Walker v Andrew

[2002] NSWCA 214

Reported Decision: (2002) 20 ACLC 1476

New South Wales

Court of Appeal

CITATION:	WALKER & SHERMAN & ANOR v ANDREW & ORS [2002] NSWCA 214
FILE NUMBER(S):	CA 40911/01
HEARING DATE(S):	6 May 2002
JUDGMENT DATE:	19 July 2002
PARTIES :	Peter Walker and Steven Sherman in their capacity as Receivers and Managers of Galaxy Media Pty Limited (Receivers and Managers appointed) (In Liq) & Anor v William Edward Andrew & Ors
JUDGMENT OF:	Spigelman CJ at 1; Handley JA at 2; Brownie AJA at 3

LOWER COURT JURISDICTION :	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S) :	ED 3491/00
LOWER COURT JUDICIAL OFFICER :	Santow J

COUNSEL:	Appellants - C R C Newlinds/Ms Jago Respondents 1 & 2 - G A Seib Respondents 3,4,7,9 - G C Lindsay SC/ A R Ridley
SOLICITORS:	Appellants - Kemp Strang Lawyers Respondents 1 & 2 - Bowring Stone Lawyers Respondents 3,4,7,9 - Somerville & Co Solicitors
CATCHWORDS:	CONTRACT - employer's bonus scheme - unspecified bonus payable - employer bound to pay reasonable bonus on basis of quantum meruit - CORPORATIONS ACT 2001 - priority creditors - "wages" - employees' bonus - quantum meruit
LEGISLATION CITED:	Corporations Act 2001
CASES CITED:	Secured Income Real Estate (Australia) Pty Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, 607 McGill v National Australia Bank [2001] NSWCA 221 Way v Latilla [1937] 3 All ER 759 Powell v Braun [1954] 1 WLR 401 Woodhouse v ADA Manufacturing Co Ltd [1954] SASR 263
DECISION:	Appeal dismissed with costs

CA 40911/01
ED 3491/00

SPIGELMAN CJ
HANDLEY JA
BROWNIE AJA

19 July 2002

Peter WALKER AND ORS v William Edward ANDREW AND ORS

CONTRACT – employer’s bonus scheme – unspecified bonus payable – employer bound to pay reasonable bonus on basis of quantum meruit

CORPORATIONS ACT 2001 – priority creditors – “wages” – employees’ bonus – quantum meruit

The first appellants were receivers and managers of a company appointed by the second appellant. The third to tenth respondents were former employees of the company who had been promised unspecified bonuses by the company whose claims on a quantum meruit basis were allowed by the liquidator. The former employees claimed priority in the receivership on the ground that the bonuses were “wages”. The appellants submitted that the company was under no obligation to pay the bonuses because specific bonus schemes had not been in place.
HELD: The former employees had no contractual right to bonuses but had been employed on the clear understanding that they would be entitled to remuneration in addition to their salary, and were entitled to reasonable bonuses on a quantum meruit basis. Way v Latilla [1937] 3 All ER 759 (HL) applied. Such bonuses were “wages” as defined by s 9 of the Corporations Act, and the former employees were priority creditors for their bonuses in the receivership.

ORDERS
Appeal dismissed with costs.

CA 40911/01
ED 3491/00

SPIGELMAN CJ
HANDLEY JA
BROWNIE AJA

19 July 2002

Peter WALKER AND ORS v William Edward ANDREW AND ORS

Judgment

1 SPIGELMAN CJ: I agree with Brownie AJA.

2 HANDLEY JA: I agree with Brownie AJA.

3 BROWNIE AJA: This litigation has been described as a contest for priority between various creditors of the second respondent, Galaxy Media Pty Limited (“Galaxy”), which is in liquidation. It was wound up by order of the Court, and the first respondent, Mr Andrew, is its Liquidator.

4 On 5 May 1998 Messrs Walker and Sherman, who are collectively called the first appellants, were appointed receivers and managers by “the first secured creditor”. The debt owing to that creditor has since been paid in full. The winding up order was made on 18 May 1998, and on 13 July 1998 the second appellant (“the second secured creditor”) appointed the first appellants as receivers and managers.

5 The parties now competing for priority are, on the one hand, the second secured creditor, and on the other hand the third to tenth respondents, former employees of Galaxy. Each of these employees was employed pursuant to a written contract of employment, and each of these contracts was in different terms. However, each contract provided for the payment to the employee of a salary and a “bonus”. Each employee has been paid all his or her entitlements, except for the “bonus”, and the question to be decided is whether the various employees have an enforceable entitlement to be paid these bonuses, of such a nature as to entitle them to be ranked as priority creditors, within the meaning of s 556(1)(e) of the Corporations Act 2001 (“the Act”), which provides for priority in respect of “wages and superannuation contributions payable by the company in respect of services rendered to the company before” liquidation.

6 “Wages” are defined in s 9 of the Act as meaning:

in relation to a company, amounts payable to or in respect of an employee of the company (whether the employee is remunerated by salary, wages, commission or otherwise) under an industrial instrument, including amounts payable by way of allowance of reimbursement but excluding amounts payable in respect of leave of absence.

7 “Industrial instrument” is also defined in s 9, as meaning:

(a) a contract of employment; or
(b) a law, award, determination or agreement relating to terms or conditions of employment.

8 The facts were not in dispute. The hearing before Santow J, as he then was, proceeded by reference to a set of agreed facts, together with some voluminous affidavits, and the only witness cross-examined was the liquidator. However, it seems desirable to set out the facts in some detail, starting with the position of the third respondent, Mr Maguire.

9 In 1995, he was working in California. He left that employment to go to work for Galaxy in Australia, commencing work there in August 1995. A little later, his employment was regulated by the terms of a deed dated 30 October 1995 (“the deed”). The deed provided for the payment of a salary, and various allowances. Clause 10 provided:

BONUSES

10.1 The Employee will be eligible to receive performance based bonuses. You will be eligible for a performance bonus targeted to earn 50% of your base salary. Your bonus will be based on performance criteria such as number of subscribers achieved and in future years, profitability criteria. The criteria for the bonus will be consistent with those adopted for other senior executives. The performance based bonus amounts will be paid within 90 days of fiscal year end.
10.2 In the first year of the Term, Galaxy shall pay to the Employee a minimum bonus of 25% of the value of the annual base salary.

10 Initially, he was employed in the position of “General Manager – Eastern Division”, but he was promoted to the position of Chief Operating Officer, about the end of 1996. When he started work for Galaxy, he reported to Mr Gamble, Galaxy’s Chief Executive Officer. During the period between the commencement of his employment and the date of the deed, he asked Mr Gamble what the criteria would be for the assessment of his bonus entitlement, but the matter was left at large at that stage.

11 During November 1995 Mr Maguire received from the seventh respondent, Mr Orrick, Galaxy’s Human Resources Manager, a document headed “1995 Staff Bonus Scheme” completed individually in respect of Mr Maguire. It read:

The staff bonus scheme for 1995/96 has now been finalised. For all staff in sales roles or other functions, the primary focus in Galaxy for 1995/96 will be subscribers. This bonus scheme, set up on a gain-share basis, is only directed at non-sales staff, being anyone without entitlement to sales commissions. The bonus scheme targets only one objective – maximising the number of subscribers, for all corporate staff from middle management upwards and for all branch staff except sales staff. The various levels of the bonus scheme award a performance share of Galaxy’s business gain, according to the position a person occupies at Galaxy and their capacity to influence subscriber numbers.
Scheme Limitations:
Applies to the year from 1 October, 1995 to 31 August, 1996.
Applies to non-sales staff not receiving any other form of commission.
Driven by subscriber sales targets net of churn, bad debt, cable or franchisees sales.
A “subscriber” is a person installed and billed for broadcast or narrowcast services on Galaxy SMS by 31 August, 1996.
Only payable to staff working for Galaxy as at 31 August 1996.
Due and payable on Galaxy Media account by 31 October, 1996
Mitigated wholly or partially by budgetary excess or mismanagement.

12 The document then referred to “your subscriber targets”, that is, the target which Mr Orrick apparently thought Mr Maguire had, of having 100,000 enrolled subscribers for the Galaxy pay-TV service; and by reference to a diagram, the document recorded that if Galaxy achieved 80% of the target number of subscribers, Mr Maguire’s bonus would be 10% of his base salary; if 90% of the subscriber target was met, the bonus would be 25% of base salary; for 100% of the target, 50% of base salary; for 110% of the target, a 60% bonus; and for 120% or more of the subscriber target, a bonus of 70% of base salary. The document continued:

In your employment contract, 25% of your base salary is guaranteed as a minimum bonus for the 95/96 year. Accordingly, I confirm that AUD$83,000 will be the minimum bonus payable and at 100% of the subscriber target you will earn $99,600.

13 Mr Maguire said that this document and its terms had not been discussed with him previously, and he said that he considered that his “target” was not 100,000 subscribers, but 233,800, that being a figure given to him by Mr Gamble and by Mr Kleeman, Galaxy’s then Chief Financial Officer. The evidence is silent as to whether there was an agreement actually reached between Mr Maguire and Mr Gamble to the effect set out in the memorandum, either as to the target figure of 100,000, or the target figure of 233,800.

14 In February 1996, Galaxy was apparently in considerable financial difficulty due, it seems, to its being under capitalised. Mr Gamble’s instructions to Mr Maguire were to concentrate on securing subscribers, but since it cost Galaxy about $1,000 in installation costs in respect of each new subscriber, and Galaxy only charged a new subscriber about $100, the rapid expansion programme achieved by Mr Maguire and those working under him served to deplete Galaxy’s financial resources.

15 At this stage, Mr Eliason, who is not a party to the litigation, but who was then Galaxy’s Queensland Branch Manager, wrote to Mr Maguire concerning his bonus entitlement, which was expressed in his contract of employment in these term:

You will be paid a bonus based on company performance as follows: Bonus for achievement of Brisbane subscriber target of 35,181 subscribers by 30th June, 1996 at $2.00AUD per subscriber with a commencing threshold of 28,000 subscriptions. US$25,000 bonus will be guaranteed in Year 1.

16 Mr Eliason’s concern was that Galaxy’s financial difficulties were causing it to be less aggressive and also less successful in achieving the enrolment of new subscribers, so that, he thought, his bonus entitlement should be re-negotiated, and he forwarded various documents to Mr Maguire, including reports about “Key Performance Indicators”.

17 Still in February 1996, Mr Gamble told Mr Maguire that an attempt to raise further capital had been unsuccessful, and he gave instructions for some staff to be retrenched, and for the immediate introduction of a “no growth plan”.

18 In August 1996, Mr Maguire recommended to Mr Gamble that Mr Eliason be paid “his full bonus” for the 1995-1996 year, that is, 50% of his base salary; and he referred to the original target given to Mr Eliason, to the changed circumstances, and to what had been achieved generally by Mr Eliason. At the same time, Mr Maguire submitted to Mr Gamble a document setting out a case which he advanced, to the effect that he himself was entitled not just to the guaranteed bonus of 25% of his base salary during his first year of employment, but to a bonus of 50% of the base salary; and he referred to what he had accomplished.

19 He said that in October 1996 he was paid a bonus representing 25% of his base salary, but was given no explanation for this calculation, and no response to his August request. The evidence does not establish what, if any, bonus was paid to Mr Eliason for the 1995-1996 year.

20 Mr Gamble left Galaxy in about October 1996, and was replaced as Chief Executive Officer by Mr O’Halloran. In February 1997 Mr Maguire spoke to Mr O’Halloran, saying that he, together with other employees brought to Australia from the United States to work for Galaxy had been “screwed” in relation to their bonuses for the 1995–1996 year, in that the capacity of the staff to obtain new subscribers had been frustrated by Galaxy’s capital shortage; and he spoke of the possibility of the “entire operations team” leaving Galaxy’s employment if the position about bonuses was not improved for the 1996-1997 year. Mr Maguire said that Mr O’Halloran “eventually agreed to a bonus plan for the managers in April of 1997”, but did not give direct evidence about the detail of that agreement.

21 However, there is in evidence a copy of a memorandum of 24 July 1997 sent by Mr Maguire to Mr O’Halloran, apparently setting out what Mr Maguire considered to be the effect of the earlier oral agreement for the 1996–1997 bonus plan. The memorandum was countersigned by each of Mr O’Halloran and Mr Mulvihill, who was then Galaxy’s Financial Controller; and later Mr Moore, a director of Galaxy, who had been sent a schedule setting out the figures recommended by Mr Maguire, and accepted by Messrs O’Halloran and Mulvihill, provided Mr Maguire with the information necessary to carry the recommendation into effect, and to enable appropriate calculations to be made, so as to give to the American employees an income, net of tax, equivalent to their after-tax income, had they still remained in the United States. This documentation includes the following:

1996/1997 FISCAL YEAR
BRANCH MANAGERS BONUS PROPOSAL

1. That the bonus program be based 50% on achievement of cumulative subscribers at fiscal year end, and 50% on achieving an MDS [that is, microwave delivery system] component.

2. That the program be based upon a sliding scale in increments of 5% against the “closing balance-active subscribers” as per the company KPI [that is, Key Performance Indicators] activity summary report.

3. That the sliding scale calculates at a beginning point of 10% to a combined maximum of 50% of base salary.

4. That all managers are bonused against their Branch goals.

5. That all managers eligible must be in full employment by Galaxy /Australis through 30/06/97 to be eligible.

6. That all bonuses to be paid within 90 days of fiscal year end. (targeted for September 15th payroll).

7. Pro-rata for time in position as General Manager or acting General Manager.

22 A separate document read:

1996/1997 FISCAL YEAR BONUS PROPOSAL

EXECUTIVE SUMMARY

In order to fulfil contractual obligations, Galaxy must offer the opportunity for its state managers (Branch GM’s), the C.O.O. and the Director of Sales & Marketing an opportunity to earn up to 50% of base salary as an annual bonus. The attached program provides that opportunity. The program has two variables, those being June ending cumulative subscriber numbers and an MDS variable (see attached). Whilst this program is short ended with only three months remaining in the year and is based only on subscriber numbers, it is anticipated that future bonus programs will be based on annual performance of a multiple of critical success factors. Targets in the future will most likely focus on overall performance of revenue, expense control and cash flow as well as subscriber growth.


1996/1997 OPERATONS BONUS PROGRAM COST ANALYSIS

* Calculations are based on eligible individual salaries totalling $1,498,000

Achievement Level Cost to Galaxy

10%	149,800
15%	224,700
20%	299,600
25%	374,500
30%	449,400
35%	524,300
40%	599,200
45%	674,100
50%	749,000

Base Annual Salary

Don Pascoe	$75,000.00
Michael Orrick	$200,000.00
Jim Waldo	$359,688.04 includes LAFHA
Warwick Stephens	$100,00.00 (sic)
Joe Zuravle	$261,172.87 includes LAFHA & Health
Kevin Maguire	$344,501.99 includes LAFHA & B/T super
Pete Eliason	$207,742.04 includes LAFHA
Paula Trustdorf	$248,779.04 includes LAFHA
Mike Mulvihill	$170,000.00 includes LAFHA

23 Additionally, there were a series of letters from Mr Maguire to other employees. These followed a fairly standard pattern, and enclosed detailed calculations as to how the 1996-1997 bonus paid to each employee was assessed. Thus, Mr Eliason, who was by then Galaxy’s National Director of Marketing, had his bonus entitlement assessed by reference to the number of new subscribers enrolled nationally, measured against some budget figures, and adjusted for “churn”. Mr Orrick, the seventh respondent, who was then Galaxy’s New South Wales/Sydney Branch manager, received a calculation limited to the New South Wales Branch figures; Mr Pascoe, the eighth respondent, who was the Queensland Branch Manager from February to June 1997, received information about the Queensland Branch figures, and was told that his bonus had been assessed on a pro rata basis, to cover that period; and Messrs Waldo, Zuravle and Stephen, respectively the fourth, fifth and tenth respondents and the managers of the Victorian, South Australian and Western Australian branches, received information about the achievements at those branches.

24 However, the dispute litigated concerns the bonus payable in respect of the 1997–1998 year. Mr O’Halloran ceased to be Chief Executive Officer, and was replaced by Mr Rose. Late in 1997, the first appellants were retained, not as receivers and managers then, but as consultants. They encouraged Mr Maguire and his operations team to stay on. Galaxy’s financial woes continued, and staff numbers were reduced. Mr Maguire submitted various business plans to Mr Rose, and also to Mr Bennett, another director of Galaxy. Generally, these business plans reflected the instructions given to Mr Maguire to reduce Galaxy’s business activities, and particularly the enrolment of new subscribers. In February 1998 Mr Maguire raised with Mr Bennett the question of bonuses for the 1997–1998 year, and was fobbed off with soothing words:

Just keep to these [business] plans and we’ll take care of you and your team.

25 On (apparently) 15 May 1998 Galaxy paid a bonus to Ms Hastings, who is not a party, and who was employed as a Dispatch Manager. Her contract of employment contained this term:

Commencing with the quarter starting February 1, 1997, you will receive a quarterly bonus payment targeted at $2000, in return for consistently effective performance during the quarter. The factors that constitute “consistently effective” performance in your role may be modified in advance of each quarter by a set of specific standards, goals or measures.

26 Before this payment was made, Mr Orrick sent a memorandum to Messrs Waldo and Maguire and to Ms Heyward (the sixth respondent, Galaxy’s then Human Resources Manager), recommending payment of a bonus. The memorandum analysed Ms Hastings’ work performance, and recommended that, in respect of the two quarters then under consideration she be paid a bonus of 85%, rather than 100% of the sum of $2000 mentioned in her contract of employment. This recommendation was accepted.

27 On 12 May 1998, after the first appointment of receivers and managers, and before liquidation, Mr Waldo sent to Mr Maguire a memorandum, known as “the Waldo memorandum”. The subject was stated as “1997/98 Bonus recommendations (YTD March 1998)”. It dealt individually with the positions of Messrs Orrick, Pascoe, Burns, Stephen and Zuravle, and with the position of Mr Waldo himself. (Messrs Burns and Stephen are, respectively, the ninth and tenth respondents.) In the case of each of these six people, it noted figures for what were apparently regarded as Key Performance Indicators: cash flow, service calls, completion rate, “pay to basic ratios”, expense control, retrenchments, “box collections”, and churn. In the case of Mr Orrick, it noted that the cash flow results were 179% “favourable to budget”, and continued:

Bonus Opportunity: per contract.
100% = 20% of base
200% = 40% of base
179% = 20% + 15.8% = 35.8%
$220,00 x 35.8% = $78,760

28 In the case of Mr Pascoe, it noted a cash flow result “favourable to budget” by 147%, and concluded:

Bonus Opportunity: per contract.
30% of base.
Base salary: $75,000

Recommend:

50% of bonus opportunity (15% of base salary) for achieving 157% cash flow.

15% x 75,000 = $11,200.

50% of bonus opportunity (15% of base salary subjective) for the successful wind down and closing of branch office.

15% x 75,000 = $11,250.

Total recommended bonus is $22,500.

29 In the cases of the other employees, the general format was that used in the case of Mr Pascoe.

30 On 20 May 1998 (two days after the winding up order), Mr Maguire wrote to the receivers and managers, enclosing recommendations he made concerning these senior managers. In short, and in respect of each of these employees, he adopted the Waldo memorandum and expanded upon it. Subsequently, in June 1998, Mr Maguire provided further information, generally similar in nature, concerning Mr Stephen (the tenth respondent, then head of the National Customer Service Centre for Galaxy) and Ms Heyward.

31 The receivers and managers rejected the recommendations, but in a practical sense, the liquidator later adopted them. He indicated that he accepted, or would accept proofs of debt; and he defended that decision in the litigation.

32 Focusing then on the position of Mr Maguire, when he started his employment, in 1995, there was no written contract of employment, and no agreement as to the quantification of his bonus, but the parties then reduced their agreement to writing, in the deed. At that stage, they had still not agreed about the quantification of his bonus: see [9]. Thereafter, he and Mr Gamble discussed what criteria might be adopted, not just for Mr Maguire, but also more generally, and then Mr Orrick produced the document set out at [11]-[12]. Galaxy then paid Mr Maguire, and others, generally in accordance with the terms of that document, although it only paid Mr Maguire a 25% (guaranteed) bonus, without explanation or discussion.

33 In respect of the 1995-1996 year, and subsequent years, there were discussions about how bonuses should be computed. No firm recorded agreement was reached in respect of the 1996-1997 year, until after that year had ended, although Mr Maguire said, without challenge, that there was some informal agreement. After the year ended, detailed calculations were made, showing how each employee’s bonus was calculated: in general, by reference to achievements of the branch managed by the employee in question. In respect of the 1997-1998 year, before the first appointment of the receivers and managers, the same pattern seems to have been emerging: the managers, as a group, expected to be paid a bonus, computed by reference to what they achieved, measured broadly against what they had been told they were expected to achieve, but the mechanism had not been fixed, and the company did nothing to suggest that this assumption was incorrect.

34 The appellants contended that there was no binding agreement for Galaxy to pay any employee any sum by way of “bonus”: there was only an unenforceable “agreement to agree”. Santow J, whose judgment is at (2001) 39 ACSR 483, (2002) 20 ACLC 73, concluded that, in respect of each of the employees in question, the written contract of employment, which admittedly had actually been executed or performed in large part, contained an implied term that Galaxy would pay the employee a reasonable sum by way of “bonus”, upon the adequate performance by that employee of his or her work; and he regarded the course of conduct of the parties as giving content to the criterion of what was reasonable in the circumstances.

35 I think it is plain that, on the face of the deed, the parties to that deed intended that Mr Maguire should be paid a “bonus” (upon adequate performance by him), not as a matter of discretion, but of right. In the absence of anything further expressed in the deed, it required the parties to do all that was reasonably necessary to secure the performance of the contract, and to enable Mr Maguire to have the benefit of it: Secured Income Real Estate (Australia) Pty Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, 607; and the parties did this, until the first appointment of the receivers and managers.

36 Thus, during the 1995-1996 year, the document mentioned at [11]-[12] was prepared, and generally acted upon. During 1996-1997 the documents mentioned at [21]-[22] were prepared and acted upon. During the year 1997-1998, and until the first appointment of the receivers and managers, the parties acted on the basis that because of the financial position of Galaxy, it would be appropriate to fasten upon a new set of criteria, but the employees would (upon adequate performance) be entitled to be paid a bonus. Mr Maguire was involved in the planning relating to this, not just on his own behalf, but also on behalf of others.

37 In addition, after liquidation, he prepared a request that he be paid a bonus, and Mr Rose, a director of Galaxy, accepted this as his recommendation. Broadly speaking, it followed the same pattern as the recommendation based on the Waldo memorandum, concerning the others.

38 The appellants submitted, and I am content to assume, that Galaxy did not, either before the first appointment of the receivers and managers, or afterwards, either through its board of directors, or through the receivers and managers, accept the recommendations for the payment of bonuses. (The liquidator did so, later on, in the sense that he accepted or said he would accept the employees’ proofs of debt.) However, the obligation of Galaxy under the deed, to secure the performance of the contract, was not to act through its board of directors, but to act effectively. On the evidence, it had acted mostly through its officers rather than formally through its board throughout the relevant period (although it is also clear that individual directors had concurred in what happened, and likely that the criteria adopted for 1996-1997 were at least approved by the board), in agreeing on relevant criteria, and on the amounts payable, and the company had actually paid the bonuses purportedly agreed to on its behalf, in respect of the years 1995-1996 and 1996-1997.

39 There is nothing in the deed providing that the criteria upon which bonuses would be paid would be agreed upon annually, or at any other interval, or that the criteria would be fixed by the board, and not otherwise; and for what it is worth (not as an aid to the construction of the deed: McGill v National Australia Bank Ltd [2001] NSWCA 221), the subsequent conduct of the parties pointed in the same direction.

40 Equally, there is nothing in the deed that suggests that if there was no expressed agreement by some specified date in a given year, fixing the criteria for computing the “bonus” for that year, no bonus would be payable, or that Mr Maguire’s only remedy would be an action for damages for breach of contract – with the consequence, in the present circumstances, that he would be an unsecured creditor, rather than a priority creditor.

41 I agree with the conclusion reached by Santow J, that in the case of Mr Maguire, the effect of the deed was that Galaxy was bound to pay him, not just a base salary, but also a sum of money called a “bonus”. It is clear that the parties intended to enter into a binding contract, which was actually executed over a period of more than two years, and clear that they intended that Galaxy pay Mr Maguire (subject to satisfactory performance) something by way of “bonus”, as a matter of right, and not discretion. A “bonus” of 25% of base salary was guaranteed for the first year, and the language of clause 10 of the deed points generally to the conclusions that (subject to satisfactory performance) a “bonus” would be paid, as of right.

42 The amount of the bonus was not fixed at the time of the execution of the deed, so that the law imposed an obligation to pay a sum that was reasonable in the circumstances, to be assessed having regard to the evidence showing what value the parties themselves put on Mr Maguire’s services: Way v Latilla [1937] 3 All ER 759, Powell v Braun [1954] 1 WLR 401, and Woodhouse v ADA Manufacturing Co Ltd [1954] SASR 263. Thus, in Way, as assessment was made of a reasonable share by way of “participation” in the profits from a mining venture; and in Powell and in Woodhouse, assessments were made of the reasonable shares of the profits from the businesses in question, paid instead of salary or wages.

43 In the case of Mr Maguire, the position is also affected by the penultimate paragraph of clause 10.1 of the deed, linking the criteria for his “bonus” entitlement to the criteria to be used in relation to other employees, and by the course of the conduct of the parties: they examined the results achieved by Mr Maguire and those other executives, compared them to the figures set out in various budgets and business plans prepared by Galaxy, and then proceeded to consider whether each employee should be taken to have earned his or her bonus, as a matter of right (subject to satisfactory performance).

44 For the 1995-1996 year, Galaxy fixed upon one criterion only, namely the maximisation of the number of new subscribers: see [11]; for the 1996-1997 year, it fixed upon different criteria, and spoke of a change in those criteria in the future: see [21]-[23]; and during the course of the 1997-1998 year, a different set of criteria again was discussed: see [24]-[29]. During that year, a large number of business plans were formulated, and it seems that all concerned treated these as setting out Galaxy’s instructions from time to time as to what it wanted its staff to achieve, and as going to show what Galaxy would take into account when deciding whether an individual employee had earned a “bonus”, and to what extent; that is, what Galaxy and the employee would regard as reasonable for this purpose. Both Galaxy and the employees had an expectation that (subject to satisfactory performance) the employees would be entitled to be paid a reasonable sum by way of a “bonus”, as a matter of right, and all that had to be worked out was whether the bonus had been earned, and if so, what sum was to be paid.

45 Assuming that no agreement was ever reached, binding upon Galaxy, as to what criteria would be fixed upon for the 1997-1998 year, Galaxy’s obligation was to pay (subject to satisfactory performance) a reasonable sum for the “bonus”, and the circumstances that the parties treated as significant should now be treated as significant, when considering what amount was reasonable. This is how the liquidator approached the case, and how Santow J treated it, dealing with the case as an appeal under s1321 of the Act from the liquidator’s decision. To that extent, the decisions of the liquidator and of Santow J are beyond appeal.

46 The appellants took another point, submitting that the deed spoke of “profitability criteria”, “in future years”. However, as the evidence I have summarised makes clear, Galaxy fixed upon criteria for the years 1995-1996 and 1996-1997 which did not pay any regard to profitability, and nothing that was said about the criteria that might be selected for the 1997-1998 year referred to profitability; and the deed did not specify at what point profitability might become a relevant factor. At best from its perspective, it seems that if and when the operations of Galaxy became profitable, criteria linked to profitability would be selected, and that until that stage was reached, other performance based criteria would be chosen. Given Galaxy’s financial state at the time, it was not reasonable to fix a criterion related to the possible profitability of Galaxy during that year.

47 Another strand to the appellants’ case was to submit that no “bonus” was payable unless the employee in question was still actually employed by Galaxy at the end of the financial year 1997-1998; and their employment ended, or should be taken as having ended, before then. Proceeding on the basis that there was an express term to similar effect for each of the 1995-1996 and 1996-1997 years, and assuming that there was an implied if not an express term to that effect for the 1997-1998 year, I do not consider that this line of defence was made good. The employment of Mr Maguire only terminated before the end of the financial year because of Galaxy’s insolvency, and Galaxy cannot be heard to rely on its own breach of contract, vis a vis Mr Maguire, to constitute a non-fulfilment by him of a condition precedent to his otherwise qualifying for payment of his “bonus”.

48 In summary then, the liquidator regarded Mr Maguire’s claim as being one for “wages”, as defined, that is, for money due under the deed by way of accrued legal right to be paid a reasonable sum; Santow J dismissed the appeal from this decision; and I agree. But even if this view was wrong, I take the view that a reasonable sum was payable by way of “bonus”, and that the sum claimed by Mr Maguire and accepted by the liquidator was “wages …payable by the company in respect of services rendered to the company by” Mr Maguire as an employee, within the meaning of s556(1)(e) of the Act.

49 I turn to the position of Mr Waldo, the second respondent. He was employed pursuant to the terms of a contract formed by exchange of letters, containing this passage:

Bonus: You will earn a 50% bonus based on goals to be agreed within two months after your commencement of services. Your bonus will be guaranteed to 25% in year one.

50 No “goals” were in fact agreed upon. Mr Waldo was not paid a bonus in either 1995-1996, or 1996-1997, because he did not meet the targets set for him, or his branch, that is, the targets mentioned in the documents otherwise relevantly set out at [11] and [21]-[22]. The evidence about him, individually, is sparse, but it seems clear that, generally, he was treated as if he was one of the group of senior managers, embraced by the terms of the documents just mentioned, and that he was treated in similar fashion in 1997-1998, until the appointment of the receivers and managers. He then prepared the Waldo memorandum: see [27]. This was, of course, a self serving document so far as it concerned him, and what he said about others no doubt needs to be read in that light.

51 However, the memorandum set out a series of figures recording what his branch had achieved, comparable to the goals that had been set, following the same general format mentioned at [28].

52 The terms of Mr Waldo’s contract differed from the terms of Mr Maguire’s, and the facts are different, in that Mr Waldo was, so to speak, treated as one of the group of senior managers, whereas Mr Maguire attended to the affairs of Galaxy in relation to that group, but otherwise the positions of the two men seem to be relevantly indistinguishable.

53 The position of each of Messrs Zuravle, Orrick, Pascoe, Burns and Stephen, the fourth, fifth, seventh, eighth, ninth and tenth respondents, is generally similar to that of Mr Waldo. Each was employed under a contract, the terms of which are quoted by Santow J at [7](3) of his reasons for judgment; and I see no sensible basis for any relevant distinction.

54 Ms Heyward, the sixth respondent, is in a different position. Her contract of employment provided:

A bonus plan will be in place designed to generate a bonus of $15,000 based upon achievement of pre-set parameters, which will be agreed upon us during the next three months.

55 However, no agreement was reached. Her “bonus” was a fixed sum each year, subject to performance. The liquidator accepted that her performance was adequate for that purpose, and I see no basis for thinking that this was wrong.

56 I propose that the appeal be dismissed with costs.

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