Smit v Sonic Healthcare Limited
[2008] WADC 135
•11 SEPTEMBER 2008
SMIT -v- SONIC HEALTHCARE LIMITED [2008] WADC 135
| DISTRICT COURT OF WESTERN AUSTRALIA | Citation No: | [2008] WADC 135 | |
| Case No: | CIV:926/2007 | 11 FEBRUARY 2008 | |
| Coram: | SWEENEY DCJ | 11/09/08 | |
| PERTH | |||
| 23 | Judgment Part: | 1 of 1 | |
| Result: | Judgment for plaintiff - Damages and interest awarded | ||
| PDF Version |
| Parties: | WAYNE JACOB FRIJA SMIT SONIC HEALTHCARE LIMITED (ACN 004 196 909) |
Catchwords: | Contract Construction of terms Breach of contract Specific performance Assessment of damages |
Legislation: | Industrial Relations Act 1988 (Cth) Supreme Court Act 1935 s 32 |
Case References: | Advertiser Newspapers Pty Ltd v Industrial Relations Commission of South Australia & Grivell (1999) 74 SASR 240 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 Dougan v Ley (1946) 71 CLR 142 Equuscorp Pty Ltd v Glengallen Investments Pty Ltd (2004) 218 CLR 471 Gallotti v Argyle Diamond Mines Pty Ltd [2003] WASCA 166 Gardiner v Agricultural and Rural Finance Pty Ltd, unreported; NSWCA; Library No 200707679; 6 September 2007 Maggbury Pty Ltd v Fafele Australia Pty Ltd (2001) 185 ALR 152 Pacific Carriers v BNP Paribas (2004) 218 CLR 451 R v Secretary of State for Social Services; Ex parte Khan [1973] 1 WLR 187 Smith v Director-General of School Education (1993) 31 NSWLR 349 State of Victoria v Commonwealth of Australia (1995-1996) 187 CLR 416 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 |
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
- IN CIVIL
- Plaintiff
AND
SONIC HEALTHCARE LIMITED (ACN 004 196 909)
Defendant
Catchwords:
Contract - Construction of terms - Breach of contract - Specific performance - Assessment of damages
Legislation:
Industrial Relations Act 1988 (Cth)
Supreme Court Act 1935 s 32
Result:
Judgment for plaintiff - Damages and interest awarded
(Page 2)
Representation:
Counsel:
Plaintiff : Mr T J Carmady
Defendant : Mr J A Thomson
Solicitors:
Plaintiff : Williams & Hughes
Defendant : Allens Arthur Robinson
Case(s) referred to in judgment(s):
Advertiser Newspapers Pty Ltd v Industrial Relations Commission of South Australia & Grivell (1999) 74 SASR 240
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337
Dougan v Ley (1946) 71 CLR 142
Equuscorp Pty Ltd v Glengallen Investments Pty Ltd (2004) 218 CLR 471
Gallotti v Argyle Diamond Mines Pty Ltd [2003] WASCA 166
Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235
Maggbury Pty Ltd v Fafele Australia Pty Ltd (2001) 185 ALR 152
Pacific Carriers v BNP Paribas (2004) 218 CLR 451
R v Secretary of State for Social Services; Ex parte Khan [1973] 1 WLR 187
Smith v Director-General of School Education (1993) 31 NSWLR 349
State of Victoria v Commonwealth of Australia (1995-1996) 187 CLR 416
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
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1 SWEENEY DCJ: Between 2001 and 2005, the plaintiff Dr Smit, a pathologist, was employed by Subilabs Pty Ltd trading as Clinipath. The defendant, which is the holding company of Subilabs Pty Ltd, granted the plaintiff 50,000 options to purchase shares in it on certain terms and conditions, known as the Employee Option Plan Rules ("the Plan").
2 After he ceased to be an employee, the plaintiff purported to exercise 25,000 of those options, but the defendant refused to allot to him the corresponding 25,000 shares asserting that, his employment having ceased, the options had expired.
3 The sole issue for me to determine in this trial is whether, on a proper construction of the Plan, the plaintiff's entitlement to the shares ceased when his employment ceased.
4 By way of background, about which there is no dispute, the plaintiff was employed by Subilabs Pty Ltd pursuant to a fixed term service agreement (Exhibit 1.4) for a period of five years commencing in April 2000, which period could be extended. It became common ground before me that the employment agreement expired on 30 April 2005.
5 During that five year period, by letter dated 17 September 2001 (Exhibit 1.7), the defendant offered the plaintiff the position of chief executive officer of Clinipath and Bunbury Pathology, a position he accepted. This was not a fixed term contract, but one which could be terminated by either party on three months' written notice, in which case the plaintiff's employment would revert to that of his previous position as full-time pathologist and be governed by the existing service agreement between himself and Subilabs Pty Ltd. The plaintiff was also informed that, at the first available opportunity, he would be granted 50,000 options under the Sonic Healthcare Employee Option Plan.
6 On 30 August 2002 the plaintiff was offered participation in the Sonic Healthcare Employee Option Plan. Both counsel have placed some limited reliance upon the covering letter of 30 August 2002 (Exhibit 1.8) from the defendant to the plaintiff indicating that an offer was attached and a second letter of the same date (Exhibit 1.9) headed "Invitation to Participate in the Sonic Healthcare Limited Employee Option Plan" by which the offer was made and to which the Plan and also an Acceptance Form was attached.
7 Neither party argues that either letter carries any contractual status and are agreed that the Plan contains the terms and conditions which govern the granting of options and allotment of shares. The letter of offer,
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- however, is a document incorporated by reference into the Plan and it is only by reference to that letter that one can ascertain how many options were granted to the plaintiff and at what price and the vesting dates of those options applicable to the plaintiff. To that extent, the letter of offer must necessarily have contractual status. To the extent to which the letter sets outs the aims of the Plan and purports to explain its terms, however, it is agreed by counsel that it has no contractual status.
8 In any event, it was agreed in argument that, to the extent to which there is any difference in the phraseology employed in either of these letters compared to the Plan itself, then the terms and conditions contained in the Plan govern the parties' rights. It is similarly accepted that the Employee Option Plan Information Booklet which accompanied the letter of offer and the Plan has no contractual status.
9 Both parties have invited me to consider the objective factual background known by both parties at the time the contract was entered into and about which there is no dispute: (see Maggbury Pty Ltd v Fafele Australia Pty Ltd (2001) 185 ALR 152 at [11] per Gleeson CJ, Gummow and Hayne JJ).
10 The first letter of 30 August 2002 (Exhibit 1.8), after introductions, states:
"The Plan is made available to selected employees of the Sonic Group and is made in recognition of the importance of your role within the Group.
The Sonic Employee Option Plan aims to:
• Attract and retain the best people available by providing you with the opportunity to receive future financial benefits;
• Encourage you to promote the Sonic Group business by offering you rewards directly linked to the growth in Sonic Healthcare value; and
• Enable you to participate in the growth of the Group and to align your interests more closely with those existing shareholders.
It is the Board's wish to extend the spread of ownership of Sonic to its employees. An employee option plan, such as this, is one
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- recognised means of achieving this outcome. You should be aware that this offer is made to selected employees of the Sonic Group and that statutory restrictions place a ceiling on the total available Options for distribution …"
11 The letter of offer (Exhibit 1.9) commences in similar terms, stating "in recognition of the importance of your position and contribution you are invited to participate in the Sonic Healthcare Limited Employee Option Plan" and sets out the aims of the Plan in identical terms to those in the first letter. It continued:
"The Options are exercisable only in accordance with the terms and conditions of the Plan".
12 Attached to that letter (also part of Exhibit 1.9) was a copy of the Sonic Healthcare Limited Employee Option Plan Rules ("the Plan").
13 By cl 2.1 of the Plan:
"The Company may, or an Associated Body Corporate on behalf of the Company may, from time to time offer Options to such Employees as the Employer sees fit subject to the Terms and Conditions."
14 By cl 1.1 "Terms and Conditions" is defined to mean the terms and conditions of the Plan as amended or replaced from time to time.
15 By cl 2.2:
"Offers of Options must be in writing and must contain such information relevant to the Options as the Employer considers appropriate, including:
(a) the Date of Grant or intended Date of Grant;
(b) the total number of Options to be offered to the Employee;
(c) the dates of the Exercise Period;
(d) the Exercise Price or the method of determining the Exercise Price;
(e) the monetary consideration (if any) payable on the grant of the Option; and
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- (f) the closing date for receipt of an Acceptance Form,
such Offer Letter shall be in such form as the Company approves."
16 The method by which the exercise price of the options is determined and the dates of the exercise periods are set out in cl 5.1 and cl 5.2, however to ascertain the information referred to in cl 2.2 it is necessary to have regard to the offer letter which, on its face, is clearly the second of the two letters dated 30 August 2002 (Exhibit 1.9).
17 It is that letter which specifies that the options will be granted at no cost and that the number of options to be granted to the plaintiff is 50,000 at the exercise price of $4.81 each. The date of grant is 16 July 2002. The offer letter also contains a schedule setting out the vesting periods, which is consistent (though expressed slightly differently) with cl 5.2 of the Plan, to the effect that up to 50 per cent of the options may be exercised after 30 months after the date of grant, up to 75 per cent may be exercised after 42 months after the date of grant and up to 100 per cent may be exercised after 54 months after the date of grant until the expiry date (being 58 months after the grant date).
18 Attached to the letter of offer was an acceptance form and it is common ground that the plaintiff duly completed that form and forwarded it to the defendant within time. The dates of those vesting periods have been calculated, such that the first group of up to 50 per cent vested and therefore could be exercised on or after 16 January 2005, the second group of up to 75 per cent vested on 16 January 2006, the third group of up to 100 per cent vested on 16 January 2007 and the expiry date was 16 May 2007.
19 The exercise price of the options is to be calculated in accordance with cl 5.1, "by adding five cents to the weighted average sale price per shares for shares in the Company sold on the ASX in the five business days preceding" the grant date.
20 The employee, then, pays nothing for the options themselves at the time of grant. If, when he seeks to exercise those options in order to obtain the same number of ordinary shares in the defendant, the price to do so is less than the price those shares are fetching on the Australian Stock Exchange, he will benefit financially by being able to acquire them more cheaply. If, on the other hand, the exercise price exceeds the market price of the shares, his options will not benefit him financially. It is in this
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- way that the options encourage the employee to promote the business with, hopefully, corresponding increases in the market value of its shares.
21 By cl 5.4, in order to exercise the options, the plaintiff was required to complete and lodge an exercise notice within the option period for that particular percentage of options together with payment of the exercise price and, within 21 days of receiving such a notice, the defendant was required to allot to him one ordinary share for each option exercised.
22 It is common ground that, some time in January 2003, the plaintiff terminated the employment agreement by which he was employed as chief executive officer, his position reverting to that of full-time pathologist governed by his original service agreement with Subilabs Pty Ltd. That fixed term contract was due to expire on 30 April 2005.
23 The plaintiff was replaced in his position as chief executive officer by Dr Denham Harloe. Dr Harloe testified and it is uncontroversial that, on 6 April 2005, he informed the plaintiff that a decision had been taken to not extend his contract and that accordingly his employment would finish at the end of April 2005. The needs of the practice had changed and management had decided that greater specialisation was required by individual pathologists. In a subsequent meeting the plaintiff requested his period of employment be extended to equate to three months' notice. Dr Harloe agreed to extend his employment to the end of May 2005.
24 Self-serving evidence was led from Dr Harloe as to his understanding of the plaintiff's rights in relation to the options at that time and after his employment ceased. Evidence was also led of negotiations between Dr Harloe and the plaintiff involving both the options and a restraining clause, which negotiations did not result in agreement.
25 My task however is to ascertain the meaning of the Plan objectively, that is to ascertain the meaning which the Plan would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract (see Maggbury Pty Ltd v Fafele Australia Pty Ltd (supra) 185 ALR 152 at [11] per Gleeson CJ, Gummow and Hayne JJ). While the evidence of Dr Harloe was led without objection, I have placed no weight on his subjective interpretation of the Plan almost three years after the plaintiff signed his acceptance form. The departure of the plaintiff as an employee, however, is simply part of the objective background of the case giving rise to the dispute.
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26 On or about 2 May 2005, while still in the employ of Subilabs Pty Ltd, the plaintiff exercised 25,000 of the options. The defendant allotted him 25,000 ordinary shares. The exercise price had been varied by letter of 10 March 2003, by which it had been reduced from $4.81 to $4.66.
27 On 31 May 2005 the plaintiff ceased to be employed with Subilabs Pty Ltd.
28 It is common ground that, on or about 17 January 2007, the plaintiff purported to exercise the remaining 25,000 options by serving an exercise notice, together with a cheque for the correct amount of $116,500, within the period 54 to 58 months of the grant date. The defendant refused to allot him any shares. The plaintiff seeks specific performance of the contract or damages in lieu or alternatively damages for breach of contract.
29 The clause in issue in this trial is cl 5.3 of the Plan which provides:
"The rights to exercise set out in clauses 5.2(a), (b) and (c) inclusive are subject to the following additional provisions:
(a) if a person ceases to be an Employee by reason of Dismissal or Resignation, any Options held by that person on the date of Dismissal or Resignation will lapse and be incapable of exercise, unless and to the extent that the Employer otherwise determines in its absolute discretion; and
(b) if a person ceases to be an Employee by reason of Retirement, any Options held by that person on the date of Retirement remain capable of exercise in accordance with clause 5.2, unless and to the extent that the Employer otherwise determines in its absolute discretion."
30 The defendant asserts that the plaintiff ceased to be an employee "by reason of Dismissal or Resignation" and that, therefore, any options held by him on the date he ceased to be an employee lapsed and became incapable of exercise.
31 It is not argued on the part of the defendant that the plaintiff's termination of the employment agreement by which he became chief executive officer amounted to a resignation by which caused his options to lapsed. It may well be that the definition of "Resignation" precludes
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- such an argument being made, given that the plaintiff resumed his position as full-time pathologist. Having resumed that position, he later exercised 25,000 options and was allotted shares by the defendant. In any event, the defendant does not take the point.
32 "Employee" is relevantly defined in cl 1.1 to mean "a person who is a full or part-time employee or Director of the Company or an Associated Body Corporate … and any other person who provides services to the Company or an Associated Body Corporate and who the Board declares to be an 'Employee' for the purposes of this Plan".
33 "Employer" is defined to mean "the Company or an Associated Body Corporate which employs, or receives services from, the Employee".
34 "Dismissal" is defined to mean "the termination of an Employee's engagement by the Employer for any reason, including in the case of a Director, removal by resolution of the Company in general meeting, but does not include Resignation or Retirement".
35 "Resignation" is defined to mean:
"(a) the termination of an Employee's engagement at the volition of the Employee (but does not include Dismissal or Retirement or termination at the volition of the Employee in order to assume another engagement with the Company or an Associated Body Corporate or taking approved study leave or other approved leave of absence); or
(b) the Employee no longer being a full or part-time Employee or Director of the Employer, the Company or a body corporate that is an Associated Body Corporate because the Employer of the Employee ceases to be an Associated Body Corporate of the Company."
36 Finally, "Retirement" is defined to mean:
"… the termination of an Employee's engagement by reason of;
(a) the attainment of an age of 65 years or such other age as the Employer from time to time specifies as the age for retirement for employees of the type of Employee or an earlier age with the consent of the Employer; or
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- (b) illness or incapacity as certified by a medical practitioner who is employed in writing by the Employer."
37 The plaintiff's argument may be quite simply stated. It is that the plaintiff did not cease to be an employee by reason of dismissal or resignation, as those terms are defined, in that he ceased to be an employee because his employment contract terminated by the effluxion of time and not because it was terminated by the employer for any reason and certainly not at his own volition.
38 The plaintiff places emphasis both upon the words "the termination of an Employee's engagement by the Employer for any reason" (emphasis added) and also upon the context in which those words are used, namely to define "Dismissal" which informs the manner in which those words ought be construed.
39 It is the terms of this contract which I must focus upon in order to determine the objective intention of the parties. Authorities dealing with the use of similar terms in other contracts may have limited use. Nevertheless, it is instructive to look to authorities to discern might be regarded as the ordinary and natural interpretation to be placed upon words commonly used such as "dismissal" and "termination".
40 There is ample authority from the field of industrial relations law that the description "dismissal" does not apply to a contract having expired upon the force of its own terms with no action of the employer bringing it to an end. In Gallotti v Argyle Diamond Mines Pty Ltd [2003] WASCA 166 at [4] to [7] E M Heenan J, with whom Anderson and McKechnie JJ agreed stated:
"In his reasons for decision in the Full Bench the learned President said (AB 33-34):
'A dismissal is well understood to be the termination of the contract at the initiation of the employer and this may be done by notice or summarily (see Macken, O'Grady, Sappideen & Warburton 5th Edition, 'The Law of Employment'). Where a contract provides for employment for a fixed term, the contract term will automatically end when the time expires, unless, of course, it is lawfully terminated in some other way in the meantime (see 'The Law of Employment' op cit at page 235).
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- If, however, a contract of employment is terminated by agreement between the parties (i.e. consensually) or by effluxion of time then there is obviously not a dismissal because there is no termination at the initiative of the employer'.
With respect, I agree with those observations of the learned President.
There is ample authority for the proposition that the cessation of the relationship of employer and employee by the effluxion of an agreed term of employment is not a 'dismissal'."
41 In Advertiser Newspapers Pty Ltd v Industrial Relations Commission of South Australia & Grivell (1999) 74 SASR 240 the Supreme Court of South Australia considered the meaning of the words "dismiss" and "dismissal" for the purposes of s 105 of the Industrial and Employees Relations Act 1994 (SA), in which neither term was defined. The Court applied the ordinary meaning of the words, described in Smith v Director-General of School Education (1993) 31 NSWLR 349 at 365 as that "suggested by Brereton J in Ex parte Wurth; Re Tully (1954) 55 SR (NSW) 47 as being 'the termination of services by the employer without the employee's consent'; we would add that where an employee does not freely consent to the termination, understood in a broad sense, then the circumstances may still amount to a dismissal by the employer as a constructive dismissal".
42 After quoting the above passage at [26] Bleby J stated:
"I have no difficulty in adopting the same definition of the word when it is used in the Act, namely the termination of services by the employer without the employee's consent.
It follows that where an employee voluntarily abandons employment or lawfully terminates the contract (for example by giving the requisite notice) or where the contract of employment terminates by effluxion of time or by agreement, there is no dismissal and the employee has no remedy."
43 I consider then that the ordinary meaning of "dismissal" does not contemplate the scenario of an employee's employment coming to an end by effluxion of time in a fixed term contract in accordance with the contract mutually agreed upon.
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44 The case of State of Victoria v Commonwealth of Australia (1995-1996) 187 CLR 416 concerned an issue of the constitutionality of certain provisions of the Industrial Relations Act 1988 (Cth), its validity being challenged by certain of the States. One of the provisions under challenge contained a prohibition upon the States to the effect that an employer "must not terminate an employee's employment". By way of dicta the Court concluded at 520:
"As a matter of ordinary language, an employer does not terminate an employee's employment when his or her term of employment expires. Rather, employment comes to an end by agreement, or, where the term is fixed by award or statute, by operation of law.
There is nothing in the Act to suggest that the words '[a]n employer must not terminate an employee's employment' are to be construed other than in accordance with their ordinary meaning. So construed, they do not apply to the situation where employment comes to an end because its term has expired. To put the matter another way, the prohibitions are concerned with termination for reasons unconnected with the term of employment."
45 I consider that the ordinary meaning of "terminate" equally does not contemplate the scenario of an employee's employment coming to an end by effluxion of time in a fixed term contract in accordance with the contract mutually agreed upon.
46 The ordinary and natural meaning of the words may not conclude the matter. There may be in the Plan indications that I should, upon a proper construction of the Plan as a whole, construe these words to have a different meaning.
47 In R v Secretary of State for Social Services; Ex parte Khan [1973] 1 WLR 187, the terms and conditions of employment provided for a review procedure where a medical assistant considered that "his appointment is being unfairly terminated". The Court found that the words "unfairly terminated" did not apply to a contract which came to an end by effluxion of time, but required some positive act such as the giving of notice by the employer. Lord Denning MR at 189G-190E summed up the argument thus:
"Dr Kahn says that his appointment was 'being unfairly terminated'. But the hospital board say: No, it was not being
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- terminated at all. It came to an automatic end when his two-years appointment came to an end.
The rival arguments are nicely balanced. I think that the word 'terminate' or 'termination' is by itself ambiguous. It can refer to either of two things – either to termination by notice or to termination by effluxion of time. It is often used in that dual sense in landlord and tenant and in master and servant cases. But there are several indications in this paragraph to show that it refers here only to termination by notice: (1) The main heading speaks of 'Notice of Termination'. (2) The cross-heading is 'Representations against dismissal'. (3) The words 'is being unfairly terminated' point to some positive action on the part of the board by way of termination, such as by giving notice or shutting him out, as distinct altogether from an automatic coming to an end. (4) The words – 'the board's decision to terminate the appointment' are to the same effect. (5) The words 'before the expiry of the notice given' contemplate that the employment will be terminated by notice, and not by an automatic ending.
Next I would refer back to paragraph 15 of the terms of service. It says: 'Appointments shall be for two years in the first instance and if then confirmed shall be for an indefinite period'. It seems to me clear that the appointment comes to an end at the end of two years unless it is confirmed … I come back to this. Dr Khan's appointment came automatically to an end at the expiry of two years, unless it was confirmed. It was never confirmed."
48 In the same case, Buckley LJ stated at 191 A-B:
"As Mr Slynn has pointed out, the verb 'terminate' can be used either transitively or intransitively. A contract may be said to terminate when it comes to an end by effluxion of time, or it may be said to be terminated when it is determined by notice or otherwise by some act of one of the parties. Here in my judgment the word 'terminated' is used in this passage in paragraph 190 in the transitive sense and it postulates some act by somebody which is to bring the appointment to an end, and is not applicable to a case in which the appointment comes to an end merely by effluxion of time."
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49 I do not understand Lord Denning MR, in remarking that the word "terminate" or "termination" is by itself ambiguous, to be saying that, whenever either of those terms appears in a contract, the contract is necessarily attended by ambiguity. Khan however highlights that those words can be used in different senses and the question in this case is whether "termination" as it appears within the definition of "Dismissal" has been used transitively, that is to say a verb expressing an action over an object, in the sense of termination achieved by an act of the employer or intransitively, being a verb expressing an action which does not require an object, such as where a contract terminates or is terminated by reason of effluxion of time.
50 The plaintiff's argument is that, construed according to their ordinary and natural meaning, the terms "dismissal" and "termination" where they appear in the definition of "Dismissal" in cl 1.1 of the Plan refer to termination of the plaintiff's employment for a reason other than the effluxion of time and require instead some positive act on the part of the employer terminating the employment.
51 "Dismissal" is defined to mean "the termination of an Employee's engagement by the Employer for any reason … but does not include Resignation or Retirement" (emphasis added). The inclusion of the words "by the employer for any reason" lends compelling support for the argument that "termination" is used here in the transitive sense, meaning the termination must be on the part of, and brought about by an act of, the employer for any reason.
52 On this interpretation the words "but does not include Resignation or Retirement" may be regarded as unnecessary, in that neither would ordinarily be expected to fall within the definition of "Dismissal" in any event, but their exclusion from its terms puts its beyond doubt that termination of an employee's engagement by reason of his attainment of the age of 65 years or through illness or incapacity does not amount to "termination of an Employee's engagement by the Employer for any reason" and nor does termination of his engagement at his own volition.
53 The defendant's argument is that the Plan represents a code which must be seen to govern every factual scenario applicable to every employee who might be offered options. The Plan, it is argued, purports to cover every means by which employment may cease and, in cl 5.3, specifies an outcome.
(Page 15)
54 It specifically provides for employment ceasing by dismissal, including dismissal of a director by resolution at a general meeting, in which case the options lapse. It provides for resignation as defined, which includes an employee ceasing to fall within the extended definition of employee because his employer has ceased to be an associated company, in which case the options lapse. It excludes resignation of one post to take up another post within a related company and excludes taking approved leave of absence for study or some other reason.
55 It specifically provides for retirement at the age of 65 years or through illness or incapacity, in which case the options do not lapse and remain capable of exercise subject to the defendant's discretion. In the event of the death of an employee, his personal representative may exercise the options.
56 The defendant argues that, if the Plan is to be construed as applying to every employee, the interpretation urged by the plaintiff results in a lacuna, a gap, in the contract through which falls the employee on a fixed term contract which expires by effluxion of time. It is submitted that I should avoid an interpretation of the Plan which leaves that gap.
57 The defendant invites me to see another possible interpretation, whereby "Dismissal" means "the termination of an Employee's engagementby the Employer for any reason … but does not include Resignation or Retirement" (emphasis added).
58 This interpretation uses "termination" in an intransitive sense, where the employment is terminated for any reason, including the effluxion of time in a fixed term contract and does not require a positive act to effect the termination. The words "by the employer" are said to inform the meaning of "engagement" and have been included, it is argued, to pick up the extended definition of "Employer" which includes "an Associated Body Corporate which employs, or receives services from, the Employee".
59 The defendant argues that there is little assistance to be gained from cases in the field of employment law and industrial relations, because those authorities inhabit a field of law the purpose of which is to protect the employee from harsh and unreasonable positive actions by the employer and to provide a barrier for employees against such positive actions of employers. The defendant argues that it is no surprise that, in the context of unfair dismissal cases, the courts have chosen to view "dismissal" and "termination" in the sense of a positive act by the
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- employer, because the whole focus of that field of law is to review the employer's positive actions.
60 Before I deal with that submission, the defendant has a secondary submission which can be dealt with briefly. It argues that, if the expiry of employment through effluxion of time does not meet the definition of "Dismissal" then it must meet the definition of "Resignation," in order to avoid a lacuna in the Plan.
61 "Resignation" is defined in the Plan to mean "the termination of an Employee's engagement at the volition of the Employee". Such a description could not be met by a fixed term contract expiring. The contract expires as mutually agreed and not at the volition of one party. The facts of this case demonstrate that point, in that the plaintiff hoped his employment would be extended past the fixed term, however the contract was extended for one month only, an extension Subilabs Pty Ltd was not obliged to grant.
62 The defendant submits that, in accepting the extension for a mere month, when he had requested the equivalent of three months notice from 6 April 2005 (which would have resulted in an extension of a little over two months) the plaintiff has, of his own volition, terminated the contract. It is suggested that "going quietly" in some way amounts to terminating one’s employment. I do not accept this submission. The plaintiff had no choice but to leave. His fixed term contract had expired. His acceptance of the inevitable cannot be regarded sensibly as a resignation on his part.
63 I return to considering the defendant's primary submission that the expiry of the plaintiff's fixed term contract falls within the definition of "dismissal". If it does, then pursuant to cl 5.3 the options lapsed and became incapable of exercise from the date the plaintiff ceased to be an employee.
64 I do not accept there is little assistance to be gained from the authorities as to the ordinary and natural meaning of the word "termination". Unless a term is specifically defined, then, in assessing the objective intention of the parties from the Plan, the ordinary and natural meaning of the word is instructive and I would ascribe that meaning to the word unless the context in which it appears and the overall context of the Plan indicates otherwise, such as if the ordinary and natural meaning leads to an absurd or unjust result, or a result which frustrates the objective purpose of the Plan.
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65 I accept that "termination" has more than one ordinary meaning depending upon the context in which it is used. I have already noted that the inclusion of the words "the termination of an Employee's engagement by the Employer for any reason" (my emphasis added) is strongly suggestive that "termination" is here used in the transitive sense, requiring an act on the part of the employer. The express exclusion of "Resignation" and "Retirement" from the definition of "Dismissal" contrasts two means by which employment may cease which do not require any act on the part of the employer.
66 The words "the termination of an Employee's engagement by the Employer for any reason" also constitute the definition of "Dismissal". While the ordinary and natural meaning of "dismissal" must obviously give way, in the case of inconsistency, to its defined meaning in the Plan, the interpretation urged by the plaintiff is entirely consistent both with the wording employed in the definition and with the ordinary meaning of "dismissal", which does not encompass an employee's employment coming to an end by the expiry of a fixed term contract.
67 The defendant seeks to attach the words "by the Employer" to "Employee's engagement". It is argued this is to bring in the extended definition of "Employee" and "Employer". Both extended definitions cover associated companies, it being common ground that the plaintiff's employer, at the time his contract expired, was such a company. But it is unnecessary for the contract to specify that the employment being terminated is the employment by the employer. The employer could not terminate the employment of any employee other than its own. In the case of dismissal of a director by company resolution, the resolution must be by the company of which he is a director. The words "by the Employer" have no work to do in the definition of "dismissal" if all they achieve is to confirm that the employment terminated is the employment of the employee by the employer which employs him. The interpretation urged by the defendant reads in an artificial and contrived way.
68 Further, the definitions of "Resignation" and "Retirement" each refer to "the termination of an Employee's engagement" without confirming that the engagement under discussion is that "by the Employer".
69 I note also that the definition of "Resignation" refers to "the termination of an Employee's engagement at the volition of the employee" (emphasis added) which contrasts "Resignation" from "Dismissal," the former being "at the volition of the employee" while the latter is "by the Employer".
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70 The definition of "Retirement", on the other hand, refers to "the termination of an Employee's engagement by reason of" age, illness or incapacity, without specifying that the retirement will be at the instigation or volition of either party.
71 The interpretation sought by the plaintiff results in three categories of termination of an employee's engagement expressly mentioned in the Plan, being termination at the behest of the employer, termination at the behest of the employee and retirement due to involuntary factors, consistent with the ordinary meaning of the words "Dismissal", "Resignation" and "Retirement". Only termination of employment through retirement, or death, sees the employee or his representative retaining his options. Where one party has, at his volition, terminated the employment, the options lapse.
72 The plaintiff's interpretation does mean that termination of the employee's engagement by expiry of a fixed term contract is not expressly mentioned. The defendant argues this is a lacuna in a contract which has carefully governed even the rights of the parties in the event of a takeover bid or a corporate restructure.
73 The plaintiff's answer to this however, which I accept, is that the Plan has expressly nominated the scenarios by which the options will lapse and no longer be exercisable. Those scenarios are where one party, either the employer or the employee, has terminated the employment by an act of dismissal or resignation. Termination of employment by the expiry of a fixed term contract not having been expressly provided as an event upon which the options will lapse, they have not lapsed.
74 I construe the definition of "Dismissal" as requiring the employee's engagement to be terminated by an act of the employer, that act not being the original act of both parties agreeing that the employment would terminate upon the effluxion of time. This construction is consistent with the wording of the definition "the termination of an Employee's engagement by the Employer for any reason" (emphasis added). It also sits happily with the ordinary and natural meaning of "Dismissal".
75 Nor does this interpretation lead to an absurd or unjust result, nor frustrate the purpose of the Plan. The defendant's interpretation would deprive an employee, who must be taken to have performed his contractual obligations for the period mutually agreed by the parties, of a benefit offered him during that employment.
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76 Nor can it be said that, by upholding the plaintiff's interpretation, he gains an opportunity to acquire a shareholding in a company he could not otherwise acquire. The whole point of the Plan was to offer the employee the option to purchase shares at a price which might and hopefully would, in time, prove to be less than the price of the shares on the Australian Stock Exchange. On the other hand, to arrive at the interpretation the defendant urges upon me, I must strain to impose an artificial reading upon the plain words contained in the definition of "Dismissal".
77 I do not consider the definition of "Dismissal" does contain an ambiguity and I am mindful of the following passage from the judgment of Mason J in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352:
"The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. … [W]hen the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties presumed intention in this setting."
78 There was some discussion before me as to whether this statement of the law has been relaxed to some extent in authorities such as Pacific Carriers v BNP Paribas (2004) 218 CLR 451; Equuscorp Pty Ltd v Glengallen Investments Pty Ltd(2004) 218 CLR 471, and Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, discussed in Gardiner v Agricultural and Rural Finance Pty Ltd (unreported; NSWCA; delivered 6 September 2007; BC200707679) per Spigelman J at [7] to [13].
79 Neither party particularly relies upon extrinsic evidence to assist me to construe the Plan, except to the extent that the defendant places some emphasis upon the two letters of 30 August 2002 (Exhibits 1.8 and 1.9), both of which state that the Plan aims to "attract and retain the best available people". The second of these letters has been incorporated into the Plan by reference and, although I do not consider there is an ambiguity in the definition of "dismissal", I have, in order to do justice to the
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- defendant's argument, considered this evidence as part of the objective factual background casting light on the purpose and object of the Plan.
80 I do not consider the desire "to attract and retain the best available people" in any event assists the defendant's case. The construction I have placed upon the Plan is not inconsistent with the grant of the options being to attract and retain the best available people. There is no reason to suppose that an employee on a fixed term contract is not an employee the employer will seek to attract and retain, whether that be for the duration of the contract only, or afterwards by mutual agreement.
81 Nor is this inconsistent with the background facts of this case. I note also that at the time the plaintiff was offered the options, it was known to each party that, should his employment as chief executive officer be terminated by either party, his employment would revert to that of pathologist on a fixed term contract. Whatever the subjective intentions of the parties, objectively this was within their contemplation when the offer of options was made.
82 I conclude that, the plaintiff not being "a person who ceased to be an Employee by reason of Dismissal or Resignation", his options had not lapsed. He was therefore entitled, on or about 17 January 2007, to exercise the 25,000 options and the defendant was bound, within 21 days of receipt of his notice, to allot him one ordinary share for each option exercised. In breach of the terms of the Plan, it declined to do so.
83 In failing to meet its obligations under the Plan, the defendant deprived the plaintiff of the opportunity to acquire 25,000 shares in the defendant at the price of $4.66 per share. That breach took place on 6 February 2007, being the last date on which the defendant could meet its obligations and allot 25,000 shares to the plaintiff.
84 Tendered before me was a Security Share Prices Report from the Australian Stock Exchange (Exhibit 4) showing the listed price of shares in the defendant for the period 15 January to 15 February 2007. The price did not vary greatly over that period, ranging from $15.760 at its highest to $14.250 at its lowest. The plaintiff could have allotted the shares at any time after receiving the notice on or about 17 January 2007. The average listed price for the shares on 7 February 2007 was $14.885. An averaging of the high and low prices over the period 17 January to 6 February 2007, results in a similar average price at which the shares were available on the market during that entire period of $14.825 per share. For reasons which will appear immediately below, I prefer to take the average price of the
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- shares the day after 6 February 2007, which means the defendant deprived the plaintiff of the opportunity to acquire 25,000 shares with a market price of $14.885 each at that time for the lower price of $4.66 per share.
85 The plaintiff seeks an order for specific performance or, in lieu, damages at law for breach of contract or, in lieu of specific performance, equitable damages.
86 Since the decision in Shaw v Holland (1846) 15 M. & W. 136, in which Parke B drew on the position in relation to non-delivery of goods, the normal measure of damages in the case of non-delivery of shares on an appointed day is the difference between the contract price and the market price for the shares. Parke B, with whom the rest of the Court agreed, stated at [145–146]:
"In the case of Gainsford v Carrol (2 B. & C. 624), which was an action for not delivering goods on a given day, the Court held, that it was not like the case of a loan of stock, where the borrower holds in his hands the money of the lender, and thereby prevents him from using it altogether; for that the plaintiff, having his money in his possession, might purchase the like goods the very day after the contract was broken; and therefore that the true measure of damages was the difference between the price agreed upon and the market price of the goods at the time the contract was broken. Here the plaintiff had his money in his own possession, and might have gone into the market and bought other shares as soon as the contract was broken. The question therefore is, when it was broken. Now the plaintiff, by his letter of the 3rd of March, gave the defendant until the 10th of March to deliver the shares; and he is not, therefore, entitled to calculate the damages with reference to any amount the shares might have sold for subsequently to the 10th."
87 As was explained by the learned author of "McGregor on Damages" (16th edition; Sweet & Maxwell Ltd, 1997, London) at [1102] the difference between the contract price and the market price for the shares "represents the amount that the buyer must obtain to put himself in the position he would have been in had the contract been carried out, since to do so he must buy equivalent shares in the market".
88 The listed price of the shares had not varied particularly by the time proceedings were instituted. A decree for specific performance will not
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- generally be entertained by the Court if damages at law are adequate to compensate the plaintiff. In Dougan v Ley (1946) 71 CLR 142 at 150, Dixon J, having reviewed the position since "the seventeenth century, if not before" to the effect that "it became the received doctrine that the foundation of decrees for specific performance was 'that damages at law would not give the party the compensation to which he was entitled; that is, would not put him in a situation as beneficial to him as if the agreement were specifically performed'" concluded:
"In the case of goods or securities obtainable upon the market, damages at law place the disappointed buyer or seller in as good a position as delivery of the articles or receipt of the price because it enables him to go upon the market."
90 The plaintiff submits, in supplementary submissions filed after the trial with permission of the court, that there was no evidence that the plaintiff could have alternatively obtained 25,000 shares in the defendant at about 17 January 2007 for a price of $4.66 per share.
91 Those cases dealing with the awarding of damages at law in the case of non-delivery of shares contemplate, however, a rise in the value of the shares, since a steady price consistent with the contract price could lead to only nominal damages. It is precisely when there has been a rise in the price of the shares which have not been delivered that damages are assessed on the difference between the market and contract price. The plaintiff, it must be assumed in the circumstances of this case, could not have purchased shares in the defendant company at the low price granted him by the Plan. I conclude however that, when there is evidence before the Court that, as at the date of the breach, the shares were listed on the Australian Stock Exchange at a particular price, I am entitled to find as a fact that on that date the shares were available to be purchased at that price. I note also that the Security Share Prices Report (Exhibit 4) also indicates the volume of shares traded. On the slowest day 619,346 shares were traded, confirming the conclusion that 25,000 shares were to be had for the market price.
92 That is not to say that the plaintiff necessarily had the financial ability to purchase 25,000 shares at the higher market price. He gave unchallenged evidence that he was, and remains, ready willing and able to
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- perform his obligation to pay the purchase price of $116,500. That purchase price, which should have obtained him 25,000 shares at $4.66 each, would only have bought him 7,826 shares at the market price of $14.885 each.
93 The defendant did not plead a failure to mitigate loss and the onus is on the defendant to establish failure to mitigate, however I conclude that, logically prior to any issue of failure to mitigate loss arising, it is for the plaintiff to prove his actual loss. If his actual loss amounts to more than the usual measure of damages calculated by the difference between the contract and market price, it is for him to plead and prove it. Where there is evidence before the Court of like securities being available for purchase at the date of the breach, the onus is surely on the plaintiff to establish that there exists some fact that makes the usual damages at law unjust and inappropriate. It is clearly contemplated in the usual method of assessing damages that a plaintiff will likely have to expend more money to obtain like securities, hence his right to damages. It may be that he will have to borrow extra money and pay interest, which might then be subject to an award of damages. That may or may not be possible or financially viable, but there was no evidence of that nature put before me. The plaintiff's financial position as at the date of the breach is peculiarly within his knowledge and he gave no evidence concerning his ability or otherwise to fund the purchase of the shares at a higher price.
94 I do not consider this to be reversing the onus of proof in relation to failure to mitigate. It is for the plaintiff to prove his actual loss. In the absence of evidence going to establish damages over and above the usual measure of damages, or circumstances which establish that an award of damages at law will not adequately compensate the plaintiff, I intend to award damages at law assessed in the usual manner. That means the plaintiff is entitled to an award of damages representing the difference between the purchase price of 25,000 shares at the Plan price of $4.66 and the purchase price of 25,000 shares at market price of $14.885 as at the date of the breach.
95 That sum is $255,625. The plaintiff also seeks interest at the rate of 6 per cent on any sum awarded. In this case I am satisfied that the plaintiff has been kept out of his money represented by the immediate opportunity for profit he could have made in obtaining the 25,000 shares at the significantly lower price. I consider it just to compensate him for that loss by an award of interest on the sum of $255,625 from 7 February 2007 til judgment at the rate of 6 per cent pursuant to s 32 of the Supreme Court Act 1935.
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