123].
Russo notes that the all of the matters referred to at [77(a), (b) and (c)] above occurred prior to 30 March 2011 as it is alleged that they had been incorporated within the mid-year performance review. The only matters arising after 30 March 2011 are those referred to above at [77(d) and (e)].
Russo submits that none of these matters have any factual foundation and, in any event, Musson’s assessment of them was unreasonable, arbitrary, capricious and not consistent with the purposes of the GIPA Plan.
Russo argues that in relation to the misalignment of targets ([77(a)] above), the evidence will show that he had provided all the correct information to Westpac’s Performance Management team in respect of the appropriate targets to be used. The evidence will show that an error was made by the Performance Management team in entering the appropriate sales targets into the relevant computer system at Westpac (known as the MI Dashboard).
The applicant submits that in relation to the failure to attribute the correct value to the Mortgage Secure product ([77(b)] above), the evidence will show that he had provided the correct amounts to the Performance Management team, however, a decision was made by Westpac itself that the value of AUD$500 attributable to the Mortgage Secure product was not to be accepted, as it was inconsistent with its preference for another product. This decision was not made by Russo.
The applicant submits that in relation to the career break letter issued to Ms Peat ([77(c)] above), the evidence discloses that the letter had been approved by his then immediate manager, Mr Tobin. The letter had also been approved by the Human Resources Team.
Russo argues that the evidence discloses that notwithstanding the above matters, Musson gave him an “Effective” or higher rating on 8 out of 10 criteria (or for 70% of the weighted performance) for his mid-year review.
Russo submits that in relation to the post mid-year review conduct, the only performance issue that Musson identified was in relation to an allegation that he had “misled” him in respect of the Call Centre Project ([77(d)] above), including a timetable for implementation. The timetable showed that the Project was to “go live” by the end of October. At the final stages of the implementation of the Project, another division within Westpac sought an extension of time to accommodate their own needs. This had the effect of extending the project by another four weeks before it could “go live”. This development did not occur until late September, at which time he immediately raised the issue with Musson. There was no misleading conduct on his part.
The applicant contends that in relation to the allegation that Russo had not assisted Mr Kallos in any handover was used by Musson to not downgrade his performance, but his “values” rating. The allegation that Russo did not assist Mr Kallos is without substance and is based upon inadmissible hearsay evidence. In any event, the applicant denies these allegations and has given unchallenged evidence that he did assist Mr Kallos in the handover process. In any event, all of the conduct in relation to Mr Kallos arose after 1 October 2011, which meant that is was conduct referable to the next financial year, not FY 2010/2011.
The applicant argues that for the above reasons the exercise of the discretion by Westpac in respect of the non-payment of Russo’s bonus was capricious, arbitrary, unreasonable, and otherwise not conformable with the purposes and objects of the GIPA Plan. This conduct amounted to a breach of the implied terms outlined above, which act as a fetter upon the discretion exercised by Westpac in its decision making relating to the payment of bonuses under the GIPA Plan or alternatively, the Redundancy Policy.
Russo argues that two formal points are taken against the above contentions:
a)First, it is said that the GIPA Plan did not apply to Russo because he did not satisfy the eligibility criteria specified in the GIPA Plan. Specifically, it is alleged that Russo was required to remain an employee of Westpac at the incentive payment date to be eligible for payment. However, this contention proceeds on the erroneous premise that the eligibility criteria applied where an employee’s employment had been terminated on the ground of redundancy. On its proper construction, it is evident that the eligibility criteria only applied in instances where an employee had resigned from his or her employment as at the incentive payment date; and
b)Second, Westpac contends that the GIPA Plan and the Redundancy Policy were completely discretionary and it had no obligation to pay any amounts to Russo. However, the prevailing authorities establish that the discretionary bonus schemes are subject to implied terms that act as a fetter upon the exercise of discretion otherwise engaged in by an employer in respect of eligibility and payment of bonuses. In substance, the essential dispute between the parties is whether the decision not to pay Russo a bonus was a breach of these implied terms.
Russo argues that Westpac’s claim is that Musson’s exercise of discretion in concluding that no incentive payment should be paid to Russo was reasonably open to him on all the evidence. These arguments cannot be substantiated on the evidence before the Court. Westpac published a plan that outlined exactly how an employee’s performance was to be assessed and measured. In particular, Westpac indicated that individual performance of an employee would be measured against an agreed scorecard. In the present case, the agreed scorecard outlined Russo’s key measures of performance for FY 2010/2011. All the evidence established that in the annual performance review, Musson rated Russo as having an “Effective” or higher rating for nine out of ten criteria. In relation to concerns that Musson had at the mid-year performance review, these had all abated by the end of the year review.
In relation to other performance criteria, Westpac alleges that the Bancassurance Division did not meet its other targets. However, this was no impediment to the making of bonus payments to other employees within the Bancassurance Division. In relation to the allegation that Russo’s performance was measured by reference to a re-alignment as against other employees within the Bancassurance Division, this contention proceeds on an incorrect initial assessment of Russo’s performance. The re-alignment itself did not take into account what ought to have been a proper assessment of Russo’s performance.
Russo contends that in light of the above, Westpac has breached the Employment Contract, the GIPA Plan and the Redundancy Policy. Had these contractual obligations been performed lawfully by Westpac, Russo’s performance would have been properly assessed by reference to the scorecard criteria excluding all irrelevant factors and other unsubstantiated matters. Had Westpac properly performed its contractual obligation, Russo would have obtained a bonus. Russo argues that this is a classic case where Russo has lost an opportunity to earn a bonus, with the value of that opportunity being at least AUD$70,000.
Misleading and Deceptive Conduct
Russo argues that the claim under the ACL is based upon pre-employment representations made to Russo about the payment of incentives. The evidence will show that there was no reasonable basis for Westpac having made those representations, in circumstances where it could not assure Russo that he would be paid incentives, especially when its ongoing intention was to make the payment of bonuses conditional upon layers of internal review and processes that led to arbitrary results. These matters were not drawn to Russo’s attention at the time and instead he was given bald representations to the effect that he was assured of earning ongoing bonuses from year to year.
The evidence established that Russo relied on these representations, and the failure to fully disclose, in accepting employment with Westpac. As a result he argues that he has suffered loss.
Russo argues that the loss he has suffered, which is the lost opportunity to secure other commensurate employment, is best measured by the difference between, on the one hand what the parties in the proceeding assessed as the appropriate total remuneration level for someone of Russo’s skills and experience, being of AUD$270,000, and on the other hand, what he actually earned, being AUD$200,000, the difference being Russo’s loss of AUD$70,000.
Westpac’s Submissions
Breach of contract case
Westpac submits that Russo’s contract case pleaded in the Statement of Claim is that Westpac breached:
a)Various express terms in Russo’s contract of employment that he would receive an annual bonus in accordance with the GIPA Plan, the Redundancy Policy and the People Leaders Guide: [7] of the Statement of Claim;
b)Various express terms in the People Leaders Guide and the GIPA Participant’s Guide regarding the process for conducting the performance appraisal process: [8] of the Statement of Claim;
c)An express terms that Russo be able to utilise Westpac’s grievance procedure in relation to his assessment against the agreed scorecard and his entitlement to an annual bonus: [9] of the Statement of Claim; and
d)Various implied terms: [10] of the Statement of Claim.
Express terms pleaded
Westpac submits that none of the express terms pleaded are alleged to be contained in the Employment Agreement, but in various ancillary documents. Russo has not pleaded in the Statement of Claim and not identified in the outline of submissions how the documents have become incorporated into the contract of employment or otherwise have binding contractual force on the parties.
Westpac contends that on the contrary, the express words of the Employment Agreement and the relevant documents state that those documents do not have any contractual effect. The Employment Agreement itself states that Westpac policies do not form part of the contract of employment. The GIPA Participant’s Guide and the Westpac Redundancy Policy contain similar statements.
There is no reference to the People Leader’s Guide in the Employment Agreement. The People Leaders Guide does not have the appearance of a legal document, but is a PowerPoint slide presentation created in September 2011. It is difficult to see how a document described as a guide forms part of a contract of employment. No claim is made that the Employment Agreement had been varied to include the People Leader’s Guide or the consideration for making such a variation. In any event, the People Leader’s Guide is not even referred to in Russo’s outline of submissions.
Westpac contends that the GIPA Participant’s Guide (and the associated documents of the Scheme Rules and the Westpac Remuneration Policy), the People Leader’s Guide and other relevant documents, read together, make clear that:
a)The rules, design, eligibility, its payment, target objectives, assessment, decision to pay and amount were discretionary in nature (using terms such as “complete” and “absolute” discretion);
b)Eligibility to participate, performance and payment were to be judged by the relevant manager(s) concerned;
c)An employee was required to meet both performance objectives and behavioural standards, that payment could be reduced or forfeited in certain circumstances;
d)The employee had to be employed at the end of the financial year and the date upon which the amount became due and payable, being 1 December, to be eligible to receive the payment; and
e)Any incentive payment was determined as a result of an alignment against other employees, based on relative rankings on a distribution curve to ensure consistent and comparable treatment between employees in the same circumstances designed to reward only “high performers”.
Westpac argues that Russo’s outline of submissions appear to disavow any reliance on its pleaded case that Westpac breached any of the alleged express terms of his contract of employment. There is no reference to these parts of the pleadings in Russo’s outline of submissions.
Implied terms pleaded
The principle focus of Russo’s outline of submissions is that Westpac’s exercise of discretion in deciding not to make an ex gratia payment to Russo breached an implied term in the contract of employment not to exercise any discretion conferred upon it (under the GIPA Participant’s Guide) capriciously, arbitrarily or unreasonably ([10(e)] of the Statement of Claim) and it would only do so honestly and conformably with the purposes of the contract of employment ([10(e)] of the Statement of Claim). These implied terms are inconsistent with the express use of the words “complete discretion” or “absolute discretion” in the Employment Agreement and variable reward documents which suggest that there is no restriction or qualification on the exercise of such discretion by Westpac.
None of the cases that Russo relies upon in support of his case concerns an employer exercising a discretion under a non-contractual policy to make an ex gratia payment. Russo did not become eligible under the GIPA Plan to be considered for an incentive payment because he was not employed at the date of payment. This did not arise under the GIPA Participant’s Guide, but arose under the Westpac Redundancy Policy, both of which, Westpac argues, had no contractual force. As the cases involve material different facts and considerations, little assistance can be gained from them for the purposes of these proceedings.
In Silverbrook, the Court of Appeal considered an employer’s exercise of a contractual discretion not to award a performance bonus to its employee. The case concerned an employer’s failure to establish performance objectives and to measure an employee’s performance against such targets for the purposes of determining whether or not to make a bonus payment in conformance with the contract. The Court sought to ascertain the value of the loss of the employee’s chance to receive an annual performance bonus under the contract. Westpac argues that that is not the case here.
Westpac contends that there are a number of material matters which distinguish Silverbrook from the present case, namely:
a)Russo’s case did not involve the exercise of a contractual discretion not to award a performance bonus. His case concerns a decision not to exercise discretion to award an ex gratia payment under a non-contractual redundancy policy. Hence, Westpac did not have a contractual obligation to exercise the discretion in any particular manner or by reference to any particular considerations;
b)Unlike Silverbrook, Westpac had established performance objectives and behavioural standards for Russo to attain and Westpac assessed Russo against those objectives, in deciding for the purposes of considering whether an ex gratia payment would be made that he would have otherwise been entitled to receive an incentive payment under the GIPA Plan, notwithstanding he was not eligible . Westpac, therefore did not deny Russo the opportunity to participate in the variable reward scheme which itself was non-contractual and expressed to be discretionary in nature; and
c)Even assuming that the Redundancy Policy had legal effect, the determination of whether or not Westpac had exercised its discretion properly must be undertaken by reference to the purpose of the purposes of the Westpac Redundancy Policy and not the GIPA Participant’s Guide. The Westpac Redundancy Policy has the purpose of establishing the processes and payments to be made to employees in the event of retrenchment. Unlike the GIPA Plan, the Westpac Redundancy Policy is not designed to reward employees for performance.
Westpac submits that the English authorities that Russo cites (Russo’s outline of submissions) involve relevantly similar facts to Silverbrook and therefore do not compel a different conclusion.
Even assuming that Westpac had a contractual obligation not to exercise it non-contractual discretion not to withhold the payment capriciously, arbitrarily or unreasonably, there is no basis to find that it has exercised its discretion in such a manner. “Arbitrary” mean a decision based on random choice or personal whim or involving unrestrained and autocratic in the use of authority. “Capricious” means a decision characterised by or subject to whim impulsiveness and unpredictability. For judicial consideration of these words see also Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 609 per Mason J. The term “unreasonable” should be understood in the same sense used in Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223 – the decision was so unreasonable that no reasonable person would ever consider making it. These phrases indicate that the Court’s role is not to interfere with an employer’s exercise of discretion merely because it would have come to a different decision.
There is no basis for the claim that Westpac, in deciding not to exercise its discretion to award an ex gratia payment, acted in a manner which was capricious, arbitrary or unreasonable. On the contrary, the evidence reveals that Musson had a rational basis for his decision in holding Russo to account for mistakes made under supervision or for which he had overall responsibility. Musson informed Russo of the basis for the key decision and his reasons were exposed to external testing and scrutiny as part of the alignment process. The evidence reveals that Musson did not form his views on Russo’s performance and behaviour on illegitimate grounds, nor was he was motivated by irrelevant considerations or malice towards Russo. As Russo’s direct supervisor, Musson was in the best position to judge Russo’s performance and to make an ultimate judgment of whether to exercise his discretion. Ultimately, the Court’s role is not to second guess these judgments on a de novo basis or to evaluate if, in retrospect, these decisions were fair and just.
Westpac submits that Russo’s claim that Musson did not have “any factual foundation” for the matters he relied upon in making his performance appraisal of Russo is not pleaded. Had it been differently pleaded, Westpac would have called evidence from other witnesses to corroborate these matters. Westpac argues that Russo should not be allowed to amend his case at such a late stage as Westpac will be prejudiced.
Counsel for Russo also drew the Court’s attention to the additional evidence directly relevant to this allegation. Specifically:
a)In September 2010, which is before Musson had commenced employment with Westpac, Russo had provided all the correct information to Westpac’s performance management team in respect of the appropriate targets to be used: Musson Affidavit, Annexure “DM-13”, p.110-111; RCB, p.110-111: T/D2, p.88.1-89.29;
b)Musson accepted an error was made by the performance management team in entering the appropriate sales targets into the relevant computer system at Westpac, known as the MI Dashboard: T/D2, p.89.26-29;
c)Musson admitted that even before he commenced employment Russo was dealing with Musson’s superior, Mark Smith, about the issue: T/D2, p.91.15-17. This showed that Russo had already identified the problem and had set about to rectify it well before Musson commenced, which was completely inconsistent with the evidence asserted in Musson’s Affidavit: T/D2, p.92.43-44; T/D2, p.93.30-33;
d)Russo’s version of events was corroborated by the objective evidence contained in a series of emails that Russo had forwarded to Mark Smith and his subordinates: Musson Affidavit, Annexure “DM-13”, p.90-114; RCB, pp.90-114; T/D2, p.89.31-92.33;
e)Musson admitted that Russo had forwarded him all these documents and that Musson was completely satisfied with Russo’s response to the issue:
Shariff: On 3 June, you had a discussion with him where you said to him, “The state managers appear to be confused about what their targets are,” correct?
Musson: That's right.
Shariff: He wrote you an email, didn’t he?
Musson: He did, yes.
Shariff: And he spelt it out to you ‑ ‑ ‑?
Musson: Yes.
Shariff:‑ ‑ ‑ exactly what had happened?
Musson: Yes.
Shariff: And he attached all these documents, correct?
Musson: That's correct, yes.
Shariff: And you were completely satisfied with his response, weren’t you?
Musson: Yes.
(T/D2, p.92.21-33)
Musson raised the MI Dashboard issue against Russo as a significant failure in his performance, to support and justify the making of adverse performance evaluations. The adverse performance findings were placed in his employment records for verification through the Human Resources alignment process. Putting to one side the issue in respect to the contents of Musson’s sworn affidavit and the impact that it had on Russo’s future employment, the allegations made by Musson were wrong and he admitted that under cross-examination.
I know move to the second of these serious allegations, made by Musson against Russo in respect to his performance in his managerial role. The second of these is identified as the Mortgage Secure issue, the operation of which and the alleged failures by Russo, clearly stated in Counsel’s submissions on behalf of Westpac, which state:
(b) Mortgage Secure Issue
146. In January 2011, Westpac launched a new model for attributing the value of sales to the business. In summary, Westpac decided that sales targets should reflect the profit contribution made in selling the product rather than the volume of products moved. This was called the “New Revenue Model”: Musson Affidavit [25] RCB p 4. It shifted the sales focus from meeting sales quotas to maximising revenue earned from the sale of products.
147. In his role as Senior Sales Manager, Mr Russo had the responsibility for establishing and obtaining the agreement of the sales team for the value to be assigned to certain products under the New Revenue Model including a product known as Mortgage Secure: Musson Affidavit [26] - [27] RCB p 5. Mortgage Secure is a consumer credit insurance product which enables a customer to be insured for mortgage commitments against the risk of death or permanent incapacity of the customer: Musson Affidavit [27] RCB p 5.
148. The Bancassurance team agreed to assign a value to Mortgage Secure of $500 commission for each product sold under the New Revenue Model: Musson Affidavit [28] RCB p 5. Mr Russo did not manage to obtain agreement with the distributors to the agreed amount but agreed to a much lower amount of $200 for each product: Musson Affidavit [28] RCB p 5. In negotiating a much lower amount, Mr Russo compromised the Bancassurance’s team to meet its own targets: Musson Affidavit [28] RCB p 5.
149. Mr Russo also did not inform Mr Musson of the incorrect amount until it came to Mr Musson’s attention: Musson Affidavit [29] RCB p 5. Once Mr Musson became aware of the issue, he raised the matter with Mr Russo who could not give an explanation for the mistake: Musson Affidavit [29] RCB p 6. Mr Musson expressed two concerns during the discussion:
(a) Mr Russo had informed him that the $500 value had been agreed when it had not; and
(b) Mr Russo had not succeeded in his task of negotiating the outcome agreed upon.
The submission by Westpac that the Bancassurance Division had “agreed” to assign a value to Mortgage Secure of AUD$500 is wrong. Musson admitted this in cross-examination, stating that the value of AUD$500 was only a “proposal” from the Bancassurance Division. He stated:
Shariff: All right. Now, what you say in your evidence is that Mr Smith had proposed a value of $500 for the Mortgage Secure product?
Musson: That's correct.
Shariff: All right. Now, just pausing there, what Mr Smith had done was make a proposal, correct?
Musson: Yes.
Shariff: All right. And a proposal to be accepted by someone, correct?
Musson: That's correct, yes.
Shariff: It had to be accepted by the Westpac Retail Bank, correct?
Musson: That's correct.
Shariff: And it wasn’t within the liberty of the Bancassurance division to agree to anything, it was a matter for the retail bank to accept, correct?
Musson: That's correct.
Shariff: Now, no one within the insurance division, let alone a Bancassurance team, was in a position to agree to anything, they were just putting forward proposals, correct?
Musson: Correct.
(T/D2, p.85.14-29)
Despite the above evidence, Westpac submits Russo “misunderstands the point” and that Russo had failed to “negotiate the outcome assigned to him”. Further Westpac argues Russo did not inform Musson of the “incorrect amount until it came to Mr Musson’s attention”. Russo denied this assertion and said that he had informed Musson about the matter in November 2010. This is clearly articulated in the Second Russo Affidavit at [12], where he stated:
I say that I never had a conversation to the effect set out in [29] of Musson’s Affidavit and say that I made Mr Musson aware of the differences between the submitted and release New Revenue Model values in November 2010.
(ACB, p.220 at [2])
No objection was raised in respect to the content of this paragraph when the Second Russo Affidavit was read into evidence, nor was this evidence challenged during cross-examination. This is unusual in the circumstances where this serious claim is being made against Russo in his failure to adequately perform his role. I prefer Russo’s evidence and accept it to be the correct version of events in respect of the Mortgage Secure Issue.
In Westpac’s closing submissions they make the following statement regarding the Peat Letter, and I reproduce of their material as an outline to the issues involved. Westpac stated:
(c) The Peat Letter
151. After June 2009, Mr Russo became the two-up manager of another employee, Ms Deborah Peat: T/D1 p 58.43-44. In early 2010, Ms Peat applied for a career break for a 12 month period in accordance with Westpac’s Career Break Policy: Annexure DM-3 to the Musson Affidavit. The Career Break Policy stated that where an employee takes a career break, he or she is not entitled to return to his or her previous position if it is no longer available. The Policy provided that there would be a 3 month period during which attempts would be made to find other roles and, if no roles could be found, then the employee’s employment would come to an end: Annexure DM-3 RCB pp 27 - 28.
152. Westpac maintains that Russo was responsible for preparing the business case of Ms Peat’s career break for approval: T/D1, p.39.27-31. Musson, on behalf of Westpac alleges that Russo agreed that he understood the consequences of granting Ms Peat’s career break and endorsed the recommendation: T/D1, p.59.17-18. It is also claimed that Russo participated in making the decision to approve the proposal: T/D1, p.59.31.
Westpac’s closing submissions also state:
153. Ms Peat then received a letter dated 12 March 2010 approving her application for a career break: Annexure DM-4 to the Musson Affidavit RCB p 31 - 32. However, the letter stated that Ms Peat would be permanently replaced in her role and that, if she returned to work from her career break and no other role could be found for her within 3 months, then she would be entitled to a severance payment. This position was inconsistent with the Career Break Policy which stated that Ms Peat’s employment would simply come to an end and there is no reference to an obligation to make a severance payment.
This was inconsistent with the career break policy which stated that Ms Peat’s employment would simply come to and there is no reference to an obligation to make a severance payment. Westpac stated
154. Upon Ms Peat’s return from her career break, Mr Musson became aware of the letter and the obligation to make a severance payment to Ms Peat in the event no other role could be found for her within 3 months of her return: Musson Affidavit [32] - [34] RCB p 6. He had concerns that the letter in effect allowed Ms Peat to elect to become entitled to a severance payment in the amount of $70,000: Musson Affidavit [35] RCB p 7. Once Mr Musson became aware of the issue, he expressed his concerns to Mr Russo and provided him with the opportunity to provide an explanation: Musson Affidavit [36] RCB p 7. Mr Musson claimed that Mr Russo admitted that he had approved the letter and did not seek to cast responsibility on anyone else: T/D2.83.15-20. However, in cross-examination, Mr Russo deflected blame onto others for making the decision as others had also been involved in drafting and approving the letter: T/D1 p 39.20-43; T/D1 p 39.20.43.
In respect of the Peat Letter there has been an attempt by Musson to apportion to Russo the total blame for an incident for which Russo was not responsible. The allegations by Musson completely ignore the role of the other parties, one being Russo’s superior and an alleged expert in these matters from the Human Resources department. The Peat Letter was drafted by someone within the Human Resources department who assumedly had knowledge and skills in this particular area. Presumably the Human Resources department would carry out the function with due diligence and skill in the preparation of the letter authorising a “Westpac Career Break” for a twelve month period, and be fully aware of the consequences of its contents in respect of an obligation to make a severance payment in circumstances where Ms Peat’s career break came to an end.
This fails to have regard to actual allegation made by Musson and the fact that Russo did not authorise the letter. Musson’s complaint was that Russo had approved the letter, which resulted in Ms Peat receiving redundancy entitlements when she should not have received them. This completely ignores the issue that the letter had been approved by Russo’s then immediate manager, Mr Tobin. In Russo’s evidence-in-chief the following statements were made:
Shariff: I see. Can you now go to paragraph 17A. In the second sentence of that paragraph you say:
A decision to approve Ms [Peat’s] application for a career break, was considered an approved by my direct line manager of Brendan Tobin and Anne-Marie Beak.
Shariff: Can you tell, your Honour – can you tell his Honour how you know that?
Russo: I had a meeting with Brendan Tobin and Anne-Marie Beak around Ms [Peat’s] circumstances and put a submission to them for approval and the only way I get approval was to get their express approval and there was no other way I could get that.
Shariff: And over the page to paragraph 17C, you make an observation in the letter comprising annexure DM4 – it was produced from the respondent’s people express system. Can you tell his Honour how you know that?
Russo: It’s a process that HR – Human Resources division talks about that they had to go through a submission process which would be approved by the line manager and then Human Resources would get that approval and have the letter transposed out of that system for us to use.
Shariff: And when you say, “that letter transposed out of that system,” what do you mean?
Russo: It’s printed out and physically given to you to hand over to my line manager at the time, to give to ...
(T/D1, p.39.20-43)
Musson conceded that he did not know the letter had been approved by Mr Tobin where he stated:
Shariff: And you knew, didn’t you, that Ms Peat’s career break letter had been approved by Mr Tobin, correct?
Musson: I did not know that.
(T/D2, p.83.5)
However, Musson eventually accepted that Russo had not signed off on the letter and that the evidence he had given to the Court was completely wrong. Specifically, he stated:
Shariff: Are you telling his Honour under oath that Mr Russo told you that he signed this letter?
Musson: Yes.
Shariff: All right. Well, go back to the letter, sir, page 31. Look at page 32?
Musson: Sorry, which page?
Shariff: Page 32 of your affidavit?
Musson: I'm sorry, yes.
Shariff: The evidence – just have a look at the sign-off on page 32?
Musson: Sure.
Shariff: All right. Now, the evidence you just gave his Honour a moment ago was completely wrong, wasn’t it?
Musson: Yes.
(T/D2, p.83.23-33)
Musson admitted that he was mistaken in the assumption that he had made at the time and that he had jumped to a conclusion. Specifically, he stated:
Shariff: All right. Mr Russo did not sign this letter, did he?
Musson: No.
Shariff: That’s what you thought at the time. At the time, you thought he signed it, correct?
Musson: I did.
Shariff: You jumped to a conclusion, would you agree?
Musson: Yes.
(T/D2, p.83.35-40)
Musson admitted that he did not have any basis for the conclusion because, if he had looked at the letter, he would have realised that Russo did not sign it:
Shariff: Yes. You didn’t have any basis for that conclusion because, if all you had done was look at the letter, you would have realised he didn’t sign it, correct?
Musson: Yes.
(T/D2, p.83.42-43)
Musson ultimately accepted that he may have been mistaken about his recollections on exactly what had happened in relation to matters involving Ms Peat.
I turn to the next complaint identified as the Call Centre Project which I believe is very serious when viewed against the claim made in the submissions that Musson turned his mind to each matter informing his assessment of Russo’s performance. The material before the Court indicates that this claim cannot be sustained. In Westpac’s written closing submissions it states, as follows:
(d) The Call Centre project
156. In the second-half of FY2010/2011, Mr Russo became responsible for a project to design and implement a plan to centralise roles within the Bancassurance team and divert resources through Westpac’s Adelaide call centre (the Call Centre Project): Musson Affidavit [93] - [94]. Mr Russo had responsibility for reaching an agreement with Private Banking and Premium Financial Services teams regarding the process for customer referrals, developing a project plan, communicating the changes and ensuring that the project could be delivered on time by the completion date and on budget without the need for additional staff: Musson Affidavit [93] - [94] RCB p 16.
Musson’s allegation was that Russo had “misled” him in respect of the Call Centre Project. In support of this allegation, Musson relied on an email transmission forwarded to him by Russo on Tuesday 27 September 2010, essentially addressing staffing issues and a proposed timetable for the transfer of staff: Musson Affidavit, Annexure “DM-18”, RCB, p.121. In the closing submissions, filed on 5 July 2013, Westpac contends that Russo failed to notify Musson “that there may be difficulties in completing the project on time and that there had been an increase in staffing requirements which meant that Westpac had to extend the redeployment period (sic) [this should be implementation period] of two employees”. However, Musson’s cross-examination clearly establishes why this allegation was without factual foundation for the following reasons:
a)Musson agreed that the first time a timeline for the implementation of the Call Centre Project was published was in mid-September 2011”: Second Russo Affidavit, Annexure “E”, p.256. Specifically, Musson stated:
Shariff: Do you see it has got a timeline?
Musson: Yes.
Shariff: And it says, “Handover and go live on 28 October.”?
Musson: Yes.
Shariff: All right. That’s the first time anywhere in the evidence in these proceedings there’s a timeline ‑ ‑ ‑?
Musson: Sure.
Shariff: ‑ ‑ ‑ in respect of the call centre project?
Musson: I agree with that.
(T/D2, p.104.22-29)
Hence, any delay in project implementation could only have arisen from when the timeline was known;
b)Russo informed Musson that there would be a delay on 27 October 2011 – this was when he learnt about the hiring freeze. . In cross-examination he stated
Shariff: The concern you had with the call centre project, I think we’ve established ‑ ‑ ‑?
Musson: Yes.
Shariff: ‑ ‑ ‑ is that you felt he had misled you?
Musson: Correct.
Shariff: Right. You said you felt he had misled you, because he told you the thing would be implemented by a certain time?
Musson: Yes.
Shariff: And then he came to you and said it wouldn’t, correct?
Musson: Yes.
Shariff: The only evidence that the bank has produced in this case, to show that he had ever come to you and said that, was dated 27 September in an email?
Musson: Yes.
Shariff: So as at before 12 September ‑ ‑ ‑?
Musson: Yes.
Shariff: ‑ ‑ ‑ you had no basis upon which to think that he had misled you, correct?
Musson: That’s correct.
Shariff: Right. So you have no justification, do you, as to how you could have, before 12 September, given him an “effective – low” rating on the basis of this call centre project, because by that time you had no knowledge that he had mislead you, correct?
Musson: That’s correct.
(T/D2, p.118.1-22)
c)However, on Musson’s version of events, he had already given an indicative rating of “Effective-Low” for Russo’s performance by 12 September 2011, before the implementation timeline was published and before Russo had reported to him about the delay that had been occasioned by the hiring freeze;
d)Hence, the rating was given before the timeline was published and weeks before the delay was known. These could not have been factors existing at the time the indicative rating was given; and
e)Musson accepted these propositions in his cross examination and this has been reproduced at [255(c)] above.
Musson was prepared to make the very serious allegation that Russo had misled him, but admitted that he had not looked at critical documents before making that very serious assertion. He stated:
Shariff: You see, Mr Musson, I want to be fair to you, but in your affidavit you make some very serious allegations against Mr Russo, for example, you alleged that he misled you about the implementation of this project, don’t you?
Musson: Yes.
Shariff: All right. That’s a pretty serious allegation to make against a senior employee with two decades of experience?
Musson: It is, yes.
Shariff: All right. And you haven’t even bothered to check your documents before you make such serious allegations. Is that what you’re telling his Honour?
Musson: I did check the documents. This – this attachment I didn’t see, no.
(T/D2, p.107.11-20)
It is difficult to see how this sworn testimony given under cross- examination conditions accords with the submission that the evidence establishes that Musson turned his mind to each matter when undertaking his assessment of Russo’s performance, and that this was a rational basis to hold Russo accountable for mistakes made on his watch for which he had overall responsibility.
Musson admitted that neither he nor Russo had any control over the recruitment freeze. He stated:
Shariff: What control did either you or Mr Russo have over a recruitment freeze that affected her department?
Musson: None.
(T/D2, p.107.34-35)
I agree with the submission made that the proposition that Russo could predict or control these circumstances is untenable. Specifically, Musson stated in cross-examination:
Shariff: All right. So, here you were, a large organisation, a big bank, restructuring a whole operation, putting it into a call centre, the employee reporting to you tells you that, “The current implementation plan will see us go live on 28 September”‑ ‑ ‑?
Musson: Yes.
Shariff: ‑ ‑ ‑ and he then comes to you and says, “Because the other partner in this project has a recruitment freeze, we need to extend the date,” he has misled you?
Musson: That’s – that’s correct.
(T/D2, p.108.31-37)
Despite this, Westpac submits that Russo did not identify the recruitment freeze as a “potential issue at an early stage”. This is expressed in its written submissions in the following form:
161. On the issue of additional staffing, Mr Musson never contended that Mr Russo had any power to control the decision not to engage in recruitment in the Call Centre. On the contrary, Mr Musson acknowledged this to be the case: T/D2 p 37-40. Mr Musson’s real concern was that Mr Russo had not identified this as a potential issue at an early stage so that appropriate steps could have been taken to avoid unnecessary and early redundancies. As Mr Musson put it, Mr Russo “was in a position many weeks before that [the recruitment freeze] to identify this issue and let me know before we had to make people redundant. That was my – that was my concern”: T/D2, p 107.42-44.
The question that then arises is how Russo was supposed to inform Musson about the delay in the project, when the timeline was not published until mid-September 2011 and Russo did not learn of the recruitment freeze until 27 September 2011.
Significantly, the entire issue of the Call Centre Project had nothing to do with Russo’s performance assessment for the purposes of his bonus entitlements. This was because this project was not attributable to any category within the scorecard by which Russo’s performance was to be assessed. When questioned about this Musson admitted that there were no specific criteria against which the Call Centre Project could have been measured in respect to the scorecard that had been established for Russo’s performance. Specifically, Musson stated:
Shariff: Which category of the score card did this issue concerning the call centre project go to, out of the seven? Which specific one, sir?
Musson: It – there’s no specific project orientated assessment.
(T/D2, p.109.33-35)
Musson accepted that by taking into account the alleged misleading conduct on the part of Russo, he had not measured Russo’s performance by reference to the published scorecard. Specifically, Musson stated:
Shariff: Correct. So, you didn’t measure his performance by a reference to the published score card, did you?
Musson: That’s – that's correct.
(T/D2, p.109.37-38)
As raised earlier in this decision, Westpac’s Defence has been advanced on the basis of a detailed set of documents governing the administration of the incentive plan adopted by it. The arguments in support of this Defence have been set out in detail in the earlier part of this judgment. However, the evidence clearly demonstrates a divergence from that claimed adoption and adherence.
A further example of the alleged failings of Russo to adequately perform his role was raised in respect of his hand over to Mr Kallos, who had successfully applied for the new position of Senior Manager Channel Development. Westpac, in its written closing submissions makes the assertion that:
164. Contrary to Mr Russo’s submission, the evidence reveals that the handover took place in late September and into early October 2011...
However, there is no reference provided as to the evidence that supports this contention. To the contrary, Musson accepted that the issue with Mr Kallos occurred after 1 October 2011 (performance period ending 30 September) and this fell outside the performance period for the purposes of Russo’s bonus plan:
Shariff: And that behaviour was after October 2010 when he was, according to you, didn’t assist Mr Callos in the handover?
Musson: That's correct, yes.
Shariff: That’s the only issue you raise?
Musson: Yes, that's right.
Shariff: A matter that occurred after 1 October 2010?
Musson: I did, yes.
Shariff: Outside of the performance year?
Musson: That's correct.
Shariff: So you would accept that was impermissible for you to take into account a factor that fell outside the scope of the published policy that you were applying, correct?
Musson: No, incorrect. I – I believed it was appropriate to take it into account.
Shariff: I asked you a very specific question much earlier today about ‑ ‑ ‑?
Musson: The range, yes.
Shariff: ‑ ‑ ‑ the performance year?
Musson: Yes.
Shariff: And I put it to you ‑ ‑ ‑?
Musson: Yes.
Shariff: ‑ ‑ ‑ very clearly ‑ ‑ ‑?
Musson: Yes.
Shariff: ‑ ‑ ‑ that it would be impermissible to take into account something that fell outside the financial year and you agreed with me?
Musson: Sure. Yes.
Shariff: The Mr [Kallos] issue that you thought fell outside the performance year, didn’t it?
Musson: Yes, it did.
Shariff: Therefore, in accordance with the terms of the policy, the GIPA plan, it was impermissible for you to take that into account, wasn’t it?
Musson: Sure. But – yes, that's correct.
Shariff: You accept that?
Musson: Yes.
(T/D2, p.112.20-46)
The thrust of Westpac’s defence irrespective of the evidence given, all goes to the implication of the terms of the Employment Contract, signed by Russo on 21 May 2009. Emphasis is placed on the wording of the “Package Remuneration” which states:
The eligibility to be considered for the payment of any invariable award or incentive payment is at the absolute discretion of Westpac.
Under the subheading “Policies” it states:
However, these policies do not form part of your contract of employment. Westpac may vary, amend or replace its policies from time to time.
Although not stated in the list of “Policies”, Westpac claims that the redundancy falls within the category of policies considered in this contract and makes it clear that the Redundancy Policy has a non-contractual option:
If your employment with Westpac is terminated on the basis of a Redundancy, your entitlements will be determined in accordance with the more favourable to you of any applicable industrial instrument or a relevant Westpac policy or procedure in accordance with the terms and conditions of that industrial instrument or policy or procedure.
Westpac acknowledges that there is an Enterprise Agreement that applies, being:
The Westpac Group Enterprise Agreement 2010.
That relevant Enterprise Agreement applies to all employees other than the Chief Executive Officer. The application of the Enterprise Agreement talks about entitlements, including redundancy. It makes reference to severance pay and the payment in lieu of notice payable to an employee. A short term incentive bonus is to be paid on a pro rata basis within the discretion of Westpac.
Also in the Employment Contract, under the subheading “Legal” (ACB, p.54) is an entire agreement clause. Westpac relies upon the clause in relation to the operation of implied terms which is in the following form:
The Industrial Instruments (or successors) may also apply to your employment but do form part of this Agreement. The terms and conditions of your employment with Westpac are set out in this Agreement constitute an entire agreement between you and Westpac. You acknowledge and agree that this Agreement supersedes and replaces all prior oral and written representations, warranties and agreements by Westpac or any third party concerning your employment with Westpac. Any notice or other communication in connection with this Agreement must be in writing and delivered to the other party either in person or electronically (e.g. fax or email). You must deliver all such documents to your direct line manager or to the duly authorised representative of Westpac.
In the GIPA Participant’s Guide (ACB, pp.62-71), under the subheading “(k) GIPA Plan ownership and operation” (ACB, p.69), it states:
(k) GIPA Plan ownership and operation
…
The terms of this Plan are separate from and do not form a term of, or any part of, or create any obligations or rights pursuant to an individual’s contract of employment.
In the Scheme Rules, under the subheading “Purpose”, it states:
Each scheme has an individual participant guide that details the arrangement of a particular scheme. Particular guides must be read in conjunction with the Rules set out in this document.
In the Scheme Rules under the subheading “Retrenchment”, it states:
Where an employee is retrenched, they may be eligible for a pro-rata cash variable reward payment for a current performance period. This will be accordance with the Westpac Group policies as amended from time to time and is subject to the discretion of their manager and will require approval from both the manager who is two levels above the individual concerned and their general manager.
Westpac’s position was that Russo did not qualify under the GIPA Plan for the payment of incentive payment because his employment was terminated on the ground of redundancy (on 20 October 2011), prior to the payment date (1 December 2011). The eligibility to receive a payment, a variable payment, requires that the employee be employed at the payment date, which he was not. Westpac’s argument is that it is not the Scheme Rules which govern the entitlement or payment of any incentive. It arises under what is identified as a non-contractual policy under the contract of employment and also under the Redundancy Policy. Further it expressly states to be subject to the discretion of a manager. In the relevant document the phrase “absolute discretion” is the same set out in the Employment Contract. Westpac maintains that it is a clear and unambiguous term that the policy, which Russo relies upon as a source of the basis for any pro rata entitlement to a variable payment, is non-contractual in nature.
However, if I turn to the Musson Affidavit at [110] (RCB, p.18) it states:
As Mr Russo was part of the redeployment program, the end of the year review I conduct was treated informally. I used this review as a basis to which to determine Mr Russo’s eligibility to receive an ex gratia payment under the Redundancy Policy, copy of this policy is annexed to this affidavit and marked “DM-19”.
In that exhibit under the subheading, “Entitlements” (RCB, p.125) it states:
If I am retrenched, am I entitled to other payments and benefits that usually apply on leaving Westpac?
Yes. You’re entitled to the payments and benefits that also apply when people resign from Westpac.
Notice
If we decide to retrench you, we will give you 6 weeks’ notice or a payment instead of that notice.
If you decide to leave during the notice period (i.e. before your retrenchment date), we won’t pay you any of the time of the notice period that you don’t work. But you will still receive your other retrenchment entitlements.
Westpac’s position is that nothing in the policy can give rise to an entitlement as a matter of construction, because every other part of the contract excludes it. Despite this claim, the argument being advanced on behalf of Russo is that the contract and the suite of employment documents must be read as a whole.
The argument advanced on behalf of Russo is that the Redundancy Policy gave rise to those entitlements and there is evidence in the form of admissions made by Musson under oath that the Redundancy Policy was not properly applied.
Also pleaded in this matter are two implied terms, one of good faith and the other derived from the decision in Silverbrook. As indicated elsewhere in this decision, the issue of implied terms of mutual trust and confidence addressed by the High Court in Barker HCA have been removed from this decision and no further reference needs to be made in respect of those pleadings. In Barker HCA there is reference to the criterion of necessity at [29]:
29. In Byrne v Australian Airlines Ltd, McHugh and Gummow JJ emphasised that the “necessity” which will support an implied term in law is demonstrated where, absent the implication, "the enjoyment of the rights conferred by the contract would or could be rendered nugatory, worthless, or, perhaps, be seriously undermined” or the contract would be “deprived of its substance, seriously undermined or drastically devalued”. The criterion of “necessity” in this context has been described as “elusive” and the suggestion made that “there is much to be said for abandoning” the concept. Necessity does, however, remind courts that implications in law must be kept within the limits of the judicial function. They are a species of judicial law-making and are not to be made lightly. It is a necessary condition that they are justifiedfunctionally by reference to the effective performance of the class of contract to which they apply, or of contracts generally in cases of universal implications, such as the duty to cooperate. Implications which might be thought reasonable are not, on that account only, necessary. The same constraints apply whether or not such implications are characterised as rules of construction.
(Footnotes omitted)
The argument advanced on behalf of Russo is that the implied term of good faith and the term of exercise in discretion is not capriciously, arbitrarily or unreasonably used in the context of this case to give effect to the benefit of the contract provided. If those terms are not implied, the contractual benefit is rendered negatory because of the strict construction advanced by Westpac, and Russo would have no entitlement at all.
Both parties referred the Court to Barker HCA at [42], where the High Court stated:
42. The above conclusion should not be taken as reflecting upon the question whether there is a general obligation to act in good faith in the performance of contracts. Nor does it reflect upon the related question whether contractual powers and discretions may be limited by good faith and rationality requirements analogous to those applicable in the sphere of public law. Those questions were not before the Court in this appeal.
(Footnote omitted)
Both parties have addressed the Court in respect of the decision in Silverbrook (see [74]-[76] and [102]-[105] above) and there is no suggestion that the decision in Barker HCA has overruled in any way that Court of Appeal’s decision. This means that Silverbrook remains good law because the decision of the immediate Court of Appeal remains binding on this Court. Westpac has sought to distinguish Silverbrook on the basis that the principles in that case are essentially principles of construction, how to construe a right or and implication. It really does not matter whether it is a process of construction or process of implication as it has the same result. In Silverbrook, the relevant bonus entitlement that their Honours were dealing with was a bonus entitlement which was to be given at the sole discretion of the employer. The wording is not dissimilar to that in the matter before this Court. In the current proceeding the words are “absolute discretion” where in Silverbrook they were “sole discretion”. Either way in the Court of Appeal, their Honours said that such discretion would not be exercised capriciously, arbitrarily or unreasonably. Importantly in Barker HCA at [42] the High Court indicated that the issue of discretion was not an issue therein.
This is a case where we are dealing with a claim for a moderate amount. Russo carried out his duties for a period in excess of ten months of the twelve month period of the relevant Financial Year. His employment was terminated on the ground of redundancy and Westpac has sought to apply those policies in order to determine his rights. The evidence before this Court demonstrates that those rights were not exercised properly in accordance with those policies, primarily through the acts of Musson carrying out relevant duties on behalf of Westpac. These acts have been addressed in detail above. The contractual matrix provided that Russo’s entitlements would be determined in accordance with those policies and I am satisfied that this did not occur. Russo should receive a sum equal to the incentive payment paid the previous year and Westpac should be ordered to pay Russo’s costs of these proceedings. Further, in lieu of ordering that interest be paid, I have decided to award Russo the full amount of any ex gratia payment he would have received (on the basis approximately three and a half years have passed since such a payment would have been made) instead of a bonus, noting that there is strong evidence before the Court that Russo would have received a payment, but not strong enough for it to be satisfied such a payment should have been made in the full amount.
I certify that the preceding two hundred and eighty-one (281) paragraphs are a true copy of the reasons for judgment of Judge Lloyd-Jones
Associate:
Date: 12 May 2015
- AGLC
- Russo v Westpac Banking Corporation [2015] FCCA 1086
- Case
- [2015] FCCA 1086
- Decision Date
CaseChat Overview and Summary
The court was required to determine whether the respondent had breached the applicant's contract of employment by failing to pay the bonus. This involved considering whether the various documents governing the employment relationship, including incentive plans and redundancy policies, formed part of the contract and whether the respondent's discretion to withhold the bonus had been exercised in a manner that was capricious, arbitrary, or unreasonable. A further issue was whether the respondent had engaged in misleading or deceptive conduct in contravention of the Australian Consumer Law. The court also had to consider the impact of the High Court's decision in *Commonwealth Bank of Australia v Barker* on the availability of implied terms of mutual trust and confidence in employment contracts.
The court found that while the respondent's employee, Daniel Musson, had admitted to breaching applicable policies and that his discretion had miscarried, leading to a likely higher bonus entitlement for the applicant, the applicant's claim for breach of contract failed. This was because the relevant incentive payment scheme was expressly stated to be non-contractual and subject to the absolute discretion of Westpac. The court noted that the applicant's employment had been terminated due to redundancy before the payment date, rendering him ineligible under the primary incentive plan. While the redundancy policy allowed for consideration of an ex gratia payment, this was also discretionary and subject to the manager's decision. The court concluded that the applicant had not established a contractual entitlement to the bonus. However, the court ordered the respondent to pay the applicant $70,000, representing the amount of his bonus from the previous financial year, on the basis that the respondent had failed to properly exercise its discretion under the Redundancy Policy.
The court ordered that the respondent pay the applicant the sum of AUD$70,000 within 28 days, and the respondent pay the applicant's costs and disbursements. The application was otherwise dismissed.
Orders
Orders of the court
1.
The Respondent pay the Applicant the sum of AUD$70,000 within 28 days of today’s date.
2.
The Respondent pay the Applicant’s costs and disbursements of and incidental to the Application as agreed or taxed.
3.
The Application be otherwise dismissed.
FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY
SYG 799 of 2012
GIULIO RUSSO
Applicant
And
WESTPAC BANKING CORPORATION ACN 007 457 141
Respondent
REASONS FOR JUDGMENT
Introduction
1.
On 12 April 2012 the applicant, Giulio Russo (“Russo”), filed an application in this Court against the respondent, Westpac Banking Corporation ACN 007 457 141 (“Westpac”), seeking relief under the Competition and Consumer Act 2010 (Cth) (the “ACL”). The proceedings involve a claim made by Russo in respect of an unpaid bonus entitlement for the Westpac financial year, between 1 October 2010 and 30 September 2011 (“FY 2010/2011”). Russo’s claims are based on a contractual claim for breach of contract and a claim under the ACL. In short, Russo contends that Westpac breached certain express and implied contractual terms in relation to the payment of his bonus for FY 2010/2011 and/or engaged in misleading or deceptive conduct in relation to his bonus entitlements.
2.
Westpac, in opening submissions, states that the central question in these proceedings is whether a decision made by Westpac not to exercise its discretion to make an ex gratia incentive payment to a retrenched former employee, Russo, under a non-contractual policy breached Russo’s contract of employment. Russo disputes that characterisation on the basis that the short term incentive payment is one based on contract. Westpac in support of its position relies on a matrix of documents that cover the numerous aspects of its employment relationship with Russo and has defended the proceedings on a rigorous interpretation of, and reliance on, those documents. The strict interpretation of the matrix of documents is advanced as being technically correct, however, they appear to operate in a vacuum with key staff members not comprehending the content and operation of that matrix of documents.
3.
For reasons outlined below, it can be seen that there has been a clear disconnection between Westpac’s employment policies and the actions of its employees in carrying out these functions. This is most apparent in the actions of Daniel Musson (“Musson”), who was Russo’s one-up manager during the period relevant to these proceedings.
4.
Ms Kathryn Salter (“Salter”), the other key Westpac witness was, at the time of the hearing, head of Human Resources at BT Financial Group Private Wealth (“BT”) (a wholly owned subsidiary of Westpac). She stated that she had held various human resource roles for a number of years and claimed to have a fair degree of familiarity with the human resource roles within the banking and finance industry. Under cross-examination Salter demonstrated a detailed knowledge of the contents and relationship of all the documents forming part of the matrix. However, despite this structure of interrelated documents it became apparent that members of the organisation did not adhere to the requirements of the highly structured contents of the matrix. Notwithstanding, Westpac advances its case on the basis of strict adherence to the precise wording of the document tendered in a void from the actual events.
5.
The hearing did not fully occupy two days but the parties filled in excess of 180 pages of written submissions together with a further set of submissions addressing a High Court decision that affected the law and its interpretation concerning implied terms of mutual trust and confidence. I have substantially relied on these respective submissions to cover the arguments presented which are not readily summarised.
6.
The claim advanced by Russo is that Westpac breached the express contractual terms by failing to pay Russo a bonus for FY 2010/2011. Westpac claims that Musson’s exercise of discretion in concluding that no incentive payment should be paid to Russo was reasonably open to him on all the evidence. Musson admitted that he had breached the applicable policies and that his discretion has miscarried in the sense considered in Silverbrook Research Pty Ltd v Lindley [2010] NSWCA 357 (“Silverbrook”). He admitted that if he had properly complied with his obligations, Russo would have received a higher rating and in all likelihood would have been paid a bonus. Westpac argues that Russo is inviting the Court to create a contractual liability in relation to matters which the parties had expressly agreed would be in the “absolute” or “complete” discretion of Westpac, and under documents expressly stated not to have any contractual force. Westpac maintains that it did not act dishonestly or improperly in deciding not to exercise its discretion not to make an ex gratia incentive payment to Russo, and that it made a business judgment open to it based on evaluating the available information.
7.
The Statement of Claim was filed on 12 April 2012, pleading the following grounds:
1. At all material time the respondent was a company duly incorporated and able to sue and be sued in and by its corporate name and style.
2. At all material times the respondent was a corporation for the purposes of the Competition and Consumer Act 2010 (Cth) (‘the Act’).
3. At all material times, Mark Smith (‘Smith’) and Daniel Musson (‘Musson’) were authorised servants or agents of the respondent.
A. Contractual Terms and Representations
4. On or about 15 May 2009 the applicant and respondent entered into an agreement whereby the applicant was employed by the respondent as Senior Manager, Sales (‘the Employment Contract’).
5. The terms of the Employment Contract were:
(a) partly in writing constituted by:
(i) A document called “Employment Agreement” and a letter dated 15 May 2009 (‘the Engagement Letter’);
(ii) Correspondence between the respondent and the applicant in or about November of each year of his employment in relations to the applicant’s remuneration;
(iii) Letter from BT Financial Group to the applicant dated 27 May 2009;
(iv) A document called BT Financial Group Incentive Plan 1 (‘the GIPA Rules’);
(v) A document called Performance and Remuneration Review 2011 People Leader Guide (‘the People Leader Guide’);
(vi) The redundancy policy of the respondent (‘the Redundancy Policy’);
(b) partly oral and constituted by conversations between the applicant and Musson in or around May and October/November each year (‘the Review Conversations’); and
(c) partly implied as a matter of law, by virtue of the relationship of master and servant existing between the applicant and the respondent.
6. It was an express term of the Employment Contract that the applicant’s remuneration as Senior Manager, Sales would consist of:
(a) A fixed salary; and
(b) an annual bonus.
Particulars
The term is in writing and/or oral. It is evidenced by:
(i) the Engagement Letter; and/or
(ii) the GIPA Rules; and/or
(iii) the People Leader Guide; and/or
(iv) the Redundancy Policy; and/or
(v) the Review Conversations.
7. Further, there were express term of the Employment Contract that the applicant would be paid an annual bonus in accordance with the GIPA Rules, the Redundancy Policy and the people Leader Guide.
Particulars
The terms were in writing and recorded in the Engagement Letter, the People Leader Guide, the Redundancy Policy and the GIPA.
8. Further, there were express terms of the People Leader Guide and the GIPA Rules that:
(a) The applicant would have an individual performance agreement in place at the beginning of the financial year of the respondent;
(b) At the beginning of each financial year the applicant would formulate with Musson a score card specifying individual performance objectives and target performance levels consistent with business and term goals (‘the Agreed Scorecard’);
(c) The Agreed Scorecard was to be managed in the respondent’s intranet People Express System (‘People Express” by Musson (or other superior to the applicant);
(d) The applicant would have access to Musson’s comments on the applicant’s performance in respect of (a) and (b) at all time on People Express;
(e) At the end of the financial year, the applicant’s performance would be assessed against his Agreed Scorecard;
(f) Musson would document performance appraisals of the applicant at mid-year and at the end of the full financial (‘Musson Appraisals’);
(g) The Musson Appraisals would be recorded in People Express as the agreed means of communicating to the applicant his performance against his Agreed Scorecard;
(h) In determining the amount of annual bonus payable to the applicant, the respondent would take into account various factors including the performance of the respondent, the performance of the BT Financial Group and the performance of the applicant against the Agreed Scorecard from the Musson Appraisals;
(i) If the applicant’s performance against his Agreed Scorecard was such that the applicant’s entitlements to the annual bonus was at risk, the respondent and/or Musson would provide the applicant reasonable assistance by way of coaching, guidance, training to enable the applicant to be paid his annual bonus; and
(j) If the applicant was retrenched the respondent would pay him the Annual Incentive.
Particulars
The terms were in writing and recorded in the Engagement Letter, the People Leader Guide, the Redundancy Policy and the GIPA.
9. Further, it was an express term of the Employment Contract that the applicant could utilise the respondent’s grievance procedure in relation to his assessment against the Agreed Scorecard and entitlement to the annual bonus.
Particulars
The term was in writing and recorded in the GIPA Rules published from year to year by the respondent.
10. It was an implied term of the Employment Contract that:
(a) the parties would treat each other with mutual trust and confidence and not in a manner such as to destroy the relationship between them;
(b) the respondent would act in good faith towards the applicant;
(c) the respondent would not exercise any discretion conferred upon it (including under the GIPA Rules) capriciously, arbitrarily or unreasonable;
(d) the respondent would not withhold the payment of the annual bonus to the applicant capriciously, arbitrarily or unreasonable; and/or
(e) the respondent would exercise any discretion conferred upon it honestly and conformably with the purposes of the contract of employment;
(f) the respondent would comply with its policies relating to employment published from time to time including the GIAT; and/or
(g) the respondent would, in the event that it sought to make a payment to the applicant in lieu of notice or by way of severance, calculate and pay the amount payable to the applicant on the basis of his total remuneration (including Annual Bonus).
B. Performance of the Contractual Terms
11. At all material times the applicant performed the functions and duties of his position as Senior Manager, Sales of the respondent.
12. On or about May 2011, Musson and the applicant participated in the applicant’s mid-year review.
13. From 1 October 2010 the applicant met the performance targets of the Agreed Scorecard for the respondent’s financial year 2010/2011.
14. On or about 22 September 2011, the respondent gave notice to the applicant that his role has been made redundant.
Particulars
Letter dated 22 September 2011 from the respondent to the applicant.
15. On or about 20 October 2011 the applicant’s employment was terminated by the respondent.
Particulars
Letter dated 20 October 2011 from the respondent to the applicant.
16. The respondent did not pay to the applicant his Annual Bonus.
C. Breaches of the Contractual Terms
17. In breach of the terms of the Employment Contract pleaded in paragraphs 6 and 7, the respondent failed to pay the applicant his entitlement to annual bonus for 2010/2011.
18. Further and in the alternative, between May 2011 and 22 September 2011, or alternatively between May 2011 and 20 October 2011, in breach of the terms of the Employment Contract pleased in paragraph 8, neither Musson nor any person on behalf of the respondent:
(a) documented the mid-year performance appraisal;
(b) recorded or completed the mid-year performance appraisal on People Express so as to inform the applicant in writing of any criteria that may disentitle him to the annual bonus;
(c) recorded or completed the mid-year performance appraisal on any other documentary system of the respondent so as to inform the applicant in writing of any criteria that may disentitle him to the annual bonus;
(d) communicated the mid-year performance appraisal to the applicant; or
(e) provided the applicant with reasonable assistance by way of coaching, guidance, training to enable the applicant to qualify to be paid his annual bonus.
19. Further and in the alternative, in breach of the term of the Employment Contract pleaded in paragraph 8, the respondent and Musson:
(a) failed to complete the applicant’s mid-year review on People Express so as to inform the applicant in writing of any criteria that may disentitle him to the annual bonus.
(b) failed to manage the Agreed Scorecard on People Express; and
(c) failed to inform the applicant that his performance on the Agreed Scorecard was such that his annual bonus was at risk; and
(d) failed to put in place any action including coaching, guidance, training or assistance to enable the applicant to qualify to be paid his annual bonus.
20. Further, in breach of the term pleaded at paragraph 9, the respondent did not complete the Agreed Scorecard prior to October 2011 so as to enable the applicant to raise a grievance with the respondent on its decision not to pay the applicant annual bonus for 2010/2011.
21. Further, in the premises pleaded at paragraphs 11 to 20, the respondent breached the terms of the Employment Contract pleaded at paragraph 10.
22. By reason of the breaches pleaded at paragraphs 17 to 21 the applicant has suffered loss and damage.
D. Competition and Consumer Law Claims
23. The respondent through its officers Smith and Musson represented to the applicant that:
(a) The applicant would have an individual performance agreement in place at the beginning of the financial year of the respondent;
(b) At the beginning of each financial year the applicant would formulate with Musson a score card specifying individual performance objectives and target performance levels consistent with business and terms goals (“the Agreed Scorecard”);
(c) The Agreed Scorecard was to be managed in People Express by Musson;
(d) The applicant would have access to Musson’s comments in the applicant’s performance in respect of (a) and (b) at all times on the People Express;
(e) At the end of the performance year, the applicant’s performance would be assessed against his Agreed Scorecard;
(f) Musson would document performance appraisals in writing which would be accessible at all times to the applicant at mid-year and at the end of the full year (‘the Musson Appraisals’);
(g) The Musson Appraisals would be recorded in the People Express System as the agreed means of communicating to the applicant his performance against his Agreed Scorecard;
(h) In determining the amount of the annual bonus payable to the applicant, the respondent would take into account various factors including the performance of the respondent, the performance of the BT financial Group and the performance of the applicant against the Agreed Scorecard from the Musson Appraisals; and
(i) If the applicant’s performance against his Agreed Scorecard was such that the applicant’s entitlement to the annual bonus was at risk, the respondent and/or Musson would provide the applicant reasonable assistance by way of coaching, guidance, training to enable the applicant to be paid his annual bonus.
24. The representations pleaded in paragraph 23 were made by the respondent and/or Smith and Musson in trade or commerce.
25. Further and in the alternative, the representations pleaded in paragraph 23 were made by the respondent in relation to employment that was to be offered by the respondent to the applicant within the meaning of section 31 of Schedule 2 of the Act (the Australian Consumer Law).
26. The representations pleaded at paragraph 23 were representations as to future matters, within the meaning of section 4 of the Australia Consumer Law and unless the respondent proves that it had reasonable grounds for those representatives, they were misleading by reason of the operation of section 4 of the Australian Consumer Law.
27. In reliance on the representations pleaded in paragraph 23 the applicant commenced and subsequently remained in employment of the respondent pursuant to the Employment Contract rather than seek employment elsewhere.
28. In reliance on the representations pleaded in paragraph 23 the applicant took no steps, or alternatively lost the opportunity to take steps, to remedy his performance so as to enable him to meet the requirement of the Agreed Scorecard.
29. In the circumstances of the termination of the Employment Contract and the failure of the respondent to pay the applicant his annual bonus for 2010/2011 the representations pleaded in paragraph 23 were:
(a) Misleading and deceptive;
(b) Liable to mislead persons seeking employment as to the availability, nature and terms and conditions of the employment; and/or
(c) Unconscionable within the meaning of the unwritten law,
in contravention of section 18 and/or section 31 of the Australian Consumer Law, and/or section 46 of the Fair Trading Act 1987 (NSW), and the applicant has suffered and continues to suffer loss and damage by reason thereof.
30. The Applicant claims orders for compensation and other relief from this Honourable Court pursuant to sections 236, 237 or 238 of the Australian Consumer Law and section 74 of the Fair Trading Act 1987.
E. Relief Claimed
3. The applicant claims:
(a) Damages for breach of the Employment Contract;
(b) Damages for breach of the Act;
(c) Interest at 8.5% per annum from 31 October 2011 to judgement and thereafter pursuant to the Federal Court of Australia Act, 1976 and Order 35 Rule 8 of the Federal Court Rules;
(d) Costs; and
(e) Interest on costs.
Procedural Background
8.
This matter was first allocated to the docket of Smith FM with the first court date directions hearing set down for 11 May 2012. His Honour set out a procedural timetable and referred the matter for mediation. The mediation conference occurred on 19 June 2012 before a registrar of the Court, however, the matter was not resolved. The matter was relisted before Smith FM on 16 November 2012 where he made the following orders:
1. The hearing listed for 29 November 2012 is vacated.
2. The applicant must file and serve all evidence in reply no later than 23 November 2012.
3. The matter is listed for call-over before Lloyd-Jones FM on 4 December 2012 at 9.30am.
9.
With Smith FM’s impending retirement, the matter was transferred to my docket and listed for call-over on 4 December 2012. The matter was listed for hearing and the following procedural orders were made:
1. The matter be listed for final hearing for two and a half days on 23 April 2013, 24 April 2013 and 26 April 2013.
2. Each party must, before 4:00pm on 16 April 2013, file a folder (or folders), fully indexed, paginated and labelled, containing a Judge’s copy of all the documents filed or intended to be filed or tendered by that party, to which reference may be made during the trial.
3. Each party must, before 4:00pm on 16 April 2013, file and serve of the deponents of the other party’s affidavits which are required for cross-examination, an estimate of the time required for such cross-examination and any re-examination.
4. Each party must, before 4:00pm on 19 April 2013, file and serve a list identifying each part of the other party’s affidavits to which objection is taken, and the basis for the objection.
5. Each party must, before 4:00pm on 19 April 2013, file and serve a summary list, no longer than 2 pages of the significant factual and legal issues which it perceived to be in, and a similar list of the significant factual and legal issues which it perceives not to be in dispute.
6. Each party must, before 4:00pm on 19 April 2013, file and serve their list of authorities, including references to relevant paragraphs or pages of any cited judgments, and to relevant sections of any cited legislation.
7. The Applicant must, before 4:00pm on 12 April 2013, provide a written outline of submissions intended to be relied upon in the course of the hearing to the Associate and to the Respondent.
8. The Respondent must, before 4:00pm on 19 April 2013, provide a written outline of submissions intended to be relied upon in the course of the hearing to the Associate and to the Applicant.
9. The parties must file before 4:00pm on 19 April 2013, an agreed timetable for the taking of evidence and submissions from both parties which will allow the matter to be heard within the two and a half days allocated for trial.
10.
The hearing was initially set down for three days, however, the parties agreed to forego the third day and file written submissions as closing argument, instead. The following orders were made:
1. The Applicant file and serve his written closing submissions on or before 31 May 2013.
2. The Respondent file and serve its closing submissions on or before 28 June 2013.
3. The Applicant file and serve any written submissions in reply by 12 July 2013.
4. There be liberty.
11.
In a letter to the Court from Gillis Delany Lawyers dated 9 August 2013 the applicant wanted the matter listed for further oral submissions. After some consideration I formed the view that it was unnecessary for the matter to be brought back before the Court, however, I agreed to allow the parties to file further written submissions and made the following orders:
1. The Applicant file and serve any further written outline of submissions on or before 13 September 2013.
2. The Respondent file and serve any further written outline of submissions in answer on or before 11 October 2013.
3. The Applicant file and serve any further written outline of submissions in reply on or before 25 October 2013.
4. Any further written outline of submissions to be no longer than 10 pages in length
Changes in the law and its interpretation
12.
In the parties’ supplementary submissions referred to at [11] above, the parties sought to address the recent and significant decisions that reflected the change in relevant law and its interpretation. Mr Seck addressed two cases, the first being Commonwealth Bank of Australia v Barker (2013) 214 FCR 450 (“Barker FCAFC”) and the second being Gramotnev v Queensland University of Technology [2013] QSC 158 (“Gramotnev”).
13.
Gramotnev is not a decision that reflects the change in the law or its interpretation as the decision simply reflects the application of the state of the law which is governed by principles laid down in Goldman Sachs JBWere Services Pty Ltd v Nikolich (2007) 163 FCR 62.
14.
In Barker FCAFC the implied term of mutual trust and confidence was relatively breached because the majority of the Full Court found that the implied term required the Commonwealth Bank to take positive steps to consult with Mr Barker about alternative positions following the retrenchment of his position, and to give him the opportunity to apply for those positions: Barker FCAFC at [131]. The majority took a different view to the trial judge in relation to the question as to whether the breach of non-contractual policy could give rise to a breach of the implied terms of mutual trust and confidence: Barker FCAFC at [113]-[114]. It was argued on behalf of Russo, at the original hearing, that the implied term of mutual trust and confidence must be seen within the context of the other contractual terms agreed between the parties, as with the case in Barker FCAFC. In Barker FCAFC, for example, the breach of implied term of mutual trust and confidence was viewed within the context of clause 8 of the contract with Mr Barker which provided that where his position became redundant, and the bank was unable to place him in an alternative position, he was to receive redundancy payments calculated in a particular manner: Barker FCAFC at [27]-[28]. It was within this particular contractual context that the majority reasoned that the implied term of mutual trust and confidence required the bank to take positive steps to inform Mr Barker of redeployment opportunities and consult with him.
15.
In Barker FCAFC, the implied term takes this context from the specific contractual terms. In the current proceeding, by reason of the express terms and the implied terms of mutual trust and confidence, Westpac was required to comply with the policies to determine Russo’s retrenchment entitlements, and to apply them fairly, honestly, reasonably, not capriciously, and not in a manner that would destroy the relationship of trust and confidence. Alternatively, as was the case in Barker FCAFC, Westpac has an implied duty to cooperate with Russo to ensure that he received the right or benefit of a proper exercise of that discretion and in conferral of a pro rata bonus: Barker FCAFC at [118]-[128].
16.
After the filing of supplementary submissions addressing the changes in the law and its interpretation, the Court was advised that, in respect of the decision in Barker FCAFC, special leave was being sought in the High Court. This Court was requested to defer the handing down of its decision until the application and possible appeal were resolved in the High Court.
17.
On 10 September 2014 the decision in Commonwealth Bank of Australia v Barker (2014) 312 ALR 356 (“Barker HCA”) was delivered, which unanimously allowed an appeal from the decision of the Full Federal Court of Australia and held that the term of mutual trust and confidence should not be implied by law in employment contracts.
18.
The High Court provided a case summary [2014] HCASum 29 o Barker HCA in the following terms:
Stephen Barker’s employment with the Commonwealth Bank of Australia (“the Bank”) was terminated by reason of redundancy on 9 April 2009. On 2 March 2009, Mr Barker was told that his position was to be made redundant and that if he was not redeployed within the Bank, which was the Bank’s preference, his employment would be terminated approximately four weeks thereafter. Having been deprived of access to his Bank email account and voicemail, Mr Barker was not informed about an alternative position within the Bank until 26 March 2009. He was not contacted by the recruitment consultant involved in facilitating the recruitment process for that position, nor was the possibility of retraining for that role discussed with him.
Mr Barker commenced proceedings against the Bank in the Federal Court of Australia. He alleged that the conduct of the Bank was in breach of an implied term of mutual trust and confidence and resulted in him being denied the opportunity of redeployment. The primary judge held that there was a term of mutual trust and confidence implied in the agreement between Mr Barker and the Bank and that the Bank’s serious breach of its own redeployment policy amounted to a breach of that implied term. The Full Court, by majority, agreed that a term of mutual trust and confidence was implied by law into the agreement, but held that the primary judge erred in treating the term as co-extensive with an obligation to observe the redeployment policy. The majority held that the implied term required that the Bank take positive steps to consult with Mr Barker about alternative positions within the Bank and give him the opportunity to apply for them. By failing to make contact with him for a period which the primary judge had found to be unreasonable, the term had been breached.
By grant of special leave, the Bank appealed to the High Court. The question in the appeal was whether employment contracts contain a term of mutual trust and confidence implied by law that the parties will not, without reasonable cause, conduct themselves in a manner likely to destroy or seriously damage the relationship of trust and confidence between them. Allowing the appeal, the Court held that the proposed term was not necessary in the sense that would justify implying it by law into all employment contracts.
19.
The parties requested that the matter be listed for approximately one hour for oral submissions on the effect of Barker HCA. A mutually convenient time for the submissions was listed on 28 November 2014.
20.
For the purposes of these proceedings, Barker HCA addresses two key issues:
a) The proper approach for the recognition of the novel implied term in law; and
b) The existence of an implied term of mutual trust and confidence.
The High Court unanimously found that, under the common law of Australia, the class of contracts of employment did not contain an implied term of mutual trust and confidence.
21.
In Barker HCA, their Honours French CJ, Bell and Keane JJ rejected the existence of the implied term on the basis that the implication did not meet the criteria of “necessity” for the recognition of novel implied terms in law. At [29] therein their Honours stated:
29. In Byrne v Australian Airlines Ltd, McHugh and Gummow JJ emphasised that the “necessity” which will support an implied term in law is demonstrated where, absent the implication, "the enjoyment of the rights conferred by the contract would or could be rendered nugatory, worthless, or, perhaps, be seriously undermined” or the contract would be “deprived of its substance, seriously undermined or drastically devalued”. The criterion of “necessity" in this context has been described as “elusive” and the suggestion made that “there is much to be said for abandoning” the concept. Necessity does, however, remind courts that implications in law must be kept within the limits of the judicial function. They are a species of judicial law-making and are not to be made lightly. It is a necessary condition that they are justified functionally by reference to the effective performance of the class of contract to which they apply, or of contracts generally in cases of universal implications, such as the duty to cooperate. Implications which might be thought reasonable are not, on that account only, necessary. The same constraints apply whether or not such implications are characterised as rules of construction.
(Emphasis added) (Footnotes omitted)
22.
Then at [40] of Barker HCA French CJ, Bell and Keane JJ stated:
40. The complex policy considerations encompassed by those views of the implication mark it, in the Australian context, as a matter more appropriate for the legislature than for the courts to determine. It may, of course, be open to legislatures to enshrine the implied term in statutory form and leave it to the courts, according to the processes of the common law, to construe and apply it. It is a different thing for the courts to assume that responsibility for themselves. The mutual aspect of the obligation cannot be put to one side by characterising its operation with respect to employees as merely a restatement of the existing duty of fidelity. It is more broadly worded than that obligation. As Jessup J observed in his dissenting judgment in the Full Court, the proposed implied duty of mutual trust and confidence might apply to conduct by employees which was neither intentional nor negligent and did not breach their implied duty of fidelity, but objectively caused serious disruption to the conduct of their employer's business.
(Emphasis added) (Footnote omitted)
23.
Then at [41] their Honours continued:
41. Importantly, the implied duty of trust and confidence as propounded in Malik is directed, in broad terms, to the relationship between employer and employee rather than to performance of the contract. It depends upon a view of social conditions and desirable social policy that informs a transformative approach to the contract of employment in law. It should not be accepted as applicable, by the judicial branch of government, to employment contracts in Australia.
(Emphasis added)
24.
The plurality in Barker HCA also usefully noted that the implications of terms in fact involving an exercise in construction, not an examination of what it would have been reasonable for the parties to agree upon (at [22]; [25]).
25.
Kiefel J found in Barker HCA that “more generally contracts of employment do not require such an implied term for their effective operation”. Her Honour also found that, in specific cases, a contract of employment did not require “for its efficiency” the implication of the term of mutual trust and confidence because it was inconsistent with other express terms contained in the applicant’s contract of employment (at [109]).
26.
Gageler J also rejected the existence of the implied term of mutual trust and confidence. Like the plurality, he adopted the test of “necessity” in that “the requisite enquiry is informed by a consideration of what is needed for the effective working of contracts of that class”, including considerations of “justice and policy”, which must be “compelling” in the nature of the warrant and the implications (at [114]). His Honour found that, in the particular Australian statutory context, the implication of the term was not warranted (at [116]) because it created uncertainty in its terms and content (at [117]) and would impose a “common law policy choice” in an area of contentious legislative activity (at [118]). In rejecting the implied term, his Honour noted the inherent uncertainty of the actual obligations implied and adopted by the words of Jessup J in the Full Federal Court decision in observing that it had “the potential to act as a Trojan horse in the sense of revealing only after the event the specific prohibitions which it imports into the contract” (at [117]).
27.
The consequences of the Barker HCA are addressed in further detail below.
Evidence
28.
In support of the application, Russo filed and read the following evidence:
a) Affidavit of Giulio Russo, sworn 5 October 2012, filed 8 October 2012 (the “First Russo Affidavit”);
b) Affidavit of Giulio Russo, sworn 23 November 2012, filed 26 November 2012 (the “Second Russo Affidavit”); and
c) Applicant’s Court Book (“ACB”);
29.
Westpac filed and read the following evidence:
a) Affidavit of Daniel John Musson, sworn 26 October 2012, filed 31 October 2012 (the “Musson Affidavit”) ;
b) Affidavit of Kathryn Salter, sworn 30 October 2012, filed 31 October 2012 (the “Salter Affidavit”);
c) Affidavit of Simone Hart, sworn 30 October 2012, filed 31 October 2012;
d) Exhibit 1 – Westpac Group Variable Reward Scheme Rules Dated 15 September 2012;
e) Exhibit 2 – Remuneration Policy Dated 10 August 2011;
f) Exhibit 3 –“KS-1”;
g) Exhibit 4 – Clearer version of Exhibit “KS-1”;
h) Exhibit 5 – Email to Ms McGuiness Dated 14 April 2011;
i) Exhibit 6 – Email to and from Salter Dated 18 April 2011; and
j) Respondents Court Book (“RCB”).
Background
30.
I have adopted Russo’s submissions in outlining the background facts. Any discrepancy or disagreement by Westpac has been noted.
31.
On or about 15 May 2009, Mr Russo and Westpac entered into a contract of employment (the “Employment Contract”). The Employment Contract provided:
In addition to your fixed package, you may be invited, from time to time, to participate in a variable rewards scheme. The details of the variable rewards scheme will be provided to you at the time you are invited to participate in the scheme. The eligibility to be considered for and the payment of any variable reward or inceptive payment is at the absolute discretion of Westpac.
(Annexure “C”, First Russo Affidavit, p.48)
32.
In or about May 2009, Russo attended interviews with representatives of Westpac during which he was informed that his remuneration would consist of a fixed base component and eligibility to receive an incentive designed to provide competitive remuneration: First Russo Affidavit at [8].
The GIPA Plan
33.
On or about 27 May 2009, after commencing employment with Westpac, Russo received an invitation to participate in the General Investment Incentive Plan (the “GIPA Plan”). In that letter, Westpac stated:
At BT Financial Group we aim to provide market competitive remuneration that reflects your performance and the performance of the business. Through our incentive plans we ensure that there is a transparent link between your performance and how you are rewarded.
Part of the transparency of the plan is to provide you with an incentive target. Your actual incentive will be determined in accordance with the Guidelines for your Incentive Plan…
34.
The GIPA Plan Guidelines and Rules were enclosed with that letter, and provide as follows at clause 2:
BT Financial Group’s Incentive Plans provide transparency and alignment between individual employee performance, overall business outcomes and incentives.
The aims of the GIPA Plan are to:
· Align incentives to business and individual performance’
· Provide transparency in how incentives are determined;
· Positioning employee’s Total Reward relative to the market.
35.
Clause 3(a) of the GIPA Plan provided that employees were to be informed at the beginning of each performance cycle of their incentive target for the performance year. Clause 3(b) then outlined that incentive payments would be linked to performance, namely, the group’s performance, the business unit’s performance and the individual employee’s performance. In respect of individual employee performance, the GIPA Plan relevantly stated that:
At the beginning of the performance year, each employee formulates with their people leader who gives a score card specifying individual performance objectives and target performance levels consistent with business and team goals.
36.
The individual performance ratings for the purposes of the GIPA Plan were categorised as: outstanding, high achievement, effective, needs development and unsatisfactory. In addition to these performance ratings, the GIPA Plan also provided ratings for “values” as follows:
Employee performance will also be assess in the context of our values by receiving a rating of 3, 2 or 1. The behaviour rating will influence an individual employee’s incentive payout within the applicable payment range. No payment will be made for employees with a behaviour rating of 1.
37.
Clause 3(c) of the GIPA Plan provided that the “performance period” for the GIPA Plan occurred between 1 October and 30 September, in line with Westpac’s financial year. Clause 3(d) outlined the indicative payment ranges that would be made in respect of incentive payments for the various ratings. For example, a rating of “Effective” would lead to an incentive payment of between 80% and 110% of the incentive target.
38.
Clause 4(a) outlined eligibility to participate in the GIPA Plan and provided as follows:
The employee must meet all the following criteria:
· Have been employed in and engaged in active service in the BT Financial Group business for at least six months for the GIPA Plan performance period;
· Have an agreed score card established with their people leader;
· Be employed and have not have resigned as a permanent part time or full time employee of the Westpac Group on the incentive payment date;
· Have an incentive target under the GIPA Plan communicated to them in writing by their people leader;
The CEO, BTFG is the final arbiter of eligibility.
39.
Clause 4(c) provided that an employee must achieve at least an “Effective” rating for their performance for the full year to participate in the GIPA Plan. Clause 4(d) then dealt with how performance was to be assessed and provided as follows:
People leaders are responsible for aligning their employees score card objectives with the business strategy of BT Financial Group. The people leader is also responsible for managing employees against these objectives and assessing their performance. The performance review process in continuous, with formal documented performance appraisals completed every six months.
The full year appraisal is the performance and behaviour rating which is recorded in the People Express system and communicated to the employee during the full year appraisal session.
40.
Clause 4(k) of the GIPA Plan provided that “the CEO, BT Financial Group is the final arbiter of any decisions made in regard to the GIPA Plan”. Clause 4(l) of the GIPA Plan provided for a grievance resolution procedure as follows:
BT Financial Group seeks to provide a fair and efficient mechanism for dealing with any dispute relating to an employment matter. All employees may access the BT Financial Group Grievance Procedure to have any work related grievance dealt with. A work related grievance includes any behaviour, incident or circumstances an employee considers unacceptable.
41.
In each of his previous years of employment prior to FY 2010/2011, Russo received an incentive payment pursuant to the GIPA Plan. In FY 2009/2010 Russo’s incentive payment was AUD$70,000: First Russo Affidavit at [11].
The Bancassurance Division
42.
At the time Russo commenced employment as Senior Manager Sales, he reported to Mr Brendon Tobin, the head of General Insurance: First Russo Affidavit at [12].
43.
In or about July 2010, Westpac restructured its general insurance business, dividing it into general insurance and distribution. The distribution division was referred to as the “Bancassurance Division”: First Russo Affidavit at [25]-[26].
44.
In or about October 2010, Russo held a performance review meeting with Mr Smith and they agreed to a new scorecard for the purposes of FY 2010/2011. This scorecard is reflected in criteria contained in the final performance assessment documents for that Financial Year and against which Russo’s performance was measured: First Russo Affidavit at Annexure “R”, p.165.
45.
In or about November 2010, Russo was advised by Mr Smith that Musson was to be employed to be the Head of the Bancassurance Division: First Russo Affidavit at [32].
46.
On 3 December 2010, Russo received a letter from Westpac advising him that his incentive payment for FY 2009/2010 was AUD$70,000 and that his FY 2010/2011 Reward Target pursuant to the GIPA Plan was AUD$70,000: First Russo Affidavit at [30], Annexure “K”, p.133.
47.
In or about November or December 2010, Musson raised with Russo proposed changes to the Bancassurance Division which would see the majority of employees who were reporting to Russo thereafter reporting to Musson: First Russo Affidavit at [35]. This restructure took effect in February 2011 and after that time, Musson took over complete leadership of the Bancassurance Division, with Russo now only in charge of approximately 5 employees: First Russo Affidavit at [39].
48.
In or about March 2011, Russo was invited to participate in Westpac’s “Accelerated Leadership Program”: First Russo Affidavit at [41]. This was a program from employees whom Westpac considered to be future leaders.
The Mid-Year Performance Review
49.
The way in which Russo’s employment performance review system worked was that, at the first instance, he was required to complete a self-assessment of his performance by accessing his “scorecard” on Westpac’s “People Express” internal system and entering comments about his performance by reference to the criteria against which his performance was to be measured, and was to give himself a rating for each criterion. What was next required was for Russo’s “People Leader”, Musson, to enter comments and ratings in response to Russo’s self-assessment. A performance review meeting would then take place.
50.
By on or about 30 March 2011, Russo had completed his mid-year performance review by entering into his scorecard his views about his performance for the first six months of FY 2010/2011: First Russo Affidavit at [43].
51.
His People Leader, Musson, was then required to enter his own responses to Russo’s comments and ratings. The evidence shows that for the mid-year review, Musson had completed his assessment, giving to Russo an “Effective” or higher rating for 8 out of the 10 agreed criteria contained in the scorecard: First Russo Affidavit, Annexure “W”, p.190. In short, Musson had rated Russo as being “Effective” or higher rating for 70% of his overall performance up until the mid-year review.
52.
Musson alleges that he gave Russo an overall rating of “Needs Development”, but this was never disclosed to Russo. Shortly after these mid-year reviews had been completed on the People Express system, Russo met Musson and was told that his overall rating was “Effective”. Musson denies these assertions and it is a factual dispute that will require resolution.
53.
Westpac argues that Musson’s decision to assign Russo this indicative rating of “Needs Development” was based on his perception of three main issues, namely:
a) Russo’s failure to ensure that the agreed sales targets were accurately recorded in a sales database known as Management Information Dashboard (“MI Dashboard”);
b) Russo’s failure to ensure that the correct commission fees had been agreed to and uploaded onto an internal database for the sales of a consumer insurance product known as Mortgage Secure; and
c) Russo signing off on a letter for the retrenchment of an employee, Deborah Peat, without proper regard for the business consequences.
54.
Westpac submits that on 18 April 2011, Musson attended a meeting with Westpac’s Human Resources team and other People Leaders in the business unit to discuss the performance of persons who reported to them. These sessions are known as alignment sessions and were led by Salter, who was head of Human Resources for BT. The purpose of the alignment session was to ensure consistency in the mid-year performance appraisals and scores, and to assign rankings to employees based on position and on a distribution curve. During these sessions on an ongoing basis to reflect any changes that may result from discussions of each employee’s indicative performance and behaviour ratings.
55.
Westpac contends that following the alignment sessions, Musson confirmed Russo’s mid-year performance rating as “Needs Development”, but downgraded his values score from a “3” to a “2”. These ratings were confirmed in contemporaneous email communications between Musson and Cathy McGuiness, Human Resources Consultant for BT. Musson finalised his rankings and comments for Russo’s mid-year performance scorecard, then submitted it to People Express. However, Musson mistakenly did not release Russo’s mid-year performance appraisal for viewing by Russo.
56.
Westpac contends that in or around May 2011, Ms Salter had a discussion with Russo which gave her the impression that he did not understand that he had received a “Needs Development” rating in his mid-year performance review.
57.
On or about 3 June 2011, Musson and Russo attended a meeting during which Musson informed Russo that he perceived that State Managers reporting to Russo were confused about their sales targets: Musson Affidavit at [87]. Russo disagreed with Musson’s assessment of the situation and sent an email to that effect which also attached various emails that Russo had sent to his subordinates informing them of their relevant sales targets: Second Russo Affidavit at [30] and Musson Affidavit at Annexure “DM-13”, p.89. Musson suggests that this meeting was an occasion where he told Russo that his performance was rated as “Needs Development”, but this is denied by Russo.
Final Year Review and Redundancy
58.
On 17 August 2011, Westpac announced the merger of the Bancassurance Division with the superannuation, investment and advice teams to create a new team called “Bank Distribution”. As a result, Russo’s role as Senior Manager Sales Insurance and another position, National Sales Manager Customer Call Centres/Online were combined into a single role.
59.
On or about 14 September 2011, Russo entered his self-assessment into the People Express system for his annual review: First Russo Affidavit at [49].
60.
On or about 22 September 2011, Russo attended a meeting with Musson and Cathy McGuiness of Human Resources where was told that his position had been made redundant and that Westpac would seek redeployment for him: First Russo Affidavit at [50]. Russo was also told that other employees including Todd Richards, Arthur Fanos and Melanie Fernee were also to be retrenched: First Russo Affidavit at [51].
61.
Westpac contends, as Russo had been retrenched before the payment date of 1 December 2011, he did not become eligible for consideration to receive an incentive payment under the GIPA Plan. Westpac argues that it had a discretion to make an ex gratia payment to Russo in respect of any short-term incentive payment under the Westpac Redundancy Policy.
62.
Westpac argues that Musson then considered whether or not Russo should receive an ex gratia payment under the Westpac Redundancy Policy. In considering whether or not to exercise his discretion, Musson undertook an informal assessment of Russo’s performance for the whole of FY 2010/2011 as if he remained eligible to receive an incentive payment under the GIPA Plan. Musson determined that Russo should receive a provisional rating of an “Effective Low” on the basis that he had not implemented a call centre project effectively. Westpac submit that if Russo had continued to be rated as an “Effective Low”, he would not have been eligible to receive an incentive payment under the GIPA Plan, assuming he had remained employed on the payment date.
63.
On or about 27 September 2011, Russo and Musson attended a meeting during which Musson conducted his annual review of Russo’s performance: First Russo Affidavit at [52]. By this time, Russo had already entered his self-assessment onto the People Express system: First Russo Affidavit at [49]. Westpac submit that Musson entered into People Express an indicative performance rating of “Effective Low” and a behaviour rating of “2” for Russo.
64.
On or about 20 October 2011, Russo received a retrenchment letter notifying him that his retrenchment was to take effect on that day: First Russo Affidavit at [56], Annexure “S”, p.172. After receiving the letter, he logged on to the People Express system and noticed that his performance review had not been completed by Musson: First Russo Affidavit at [57]. Russo printed a copy of the performance review as it stood at that time: First Russo Affidavit, Annexure “T” at p.177.
65.
Musson completed the annual performance review sometime later, and that for 9 out of 10 scorecards gave Russo an “Effective” or higher rating: First Russo Affidavit, Annexure “W”, p.190. On the weightings attributed to each criterion, this amounted to an “Effective” or higher rating for 90% of Russo’s performance criteria. The only criteria in respect of which Russo did not get an “Effective” rating was in relation to “people” for which an “Unsatisfactory” rating was given to Russo.
66.
The evidence shows that Musson gave Russo a rating of “Effective Low” and a values rating of “2”: Musson Affidavit at [113] and [117]. After a realignment process engaged in by the Human Resources team, Russo was given a rating of “Needs Development” and a values rating of “1”: First Russo Affidavit at [123]. Westpac submits that on or about the last week of September 2011, Musson attended end of year alignment sessions with other People Leaders which were facilitated by members of Westpac’s Human Resources team. Before the alignment session, a PowerPoint document was created to reflect the performance achievements of each group (Salter Affidavit, Annexure “KS-7”). The presentation stated that Russo had been given a provisional rating of “Effective Low”.
67.
Westpac argues that following discussions during the alignment sessions, Russo’s performance rating was downgraded relative to the rankings of others on the distribution curve to a “Needs Development” rating and his values rating downgraded to “1”. Westpac contends that Russo would not have otherwise been eligible to receive an incentive payment under the GIPA Plan for an additional two reasons: both his performance rating and his behaviour rating disqualified him. Musson decided not to exercise his discretion to make an ex gratia payment to Russo under the Westpac Redundancy Policy.
68.
Russo challenges this performance assessment process.
The Redundancy Policy
69.
Westpac published its Redundancy Policy that was applicable to its employees, including Russo: Musson Affidavit, Annexure “DM-19”, pp.123-138; Salter Affidavit, Annexure “KS-12”, pp.281-296. In relation to payment of bonuses in the event of retrenchment, the Redundancy Policy provided as follows:
Your People Leader will consider:
· Company/ division performance. Any payment you may receive will take into account year and forecast company/ division performance.
· Your most recent individual performance rating.
· Your retrenchment date. Payments will only be considered where you have worked more than 6 months of the financial year and more than half of the most recent performance period (whether this is a monthly, quarterly or bi-annual performance period) under your short term incentive scheme. If a payment is made, it will be pro-rated based on the time you have worked in the most recent performance period.
· Whether you might otherwise have received a payment under your short term incentive scheme if you had been employed by us as the usual payment date.
· Any other factors, in his or her discretion, your People Leader considers are relevant, for example the payment frequency of your short term incentive scheme and/or consistent with short term incentive decisions for other employees in your business in the same or similar circumstances.
If my People Leader considers it appropriate to provide me with a pro-rated payment, what approval is required?
Your payment will require your two-up manager and also General Manager approval.
In order for me to receive an approved pro-rated payment, what else do I need to do?
You will need to sign a Deed of Release prepared by Westpac. Your People Leader will provide you with the proposed Deed. If you do not sign the proposed Deed, you will not be eligible to receive the pro-rated payment.
70.
Musson’s evidence is that he applied these terms to the Redundancy Policy to the determination of Russo’s bonus entitlement, but decided that Russo’s performance did not warrant payment: Musson Affidavit at [131]-[132].
The Westpac Group Variable Reward Scheme Rules
71.
The Westpac Group Variable Reward Scheme Rules (the “Scheme Rules”) (Salter Affidavit, Annexure “KS-10” contained Version 0.9, dated 7 May 2010 with Version 1.0, dated 15 September 2010) (Exhibit “1”) is another document which sets out terms and conditions therein. Where there is any inconsistency with the GIPA Participant’s Guide, the Scheme Rules prevail.
72.
Relevantly, the Scheme Rules provide inter alia that:
a) An employee’s variable reward payments will be reduced or forfeited where he or she has been assessed as performing below minimum expectations including:
i) Achieving explicit performance objectives;
ii) Not “Living the Values” (the name of Westpac’s code of conduct); or
iii) Receiving a behaviour rating of “1” unless approved by the Chief Risk Officer or Group Executive People and Transformation;
b) In order to be eligible for a variable reward payment, an employee has to be employed at the time the payment becomes payable;
c) The Remuneration Oversight Committee had the sole discretion to determine or vary the outcome in making a variable payment where an employee was not otherwise eligible to receive an incentive payment under the Scheme Rules;
d) Where an employee is retrenched, the employee may be eligible for a pro-rated cash variable payment on an ex gratia basis in accordance with Westpac’s policies as amended from time to time, and is subject to the discretion of the employee’s direct manager, two up manager and General Manager;
e) Westpac may change the variable reward payment targets, scheme rules and design at any time;
f) All variable reward payments under any scheme are made at the “complete discretion” of Westpac including the discretion not to make a variable payment in any year; and
g) The Westpac Board and Remuneration Oversight Committee has the “absolute discretion” to vary, defer, forfeit or withdraw any variable reward scheme, its rules, design, target objectives or payment.
Russo’s Submissions
The Contract Claim – Applicable Principles
73.
The applicant argues that the fact that a bonus scheme is discretionary, or that the relevant contractual right is limited to an eligibility to participate in a bonus scheme, does not militate against it having contractual force, from a party acting in breach of its obligations and/or from an employee recovering damages (including for loss of a chance) in respect of such breaches. There are a number of cases where Courts have upheld and enforced discretionary bonus schemes. A detailed examination of these cases is necessary.
74.
The Court of Appeal’s decision in Silverbrook is a case in point. In that case, Ms Lindley’s contract of employment provided as follows:
4. ANNUAL PERFORMANCE BONUS
4.1 Lindley will be eligible to receive the Annual Performance Bonus subject [sic] to clause 4.2 and 4.3.
4.2 Silverbrook will assess Lindley’s performance against set objectives at the end of each quarter commencing from the date of her employment. Provided her performance satisfies the set objectives and subject to clause 4.3, one quarter of the Annual Performance bonus will be paid to Lindley within 21 days of the end of each quarter.
4.3 The decision as to whether Lindley should receive the Performance Bonus is entirely within the discretion of Silverbrook. Lindley must be in the employ of Silverbrook at the time bonuses are determined to be eligible to receive the Annual Performance Bonus.
75.
As to the discretionary nature of the entitlement, Allsop P (as he then was) (with whom Beazley JA agreed) held at [5]-[6] that:
5. …That the decision as to whether the respondent should receive the bonus was “entirely within the discretion of” the appellant should not be construed so as to permit the appellant to withhold the bonus capriciously or arbitrarily or unreasonably; it should not be construed so as to give the appellant a free choice as to whether to perform or not a contractual obligation. The relevant discretion should be understood against the proper scope and content of the contract. This was a bargained for bonus to be assessed against set objectives. Such a clause should receive a reasonable construction and not permit the appellant to choose arbitrarily or capriciously or unreasonably that it need not pay money the set objectives having been satisfied…
6 The discretion is to be exercised honestly and conformably with the purposes of the contract. There may be many circumstances in which it would be legitimate, and conformable with the purposes of the contract, not to pay the bonus. There may be financial stringency or misbehaviour by the respondent or some other consideration. It is unnecessary to explore the possibilities in detail. What, however, would not be permitted is an unreasoned, unreasonable, arbitrary refusal to pay anything, come what may. This would be a denial of the very clause that had been agreed. If these parties wished to make payment under the clause entirely gratuitous and voluntary such that payment could be withheld capriciously, notwithstanding the compliance with solemnly set objectives they needed to say so clearly.
(emphasis added)
76.
The applicant argues that in assessing loss, the Court of Appeal in Silverbrook approached this on the basis of a loss of chance to earn a bonus. The fact that the bonus scheme was discretionary did not make it impossible to say that the chance had no value: Silverbrook at [8]. The opportunity or chance was measured by the probabilities and possibilities, including how the employer would or might have acted conformably with its contractual obligations: Silverbrook at [9].
Relevant Breaches
77.
Russo argues that Musson has given evidence that the reason why he decided that Russo should not be paid a bonus for FY 2010/2011 was because:
a) Russo had been responsible for a misalignment of targets between the sales team and the Bancassurance Division: Musson Affidavit at [14]-[22], [30]-[31] and [134];
b) Russo had failed to attribute a proper value to one particular financial product known as Mortgage Secure: Musson Affidavit at [25]-[29] and [134];
c) Russo had approved a letter, being sent to an employee who had taken a career break, which authorised the payment of redundancy pay: Musson Affidavit at [32]-[35] and [134];
d) Russo has “misled” Musson about a project as the Call Centre Project: Musson Affidavit [113] and [134]; and
e) Russo had failed to assist Mr Kallos in handover of certain work consequences upon Russo’s retrenchment: Musson Affidavit at [109] and [123].
78.
Russo notes that the all of the matters referred to at [77(a), (b) and (c)] above occurred prior to 30 March 2011 as it is alleged that they had been incorporated within the mid-year performance review. The only matters arising after 30 March 2011 are those referred to above at [77(d) and (e)].
79.
Russo submits that none of these matters have any factual foundation and, in any event, Musson’s assessment of them was unreasonable, arbitrary, capricious and not consistent with the purposes of the GIPA Plan.
80.
Russo argues that in relation to the misalignment of targets ([77(a)] above), the evidence will show that he had provided all the correct information to Westpac’s Performance Management team in respect of the appropriate targets to be used. The evidence will show that an error was made by the Performance Management team in entering the appropriate sales targets into the relevant computer system at Westpac (known as the MI Dashboard).
81.
The applicant submits that in relation to the failure to attribute the correct value to the Mortgage Secure product ([77(b)] above), the evidence will show that he had provided the correct amounts to the Performance Management team, however, a decision was made by Westpac itself that the value of AUD$500 attributable to the Mortgage Secure product was not to be accepted, as it was inconsistent with its preference for another product. This decision was not made by Russo.
82.
The applicant submits that in relation to the career break letter issued to Ms Peat ([77(c)] above), the evidence discloses that the letter had been approved by his then immediate manager, Mr Tobin. The letter had also been approved by the Human Resources Team.
83.
Russo argues that the evidence discloses that notwithstanding the above matters, Musson gave him an “Effective” or higher rating on 8 out of 10 criteria (or for 70% of the weighted performance) for his mid-year review.
84.
Russo submits that in relation to the post mid-year review conduct, the only performance issue that Musson identified was in relation to an allegation that he had “misled” him in respect of the Call Centre Project ([77(d)] above), including a timetable for implementation. The timetable showed that the Project was to “go live” by the end of October. At the final stages of the implementation of the Project, another division within Westpac sought an extension of time to accommodate their own needs. This had the effect of extending the project by another four weeks before it could “go live”. This development did not occur until late September, at which time he immediately raised the issue with Musson. There was no misleading conduct on his part.
85.
The applicant contends that in relation to the allegation that Russo had not assisted Mr Kallos in any handover was used by Musson to not downgrade his performance, but his “values” rating. The allegation that Russo did not assist Mr Kallos is without substance and is based upon inadmissible hearsay evidence. In any event, the applicant denies these allegations and has given unchallenged evidence that he did assist Mr Kallos in the handover process. In any event, all of the conduct in relation to Mr Kallos arose after 1 October 2011, which meant that is was conduct referable to the next financial year, not FY 2010/2011.
86.
The applicant argues that for the above reasons the exercise of the discretion by Westpac in respect of the non-payment of Russo’s bonus was capricious, arbitrary, unreasonable, and otherwise not conformable with the purposes and objects of the GIPA Plan. This conduct amounted to a breach of the implied terms outlined above, which act as a fetter upon the discretion exercised by Westpac in its decision making relating to the payment of bonuses under the GIPA Plan or alternatively, the Redundancy Policy.
87.
Russo argues that two formal points are taken against the above contentions:
a) First, it is said that the GIPA Plan did not apply to Russo because he did not satisfy the eligibility criteria specified in the GIPA Plan. Specifically, it is alleged that Russo was required to remain an employee of Westpac at the incentive payment date to be eligible for payment. However, this contention proceeds on the erroneous premise that the eligibility criteria applied where an employee’s employment had been terminated on the ground of redundancy. On its proper construction, it is evident that the eligibility criteria only applied in instances where an employee had resigned from his or her employment as at the incentive payment date; and
b) Second, Westpac contends that the GIPA Plan and the Redundancy Policy were completely discretionary and it had no obligation to pay any amounts to Russo. However, the prevailing authorities establish that the discretionary bonus schemes are subject to implied terms that act as a fetter upon the exercise of discretion otherwise engaged in by an employer in respect of eligibility and payment of bonuses. In substance, the essential dispute between the parties is whether the decision not to pay Russo a bonus was a breach of these implied terms.
88.
Russo argues that Westpac’s claim is that Musson’s exercise of discretion in concluding that no incentive payment should be paid to Russo was reasonably open to him on all the evidence. These arguments cannot be substantiated on the evidence before the Court. Westpac published a plan that outlined exactly how an employee’s performance was to be assessed and measured. In particular, Westpac indicated that individual performance of an employee would be measured against an agreed scorecard. In the present case, the agreed scorecard outlined Russo’s key measures of performance for FY 2010/2011. All the evidence established that in the annual performance review, Musson rated Russo as having an “Effective” or higher rating for nine out of ten criteria. In relation to concerns that Musson had at the mid-year performance review, these had all abated by the end of the year review.
89.
In relation to other performance criteria, Westpac alleges that the Bancassurance Division did not meet its other targets. However, this was no impediment to the making of bonus payments to other employees within the Bancassurance Division. In relation to the allegation that Russo’s performance was measured by reference to a re-alignment as against other employees within the Bancassurance Division, this contention proceeds on an incorrect initial assessment of Russo’s performance. The re-alignment itself did not take into account what ought to have been a proper assessment of Russo’s performance.
90.
Russo contends that in light of the above, Westpac has breached the Employment Contract, the GIPA Plan and the Redundancy Policy. Had these contractual obligations been performed lawfully by Westpac, Russo’s performance would have been properly assessed by reference to the scorecard criteria excluding all irrelevant factors and other unsubstantiated matters. Had Westpac properly performed its contractual obligation, Russo would have obtained a bonus. Russo argues that this is a classic case where Russo has lost an opportunity to earn a bonus, with the value of that opportunity being at least AUD$70,000.
Misleading and Deceptive Conduct
91.
Russo argues that the claim under the ACL is based upon pre-employment representations made to Russo about the payment of incentives. The evidence will show that there was no reasonable basis for Westpac having made those representations, in circumstances where it could not assure Russo that he would be paid incentives, especially when its ongoing intention was to make the payment of bonuses conditional upon layers of internal review and processes that led to arbitrary results. These matters were not drawn to Russo’s attention at the time and instead he was given bald representations to the effect that he was assured of earning ongoing bonuses from year to year.
92.
The evidence established that Russo relied on these representations, and the failure to fully disclose, in accepting employment with Westpac. As a result he argues that he has suffered loss.
93.
Russo argues that the loss he has suffered, which is the lost opportunity to secure other commensurate employment, is best measured by the difference between, on the one hand what the parties in the proceeding assessed as the appropriate total remuneration level for someone of Russo’s skills and experience, being of AUD$270,000, and on the other hand, what he actually earned, being AUD$200,000, the difference being Russo’s loss of AUD$70,000.
Westpac’s Submissions
Breach of contract case
94.
Westpac submits that Russo’s contract case pleaded in the Statement of Claim is that Westpac breached:
a) Various express terms in Russo’s contract of employment that he would receive an annual bonus in accordance with the GIPA Plan, the Redundancy Policy and the People Leaders Guide: [7] of the Statement of Claim;
b) Various express terms in the People Leaders Guide and the GIPA Participant’s Guide regarding the process for conducting the performance appraisal process: [8] of the Statement of Claim;
c) An express terms that Russo be able to utilise Westpac’s grievance procedure in relation to his assessment against the agreed scorecard and his entitlement to an annual bonus: [9] of the Statement of Claim; and
d) Various implied terms: [10] of the Statement of Claim.
Express terms pleaded
95.
Westpac submits that none of the express terms pleaded are alleged to be contained in the Employment Agreement, but in various ancillary documents. Russo has not pleaded in the Statement of Claim and not identified in the outline of submissions how the documents have become incorporated into the contract of employment or otherwise have binding contractual force on the parties.
96.
Westpac contends that on the contrary, the express words of the Employment Agreement and the relevant documents state that those documents do not have any contractual effect. The Employment Agreement itself states that Westpac policies do not form part of the contract of employment. The GIPA Participant’s Guide and the Westpac Redundancy Policy contain similar statements.
97.
There is no reference to the People Leader’s Guide in the Employment Agreement. The People Leaders Guide does not have the appearance of a legal document, but is a PowerPoint slide presentation created in September 2011. It is difficult to see how a document described as a guide forms part of a contract of employment. No claim is made that the Employment Agreement had been varied to include the People Leader’s Guide or the consideration for making such a variation. In any event, the People Leader’s Guide is not even referred to in Russo’s outline of submissions.
98.
Westpac contends that the GIPA Participant’s Guide (and the associated documents of the Scheme Rules and the Westpac Remuneration Policy), the People Leader’s Guide and other relevant documents, read together, make clear that:
a) The rules, design, eligibility, its payment, target objectives, assessment, decision to pay and amount were discretionary in nature (using terms such as “complete” and “absolute” discretion);
b) Eligibility to participate, performance and payment were to be judged by the relevant manager(s) concerned;
c) An employee was required to meet both performance objectives and behavioural standards, that payment could be reduced or forfeited in certain circumstances;
d) The employee had to be employed at the end of the financial year and the date upon which the amount became due and payable, being 1 December, to be eligible to receive the payment; and
e) Any incentive payment was determined as a result of an alignment against other employees, based on relative rankings on a distribution curve to ensure consistent and comparable treatment between employees in the same circumstances designed to reward only “high performers”.
99.
Westpac argues that Russo’s outline of submissions appear to disavow any reliance on its pleaded case that Westpac breached any of the alleged express terms of his contract of employment. There is no reference to these parts of the pleadings in Russo’s outline of submissions.
Implied terms pleaded
100.
The principle focus of Russo’s outline of submissions is that Westpac’s exercise of discretion in deciding not to make an ex gratia payment to Russo breached an implied term in the contract of employment not to exercise any discretion conferred upon it (under the GIPA Participant’s Guide) capriciously, arbitrarily or unreasonably ([10(e)] of the Statement of Claim) and it would only do so honestly and conformably with the purposes of the contract of employment ([10(e)] of the Statement of Claim). These implied terms are inconsistent with the express use of the words “complete discretion” or “absolute discretion” in the Employment Agreement and variable reward documents which suggest that there is no restriction or qualification on the exercise of such discretion by Westpac.
101.
None of the cases that Russo relies upon in support of his case concerns an employer exercising a discretion under a non-contractual policy to make an ex gratia payment. Russo did not become eligible under the GIPA Plan to be considered for an incentive payment because he was not employed at the date of payment. This did not arise under the GIPA Participant’s Guide, but arose under the Westpac Redundancy Policy, both of which, Westpac argues, had no contractual force. As the cases involve material different facts and considerations, little assistance can be gained from them for the purposes of these proceedings.
102.
In Silverbrook, the Court of Appeal considered an employer’s exercise of a contractual discretion not to award a performance bonus to its employee. The case concerned an employer’s failure to establish performance objectives and to measure an employee’s performance against such targets for the purposes of determining whether or not to make a bonus payment in conformance with the contract. The Court sought to ascertain the value of the loss of the employee’s chance to receive an annual performance bonus under the contract. Westpac argues that that is not the case here.
103.
Westpac contends that there are a number of material matters which distinguish Silverbrook from the present case, namely:
a) Russo’s case did not involve the exercise of a contractual discretion not to award a performance bonus. His case concerns a decision not to exercise discretion to award an ex gratia payment under a non-contractual redundancy policy. Hence, Westpac did not have a contractual obligation to exercise the discretion in any particular manner or by reference to any particular considerations;
b) Unlike Silverbrook, Westpac had established performance objectives and behavioural standards for Russo to attain and Westpac assessed Russo against those objectives, in deciding for the purposes of considering whether an ex gratia payment would be made that he would have otherwise been entitled to receive an incentive payment under the GIPA Plan, notwithstanding he was not eligible . Westpac, therefore did not deny Russo the opportunity to participate in the variable reward scheme which itself was non-contractual and expressed to be discretionary in nature; and
c) Even assuming that the Redundancy Policy had legal effect, the determination of whether or not Westpac had exercised its discretion properly must be undertaken by reference to the purpose of the purposes of the Westpac Redundancy Policy and not the GIPA Participant’s Guide. The Westpac Redundancy Policy has the purpose of establishing the processes and payments to be made to employees in the event of retrenchment. Unlike the GIPA Plan, the Westpac Redundancy Policy is not designed to reward employees for performance.
104.
Westpac submits that the English authorities that Russo cites (Russo’s outline of submissions) involve relevantly similar facts to Silverbrook and therefore do not compel a different conclusion.
105.
Even assuming that Westpac had a contractual obligation not to exercise it non-contractual discretion not to withhold the payment capriciously, arbitrarily or unreasonably, there is no basis to find that it has exercised its discretion in such a manner. “Arbitrary” mean a decision based on random choice or personal whim or involving unrestrained and autocratic in the use of authority. “Capricious” means a decision characterised by or subject to whim impulsiveness and unpredictability. For judicial consideration of these words see also Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 609 per Mason J. The term “unreasonable” should be understood in the same sense used in Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223 – the decision was so unreasonable that no reasonable person would ever consider making it. These phrases indicate that the Court’s role is not to interfere with an employer’s exercise of discretion merely because it would have come to a different decision.
106.
There is no basis for the claim that Westpac, in deciding not to exercise its discretion to award an ex gratia payment, acted in a manner which was capricious, arbitrary or unreasonable. On the contrary, the evidence reveals that Musson had a rational basis for his decision in holding Russo to account for mistakes made under supervision or for which he had overall responsibility. Musson informed Russo of the basis for the key decision and his reasons were exposed to external testing and scrutiny as part of the alignment process. The evidence reveals that Musson did not form his views on Russo’s performance and behaviour on illegitimate grounds, nor was he was motivated by irrelevant considerations or malice towards Russo. As Russo’s direct supervisor, Musson was in the best position to judge Russo’s performance and to make an ultimate judgment of whether to exercise his discretion. Ultimately, the Court’s role is not to second guess these judgments on a de novo basis or to evaluate if, in retrospect, these decisions were fair and just.
107.
Westpac submits that Russo’s claim that Musson did not have “any factual foundation” for the matters he relied upon in making his performance appraisal of Russo is not pleaded. Had it been differently pleaded, Westpac would have called evidence from other witnesses to corroborate these matters. Westpac argues that Russo should not be allowed to amend his case at such a late stage as Westpac will be prejudiced.
108.
In any event, Russo’s claim that Musson’s decision did not have a factual basis for his views regarding his performance is, in reality, a submission that Musson acted harshly or unfairly unjust in holding Russo accountable for mistakes, misjudgements and the poor implementation of decisions and projects under Russo’s watch, and that Musson failed to take into proper account mitigating or extenuating circumstances. Russo’s attempt to cast blame to others for matters over which he had ultimate responsibility reflects his inability to accept ownership of these decisions. An employer has the prerogative to determine its business objectives, management methods and the means by which to assess performance was within the reasonable range of decisions available to him in dealing with the matters. This Court is neither in a position to conduct, nor has the responsibility for conducting, a broad-ranging inquiry into whether business judgments made by managers in respect of Russo’s performance were genuinely made or reasonably based.
109.
Westpac submits that the evidence reveals that Musson exercised his discretion under the Westpac Redundancy Policy by reference to the list of factors identified. As stated in the policy, Musson “considered” each of these matters. The word “considers” denoted that Musson has to come to an opinion or reached a satisfaction in respect of each of the matters, rather than having to prove actual existence of an objective fact. His considerations included any matter he considered in his discretion to be relevant. It involved a single “bundled up” judgment in weighing up various factors. As the Westpac Redundancy Policy merely requires that Musson give consideration to these factors, the merits of Musson’s decision are not examinable upon judicial review on the basis that he simply made a wrong finding of fact: Australian Heritage Commission v Mount Isa Mines Ltd (1997) 187 CLR 297 at 302-304.
110.
Even assuming that Westpac can be shown to have exercised its discretion under the Westpac Redundancy Policy not to make an ex gratia payment to Russo in a capricious, arbitrary or unreasonable manner, there is insufficient evidence to show that Russo’s performance rating would have been altered so that he would have been eligible to receive an ex gratia payment. Russo has not and cannot show that as a result of any breach:
a) His performance rating would have been revised upwards to “Effective Medium ”during the alignment process; or
b) His values rating would have been retained at “2” and not downgraded to “1”.
111.
In particular, there is no meaningful evidence to enable the Court to assess the performance of other employees. The Court would be required to engage in speculation about the ranking that Russo may have received on the distribution curve without the benefit of knowing the actual performance of these other employees and the discussions which took place during the alignment sessions.
112.
Westpac argues that even if Russo may have otherwise been eligible to receive a payment under the GIPA Plan in circumstances where he was rated at or above “Effective Medium” and at or above rating of “2”, this does not mean Westpac would have exercised its discretion to make an ex gratia payment to Russo under the Westpac Redundancy Policy or that it would have been approved by his two-up manager or General Manager.
Misleading and deceptive conduct claim
113.
Westpac argues Russo’s misleading and deceptive conduct claim is misconceived on the following grounds:
a) Although Russo has not identified the time the alleged representations were made, if they were made before 1 January 2011, then the ACL does not apply. The relevant provision of the ACL commenced on 1 January 2011. The ACL does not have retrospective effect and does not apply to conduct before its commencement. However, the continued application of the Trade Practices Act 1974 (Cth) is preserved in respect of conduct occurring before 1 January 2011 under Item 6(1) of Schedule 7 of the Trade Practices Amendment (Australian Consumer Law) Act (No 2) 2010 (Cth);
b) As the representations are alleged to have been made by Mr Smith and Musson, they must have been made after Russo’s employment had already commenced. Representations made during employment which do not involve negotiations to vary or make a new contract of employment are general and not made in trade or commerce: Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594; Mulcahy v Hydro-Electric Commission (1998) 85 FCR 170; Martin v Tasmanian Development and Resources (1999) 163 ALR 79;
c) No evidence has been adduced showing that Mr Smith and/or Musson made such representations on the terms alleged;
d) The representations contained in the various documents make clear that the payment of any incentive payments is subject to meeting the relevant requirements and is discretionary in nature, therefore none of the representations led to Russo suffering loss; and
e) No evidence has been adduced showing that Russo relied on the alleged representations and that Russo would have explored alternative employment opportunities had he not been induced to rely on the alleged representations or the value of such opportunities.
Consequences of the High Court’s decision in Barker HCA
114.
Mr Shariff, appearing for Russo, in oral submissions at the hearing on 28 November 2014, referred the Court to the pleadings to identify how, as a result of the High Court decision in Barker HCA, there was a change in the nature of the arguments previously put at the earlier hearings. Mr Shariff referred to the Statement of Claim filed on 12 April 2012 at [5]. What was pleaded was that there was an employment contract that was partly in writing and constituted relevant sub-items. Significantly, at sub-paragraph [5(c)] of the Statement of Claim, the applicant pleads that there was also implied terms and those terms are employed as a matter of law.
115.
In the Statement of Claim at [10], it sets out what was asserted by the implied terms of the employment contract. At [10(a)] is the mutual trust and confidence term. Mr Shariff acknowledges that as a result of the Barker HCA, that pleading can no longer be maintained. He accepts that the reliance upon the first instance decision of Besanko J in Barker v Commonwealth Bank of Australia (2012) 296 ALR 706 ( “Barker FCA”), ought to be discarded.
116.
Mr Shariff draws the Court’s attention to the separate pleadings at [10(b)] in the Statement of Claim in respect of an implied term of good faith. Also, at [10(d)] and [10(e)] of the Statement of Claim there has been a pleading in the implied term that Westpac would not withhold the payment of the annual bonus capriciously, arbitrarily or unreasonably. Likewise, in sub-paragraph [10(e)] a claim that the discretion will be exercised honestly, conformably with the purpose of the contract. The argument advanced is that nothing decided by Barker HCA impacts upon the implied terms pleaded in subparagraphs [10(b)], [10(d)], [10(e)] and that Barker HCA left open the issue of implied terms of good faith. In relation to sub-paragraphs [10(d)] and [10(e)] the jurisdictional basis for that assertion of an implied term to the extent was the Court of Appeal’s decision in Silverbrook and that decision is not effected by the decision in Barker HCA. Silverbrook has subsequently been applied with authority by the Federal Court and the Full Federal Court.
117.
Mr Shariff then referred the Court to the Employment Contract, dated 15 May 2009. At p.8 of the Employment Contract (ACB, p.53) under the clause headed Redundancy, it states:
If your employment with Westpac is terminated on the basis of redundancy, your entitlements will be determined in accordance with the more favourable to you of any applicable industrial instrument or a relevant Westpac policy or procedure in accordance with the terms and conditions of that industrial instrument or policy.
118.
It is submitted that Russo would get the more favourable of the terms and conditions and, in this case, the redundancy policy provides the more favourable terms and conditions.
119.
Under the heading Other Matters at p.8 of the Employment Contract (ACB, p.53) it states:
The Westpac Employees’ Award 2002, Westpac’s Enterprise Development Agreements (together referred to as “the Industrial Instruments”) or Westpac’s policies and procedures (and everything that replaces any of those documents) all deal with the entitlement of Westpac employees on termination. You will be entitled to the greater of either the entitlements under this clause or the entitlements under the Industrial Instrument or policies - you will not be entitled to cumulative benefit of each.
It is argued that what was clearly stated was that if an industrial instrument applied, then it applied, and if there were policies applied, then they applied. As a consequence then Russo would be entitled to the more favourable of the two. Mr Shariff acknowledges that Russo has pleaded implied terms, however, the first part of his argument embraces a breach of the express terms in the employment contract.
120.
Mr Seck’s submissions, on behalf of Westpac, are that in the light of Barker HCA, Russo’s claim based on the implied terms of mutual trust and confidence must fail and therefore must be dismissed. Barker HCA makes it clear that there is no basis for implied terms which reflect a “desirable social policy” choice that have the potential to have an uncertain operation until applied to particular circumstances. On this basis, Russo’s claim that an implied term that Westpac “would act in good faith towards the applicant” ([10(b)] of the Statement of Claim) exists musts also be rejected. Even though the High Court left open the question of the existence of a general obligation to act in good faith in the performance of contracts (at [42]), the established case law has rejected the existence of an implied term of good faith in employment contracts: Walker v Citigroup Global Markets Pty Ltd & Anor (2005) 226 ALR 114 at [204]-[205]; Intico (Vic) Pty Ltd v Walmsley [2004] VSCA 90 at [23]; [27]-[30].
121.
To the extent that commercial contract cases have recognised, in particular circumstances, a duty of good faith, it has arisen in relation to the performance of contractual obligations or the exercise of contractual discretion. These authorities have no relevance in the present case. Here Westpac exercised of its discretion to make or not make any incentive payments arose out of the document, clearly expressed to be non-contractual in nature.
122.
Barker HCA also makes some useful observations on the implication of terms of fact. To the extent that Russo relied in the implied terms pleaded in [10(c)]-[10(g)] of the Statement of Claim, the High Court affirms that:
a) The process of implication is, ultimately, a process of construction in ascertaining the meaning of the contract and not the inclusion of terms based on what a reasonable person would have agreed to (at [22]; [25]); and
b) It cannot contradict, or be inconsistent with “an express term” (at [109]).
123.
Mr Seck submits that these observations strengthen Westpac’s submissions on the proper construction of the discretionary bonus provisions contained in the employment agreement and ancillary bonus scheme documents which state, unambiguously, that the making of the incentive payments is in the “absolute discretion” to Westpac.
124.
As a consequence of the Barker HCA, I have adopted the approach that the lengthy and detailed written submissions, prepared by both parties where the issue of implied terms of mutual trust and confidence has been raised, will be put to one side and no further reference will be made to them.
Dispute regarding pleadings
125.
During the opening addresses on 23 April 2013, Westpac raised points about Russo’s case having departed from its pleadings. This is a significant dispute between the parties which was ventilated in closing written submissions. The actual pleadings referred to are set out in the “Statement of Claim” which has been reproduced at [7] above. Russo’s pleadings are summarised below. He relies on the summary as a proper characterisation of his claims and provides a reference to the source of the evidence relevant to the individual claim (I note that any reference hereafter to the Transcript of the hearing will contain “T/D#” referring to the respective hearing date in sequence and a page reference):
a) On 15 May 2009, Westpac offered to employ Russo in a position of Senior Manager, Sales: ACB, p.45;
b) On 21 May 2009, Russo accepted Westpac’s offer of employment and entered into a contract of employment (the “Employment Contract”): ACB pp.47-55. Russo commenced employment with Westpac on 25 May 2009: ACB p.45;
c) As with many other financial institutions, Westpac offered to employees the prospect of participating in incentive schemes as a means of inducing them into entering employment: Transcript, Federal Circuit Court Proceedings, 24 April 2014 (“T/D2”) (T/D2, p.25.5). Salter, at the relevant time, head of Human Resources for BT, who is also a senior officer of Westpac, admitted that the payment of bonuses and incentives is an important term and condition in the employment of Westpac employees: T/D2, p. 25.29;
d) Salter accepted that Westpac invites employees to participate in incentive schemes and does so with an intention of honouring its commitments under those schemes: T/D2, p.25.27-39. It does so knowing that employees rely upon those types of invitations to receive bonus payments: T/D2, p.25.41;
e) Consistent with Salter’s evidence, Russo’s contractual arrangements made provisions for him to participate in Westpac’s incentive schemes. The employment contract provided at ACB, p.48 that:
In addition to your fixed package, you may be invited, from time to time, to participate in a variable rewards scheme. The details of the variable rewards scheme will be provided to you at the time you are invited to participate in the scheme. The eligibility to be considered for and the payment of any variable reward or incentive payment is at the absolute discretion of Westpac.
f) On 27 May 2009, Russo received a letter inviting him (“Invitation Letter”) to participate in the GIPA Plan: ACB, p.60 (reproduced in full at [208] below). In that letter, Westpac stated:
At BT Financial Group we aim to provide market competitive remuneration that reflects you performance and the performance of the business. Through our incentive plans we ensure that there is a transparent link between your performance and how you are rewarded.
Part of the transparency of the plan is to provide you with an incentive target. Your actual incentive payment will be determined in accordance with the Guidelines for your incentive Plan. These Guidelines are located under Incentive Plans on the BT Financial Group People intranet site. You should ensure that you have read and understand the Guidelines.
I am pleased to advise that your annualised incentive target for the current performance period 1 October 2008 – 30 September 2009 is $70,000. Please note that this incentive target is an indication only of what you may be awarded and is subject to the achievement of pre-determined BT Financial Group, business unit and individual performance criteria, as established each year. Your incentive target will be reviewed annually.
g) Salter admitted that by the issue of the Invitation Letter, Russo was invited to participate in the GIPA Plan from year to year, and that Westpac had an intention to honour its commitment in this regard: T/D2,p.25.25-40. Salter agreed that a departure from the GIPA Plan and related bonus policy would give rise to distrust and compromise the relationship of trust and confidence between Westpac and its employees: T/D2, p.28.11-18. She also agreed that in relation to its policies, including those concerning remuneration and bonuses, Westpac would act fairly and reasonably, not exercise any discretion capriciously, arbitrarily or unreasonably, and would act conformably with the purposes and objectives of the relevant policies: T/D2, p.28.23-37;
h) Russo accepted Westpac’s invitation and participated in the GIPA in 2009 and in each subsequent year of his employment: T/D2, p.26.29. In each of his previous years of employment, prior to FY 2010/2011, Russo received an incentive payment pursuant to the GIPA Plan. In FY 2009/2010 his incentive payment was AUD$70,000: ACB, p.24 at [11];
i) The GIPA Guidelines and Rules (GIPA Plan) were enclosed with the Invitation Letter that was sent to Russo: ACB, p.62-72. The GIPA Plan provided that it was to be read subject to the Westpac Banking Corporations Remuneration Policy (“Remuneration Policy”) and the Westpac Variable Rewards and Commission Scheme Rules (“Scheme Rules”): ACB, p.64 (clause 1). The Remuneration Policy prevailed over the Scheme Rules which prevailed over the GIPA Plan;
j) The purpose of the GIPA Plan is recorded in ACB, p.65, clause 2, as follows:
BT Financial Group’s incentive plans provides transparency and alignment between individual employee performance, overall business outcomes and incentives.
The aims of the GIPA Plan are to:
• Align incentives to business and individual performance;
• Provide transparency in how incentives are determined;
• Position an employee’s Total Reward relative to the market.
k) Salter agreed that an important purpose and objective of the GIPA is to ensure transparency: T/D2, p. 29.30. The primary means by which transparency is achieved is through the setting of objectives under the individual scorecards and measuring performance against them; T/D2, p.29.39;
l) The importance of the individual scorecards is re-enforced by clauses 3(a) and (b) of the GIPA Plan. The former clause provided that employees are to be informed at the beginning of each performance cycle of the incentive targets for the performance year. The latter clause outlines that incentive payment would be linked to performance, the group’s performance, the business units’ performance and the individual employee’s performance. In respect of the individual employees performance, the GIPA Plan relatively states that (ACB, p.66):
At the beginning of the performance year, each employee formulates with their people leader a scorecard specifying individual performance objectives and the target performance levels consistent with the business and the team goals.
m) Salter agreed that the individual scorecards are in the centre of the focus of the GIPA Plan; T/D2, p.30.31-39; 32.17-18. Salter agreed that the scorecard provides an objective and rational basis upon which to measure performance; T/D2, p.31.4. Musson also admitted that the use of the scorecard ensured an objective process to the measurement of performance: T/D2, p.69.1. Musson admitted that transparency was an important purpose of the GIPA Plan and this was achieved by the use of the scorecard system: T/D2, p.67.23-26. The importance of the scorecard is also reinforced in the remuneration policy and the Scheme Rules: T/D2, p.38.16-37; T/D2, p.72.23-73.7;
n) The evidence established that, notwithstanding the central importance of the measuring performance against the agreed scorecard, when it came to assessing Russo’s performance, Musson departed from the fundamental principles and objectives of the GIPA Plan, the Remuneration Policy and the Scheme Rules and, in doing so, also departed from the terms of the Remuneration Policy;
o) Under the GIPA Plan, the individual performance ratings are to be categorised as outstanding, high achievement, effective, needs development, and unsatisfactory: ACB, p.66-7. Salter said that if an employee obtains an “Effective” rating for 90/100 of the weighed factors in the scorecard, this would lead to the employee receiving an overall rating of “Effective-High”: T/D2, p.20.29-31. She said that and an “Effective High” rating would also be given were there was a result of 80/100 on the scorecard criteria: T/D2, p. 20.38-39. This is the rating that Russo would have received had Musson complied with the applicable policies and properly exercised his discretion;
p) Ms Salter agreed that if an employee is rated as “Needs Development”, this would lead to an implementation of a written development plan which had to be clearly communicated to the employee in question: T/D2, p.32.26-35. The evidence shows that no written development plan was ever put in place for Russo;
q) In addition to the performance rating against an agreed criteria in the scorecard, the GIPA Plan also provided ratings for “values” ratings as follows (ACB, p.67):
Employee performance also be assessed in the context of our values by receiving ratings of 3, 2 or 1. The behaviour rating will influence an individual employee’s incentive payout with the applicable payment range. No payment will be made from employees with a behaviour rating of 1.
r) Because the rating of values is open perception, Salter said that it was important to have documented processes to support the ratings: T/D2, p.31.46. Musson accepted that in making assessments about the “values ratings” it would be important to get input from stakeholders: T/D2, p. 69.15-31;
s) Both Salter and Musson accepted that receiving a behaviour rating of “1” was a very serious matter that could lead to termination of employment: T/D2, p.39.64; T/D2, p.69.33-37. Musson further accepted that it was the kind of rating that he would not likely give to an employee unless he had a substantial and documented basis for it: T/D2, p.69.39-40. Salter had no reason to think that Russo’s behaviour warranted such a serious rating of “1”; T/D2, p.39.21. The evidence discloses that Musson had no admissible basis for giving Russo a “1” rating;
t) Clause 3(c) of the GIPA Plan provides that the “performance period” for the GIPA Plan is from 1 October to 30 September, in line with Westpac’s financial year: ACB, p.67. Salter said that it would be impermissible to take have taken into account factors outside the financial year period under review: T/D2, p.32.1. Musson also admitted that it was impermissible when reviewing an employee’s performance to look outside the performance period of between 1 October and 30 September: T/D2, pp.69.42-70.7. Despite this, as noted above, the evidence discloses that Musson did impermissibly take into account factors that fell outside the performance period;
u) Clause 3(d) of the GIPA Plan outlines the indicative payment ranges to be made in respect of incentive payments for the various ratings. For example, a rating of “Effective” leads to an incentive payment of between 80% and 110% of the incentive target: ACB p.67. This is a range of bonus that Russo would have received, but for Musson’s breaches;
v) Clause 4(c) of the GIPA Plan provides that an employee must achieve at least an “Effective” rating for their performance for the full year to participate in the GIPA Plan: ACB p.68;
w) Clause 4(d) then deals with how performance is to be assessed and provides the following (ACB p.68):
People leaders are responsible for aligning the employee’s scorecard objectives with the business strategy of the BT Financial Group. The people leader is also responsible for managing employees against their objectives and assessing their performance. The performance review process is continuous, with formal documented performance appraisals completed every six months.
The full year appraisal performance and development rating which is recorded in the peoplexpress system and the communicated to the employee during the full year appraisal session.
The evidence shows that Musson did not comply with these requirements;
x) Clause 4(l) of the GIPA Plan provides for a grievance resolution procedure as follows (ACB p.70):
BT Financial Group seeks to provide a fair and efficient mechanism for dealing with any dispute relating to an employment matter. All employees may access the BT Financial Group Grievance Procedure to have any work-related grievance dealt with. A work-related grievance includes any behaviour, incident or circumstances an employee considers unacceptable.
The grievance procedure provides a mechanism for employees to dispute their performance rating, which could related to an amended categorisation of their rating and/or the payment of a bonus: T/D2 p.33.1-11; 34.15. The evidence shows that Russo was denied the opportunity to invoke a grievance because he was never informed about this annual rating until after the termination of his employment;
y) Russo was entitled to various benefits under the Westpac Group’s policies: ACB p.50. The Employment Contract stated that these policies “do not form any part of [Russo’s] contract of employment”: ACB p.50. However, as noted above, notwithstanding this supposed disclaimer, there are other specific parts of the Employment Contract that expressly entitled Russo to contractual benefits under certain Westpac policies, especially in the event of employment termination and redundancy. In this regard, it is relevant to note the following:
Redundancy
If your employment with Westpac is terminated on the basis of redundancy, your entitlements will be determined in accordance with the more favourable to you of the applicant industrial instruments or a relevant Westpac policy or procedure in accordance with the terms and conditions of that industrial instrument or policy or procedure.
Other Matters
The Westpac Employees Award 2002, Westpac’s Enterprise Development Agreement (together referred to as the “Industrial Instruments”) or Westpac’s policy and procedures (and anything that replaces any of those documents) all deal with entitlements of Westpac’s employees on termination. You will be entitled to the greater of either the entitlement under this clause or the entitlements under the Industrial Instrument or policies – you will not be entitled to the cumulative benefit of each.
z) The GIPA Plan did not directly deal with entitlements or termination, but cl.4(a) outlined eligibility to participate in the GIPA Plan and provides that to be eligible, the employee had to “[b]e employed and not have resigned as a permanent part-time or full-time employee of the Westpac Group on the incentive payment date”: ACB p.68. However, as all the relevant witnesses accepted, the GIPA Plan had to be read subject to the Remuneration Policy and the Scheme Rules. The Remuneration Policy relevantly provides (Exhibit “2”, p.14):
iii) Retrenchment or Retirement
In addition, the employee may also be eligible for a pro-rata cash STI payment for the current performance year. This is subject to discretion of the employee’s People Leader and requires approval by both the General Manager and the manager who is two levels above the individual receiving the award.
aa) The Scheme Rules relevantly provide (Exhibit “1”, p.5):
Retrenchment
Where an employee is retrenched prior to the end of the current performance period, they may be eligible for a pro-rata cash variable reward payment for the current performance period. This will be in accordance with the Westpac Group policies and amended from time to time and is subject to the discretion of their manager who is two levels above the individual receiving the award. Any share-based payment will be subject to the relevant share plan rules.
bb) Musson admitted that termination of employment, per se, did not disentitle an employee to the payment of an incentive: T/D2, p.73.41. In this respect, he accepted that termination of employment on the ground of redundancy or retrenchment was a special case: T/D2, p.73.44-47. Musson accepted that the Remuneration Policy and the Scheme Rules provided for discretion to be exercised in favour of employees whose position had been made redundant in respect of the payment of pro rata bonuses: T/D2, p.71.38-72.18. Musson admitted that there was nothing within the rules that indicated the payment was an “ex gratia” payment: T/D2, p.72.20; T/D2 p.74.16;
cc) Neither the Remuneration Policy nor the Scheme Rules made reference to the Redundancy Policy. Musson accepted that there was no reference within the Remuneration Policy to the application or operation of the Redundancy Policy: T/D2, p.74.18-74.21. In any event, the relevant Redundancy Policy made provisions for the payment of benefits to employees in the event of termination of employment on the grounds of redundancy: RCB, p.281. Relevantly, p.9 of that policy (RCB p.289) dealt with short term incentive and bonus payments and provided as follows:
When you have been employed by us for more than 6 months in a financial year, (which ends 30 September) and you are retrenched, you may receive a pro-rated short term incentive payment at the discretion of your People Leader.
What factors will my People Leader consider when determining whether I will receive a pro-rata short term incentive payment?
Your People Leader will consider:
· Company/division performance. Any payment you may receive will take into account year and forecast company/division performance
· You most recent individual performance rating.
· Your retrenchment date. Payments will only be considered where you have worked more than 6 months of the financial year and more than half of the most recent performance period (whether this is a monthly, quarterly or bi-annual performance period) under your short term incentive scheme. If a payment is made, it will be pro rata based on the time you have worked in the most recent performance period.
· Whether you might otherwise have received a payment under your short term incentive scheme if you had been employed by us at the usual payment date.
· Any other factors, in his or her discretion, your People Leader considers are relevant, for example the payment frequency of your short term incentive scheme and/or consistent with short term incentive decisions of other employees in your business in the same or similar circumstances.
The second and third bullet points require the relevant People Leader to have complied with other policies, such as the GIPA Plan, to determine the relevant employee’s performance rating and whether the employee would have otherwise received an incentive payment under those policies: T/D2, p.123.4-5. However, Musson admitted that he never actually completed this process when he came to apply the Redundancy Policy: T/D2, p.123.7-9.
126.
Westpac, in their outline of closing submissions, claims that in Russo’s outlines of closing submissions, he has reduced his case to a single cause of action, in that Westpac breached Russo’s contract of employment by exercising its discretion to withhold a payment of an ex gratia incentive bonus either capriciously, arbitrarily, or unreasonably and not conformably with the purposes of the contract. The essence of the legal claim appears to be that Westpac departed from its policies and procedures in determining Russo’s bonus, and its evaluation of Russo’s performance did not have any basis in fact. However, this case is not the case pleaded in the Statement of Claim.
127.
It is argued by Westpac that Russo has effectively abandoned the contractual and misleading and/or deceptive conduct case pleaded in the Statement of Claim. None of the express terms or the claim made under the ACL pleaded in the Statement of Claim have been referred to in Russo’s closing submissions. Russo sought to recast his case in his opening submissions and has tried to do so, again, in his closing submissions. Russo’s core propositions of fact are identified in the evidence of Westpac’s key witness, Musson, in that not only did he fail to comply with the relevant policies, but also had his discretion miscarried in a serious way. This is reflected in the following core propositions that Musson admitted:
a) He acted without investigating matters properly and without having properly documented records: T/D2, p.114.21-23;
b) He acted without a rational basis and outside the rational framework for assessing Russo’s performance: T/D2, p.114.25-33;
c) He acted outside the performance period and took into account impermissible matters :T/D2, p.114.35-42;
d) He did not act consistently with the objects of the transparency of the GIPA Plan, or the object to link performance to the objective scorecard, which were important principles enshrined within the GIPA Plan, the Remuneration Policy and the Commission System Rules: T/D2, p.115.9-11;
e) He accepted that the steps he had taken in failing to conduct an annual review session with Russo and the other steps he had taken during the course of the annual review were a breach of the GIPA Plan and the established processes pursuant to that plan: T/D2, p.117.4-5;
f) His decision-making process was not conformable with the objects of the GIPA Plan: T/D2, p.113.1-7;
g) His decision-making in respect of Russo’s final year performance was not perfect: T/D2, p.114.17-19;
h) Musson never told Russo that he had been given an annual review rating of “Effective-Low” and thereby denied him an opportunity to challenge those decisions internally through the grievance resolution process: T/D2, p.119.15-24;
i) Musson accepted that he did not actually enter in any ratings or commentary as against the annual review targets: T/D2, p.121.15-19. Musson accepted each of Russo’s self-performance ratings: T/D2, p.121.19;
j) In respect of each of the criteria within the Redundancy Policy, Musson accepted that most of them weighed in favour of paying Russo a bonus: T/D2, p.122.1-126.8;
k) Musson admitted that it was unreasonable for him to have departed from the plan and processes that Westpac had established: T/D2, p.126.13-15;
l) Musson admitted he had not acted consistently with the purposes of those plans: T/D2, p.126.17;
m) Musson admitted that he had taken into account impermissible practice: T/D2, p.126.19;
n) Musson also admitted that he did not take into account relevant considerations he should have: T/D2, p.126.21-30;
o) Musson accepted that had Russo been given a higher rating, which would have occurred but for his non-compliance with policies, Russo had a real chance that he would have received a bonus: T/D2, p.127.10-22;
128.
Westpac submits there are fifteen separate core propositions advanced by Russo based on a number of factual allegations, but none of these alleged core propositions or factual allegations are pleaded in the Statement of Claim. A simple comparison between the propositions and factual allegations advanced in the submissions and the Statement of Claim makes out this conclusion. Once Westpac became aware of Russo’s attempt to change his case, it strenuously objected to it: T/D1, p.32.29-30. Westpac contends that this was raised in their outline of submissions and they have neither consented nor acquiesced at any stage to such fundamental changes. In the closing submissions, Westpac again restated that objection.
129.
Westpac advanced the argument that a pleading must identify the material facts to be relied upon during proceedings. The material facts comprise the cause of action or grounds for granting the relief claimed. The basic purpose of pleadings is to define the issue with sufficient clarity to enable a party to understand and, therefore, have an opportunity to meet the case brought against it: Dare v Pulham (1982) 148 CLR 658 at 664; Forrest v Australian Securities and Investments Commission & Anor (2012) 247 CLR 486 at [26]. It accords with ordinary principles of procedural fairness: Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 at 286-287.
130.
Westpac argues that Russo’s case must be confined to the pleadings and particulars unless the pleadings are formally amended. Russo has not made such an application. It is not open to a party, during the course of a hearing, to attempt to recast, expand upon or add to their claim by making allegations not included in the pleadings over the objections of the opposing party: Jack Brabham Engines Ltd v Beare [2010] FCA 872 at [47]. Where a party’s case depends on propositions not articulated in the pleadings, it must be rejected: Jack Brabham Engines (supra) at [45].
131.
Westpac claims that it has been significantly prejudiced by Russo’s attempt to amend his case at the eleventh hour. Had Westpac been given proper advanced notice of Russo’s revised case, it would have adduced evidence from other witnesses to support a factual foundation of his business judgments. Westpac has been denied the opportunity to do so. If Russo is entitled to amend his case, then Westpac has been denied procedural fairness as it has not been given a fair opportunity to meet this case. Westpac claims that Russo’s closing submissions, where it states the pleadings laid out a “skeletal framework” of his case, merely underscores its gross inadequacy and consequent failure to fulfil the basic functions of pleadings. A pleading should not be a bare bones document, it must identify the key material facts so as to give fair notice to the opposing party/parties of the applicant’s case. Westpac contends the Statement of Claim does not meet this standard.
132.
Westpac noted that Russo alleges that Westpac has not acted honestly and in accordance with the purposes of Russo’s Employment. In asserting dishonesty or fraud the matter must be pleaded explicitly: Forrest v Australian Securities and Investments Commissions (supra). The alleged dishonesty must be identified with precision and particularity, but Russo has not done so.
133.
Westpac also brought to the Court’s attention the operation of s.42 of the Federal Circuit Court of Australia Act 199 (Cth), which states that the requirement for pleadings to fulfil their basic role is not alleviated. In Sterling Commerce (Australia) Pty Ltd v Iliff (2008) 173 IR 378 at [23] her Honour Gordon J observed in relation to the then Federal Magistrates Court by reference to s.42 of the then
Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
In the GIPA Participant’s Guide (ACB, pp.62-71), under the subheading “(k) GIPA Plan ownership and operation” (ACB, p.69), it states:(k) GIPA Plan ownership and operation…The terms of this Plan are separate from and do not form a term of, or any part of, or create any obligations or rights pursuant to an individual’s contract of employment. In the Scheme Rules, under the subheading “Purpose”, it states:Each scheme has an individual participant guide that details the arrangement of a particular scheme. Particular guides must be read in conjunction with the Rules set out in this document. In the Scheme Rules under the subheading “Retrenchment”, it states:Where an employee is retrenched, they may be eligible for a pro-rata cash variable reward payment for a current performance period. This will be accordance with the Westpac Group policies as amended from time to time and is subject to the discretion of their manager and will require approval from both the manager who is two levels above the individual concerned and their general manager. Westpac’s position was that Russo did not qualify under the GIPA Plan for the payment of incentive payment because his employment was terminated on the ground of redundancy (on 20 October 2011), prior to the payment date (1 December 2011). The eligibility to receive a payment, a variable payment, requires that the employee be employed at the payment date, which he was not. Westpac’s argument is that it is not the Scheme Rules which govern the entitlement or payment of any incentive. It arises under what is identified as a non-contractual policy under the contract of employment and also under the Redundancy Policy. Further it expressly states to be subject to the discretion of a manager. In the relevant document the phrase “absolute discretion” is the same set out in the Employment Contract. Westpac maintains that it is a clear and unambiguous term that the policy, which Russo relies upon as a source of the basis for any pro rata entitlement to a variable payment, is non-contractual in nature. However, if I turn to the Musson Affidavit at [110] (RCB, p.18) it states: As Mr Russo was part of the redeployment program, the end of the year review I conduct was treated informally. I used this review as a basis to which to determine Mr Russo’s eligibility to receive an ex gratia payment under the Redundancy Policy, copy of this policy is annexed to this affidavit and marked “DM-19”. In that exhibit under the subheading, “Entitlements” (RCB, p.125) it states:If I am retrenched, am I entitled to other payments and benefits that usually apply on leaving Westpac?Yes. You’re entitled to the payments and benefits that also apply when people resign from Westpac.NoticeIf we decide to retrench you, we will give you 6 weeks’ notice or a payment instead of that notice. If you decide to leave during the notice period (i.e. before your retrenchment date), we won’t pay you any of the time of the notice period that you don’t work. But you will still receive your other retrenchment entitlements.Westpac’s position is that nothing in the policy can give rise to an entitlement as a matter of construction, because every other part of the contract excludes it. Despite this claim, the argument being advanced on behalf of Russo is that the contract and the suite of employment documents must be read as a whole.