Aveling v UBS Capital Markets Australia Holdings Ltd

Federal Court of Australia|2005-04-14|Before: Lindgren J

THE APPLICANT'S AMENDED STATEMENT OF CLAIM 12 In order to identify the 'cases' referred to in O 15 r 2(3), it is necessary to refer to the applicant's amended statement of claim. 13 The following is a summary of the applicant's case as pleaded. I do not, of course imply any view of the facts. 14 By a contract entered into on or about 19 July 1999, the respondent employed the applicant as Executive Director, Corporate Finance ('the Contract'). The Contract is particularised as having been in writing consisting of a letter dated 19 July 1999 and documents entitled 'Terms and Conditions of Employment' and 'Acceptance of Offer of Employment' and 'Staff Employment Guide August 1998'. On or about 1 April 2000, the applicant was appointed Executive Director, Corporate Finance (para 3). 15 There were express terms of Contract: · that the basis of the employment included participation in the respondent's bonus scheme (para 4(a)); · 'that payment of bonuses [was] dependent on the profitability of the [respondent] and the contributions of individual employees' (para 4(b)); · that bonus amounts were to be determined followed an audit of the respondent's year end results each January (para 4(c)); · that the respondent was committed to certain basis principles which were intended to encourage the development of staff at all levels, including the principle of keeping compensation for all positions on a fair and equitable basis, with special consideration for recognition of superior achievement (para 4(d)); · 'that the respondent would conduct its business in accordance with international standards, with integrity, fairness and professionalism' (para 4(e)); · 'that the respondent would consciously avoid discrimination in employment' (para 4(h)); · 'that the respondent was committed to encouraging high levels of performance through its financial rewards system' (para 4(i)); · 'that bonus payments formed part of the rewards system' (para 4(j)); · 'that the main objects of the rewards system were ... to ensure consistency across the organisation by removing/reducing any inequities and anomalies' (para 4(k)(iii); · 'that the termination of employment [should] in all cases be implemented in a fair and consistent manner throughout the company' (para 4(l)); · 'that the possibility of retrenchment must be discussed with the Department Head and the Director of Human Resources in the first instance to examine alternative options' (para 4(m)); · 'that the selection of employees for retrenchment must be fair' (para 4(n)); and · 'that in considering retrenchment, issues including performance and seniority should be considered' (para 4(o)). 16 Pursuant to the terms of the Contract, the applicant was to be paid an annual salary of $250,000 initially (later increased to $300,000), together with an annual bonus or 'incentive award' (para 5). 17 Pursuant to the terms of the Contract, the respondent paid to the applicant: (a) in January 2000, an incentive award of $422,138 in respect of the period from 20 September to 31 December 1999; (b) in January 2001, an incentive award of $1 million in respect of the calendar year 2000; and (c) in early 2002, an incentive award of $2.5 million in respect of the calendar year 2001. (para 6) 18 At all material times from July 1999 onwards, and, in particular, in 2002 up to 24 July: '(a) within the Investment Banking Industry in Australia, the major proportion of the remuneration offered t senior executives, of the level at which the Applicant was employed, was paid by way of bonus; (b) the Applicant was employed within the Investment Banking Industry in Australia and the major proportion of the remuneration payable to the Applicant was by way of bonus; (c) the Applicant was entitled, under the Contract, to resign his employment with the Respondent; (d) the Respondent and its related companies employed a number of Senior Executives who individually had the ability either to decide to terminate the employment of the Applicant, or to impose significant influence on whether or not the Applicant would continue to be employed by the Respondent.' (para 7) 19 In late 2001, the respondent made various representations to the applicant, which can be summarised as being in the nature of favourable and encouraging observations on his performance (para 8). 20 As at about January 2002, the applicant was dissatisfied with the basis of determining the level of his incentive payment, and the extent of that payment for 2001 ($2.5 million) (para 9). 21 In or about early March 2002 the respondent represented to him that he had made an exceptional contribution to the Corporate Finance business during the calendar year 2001 (para 10). 22 As at early 2002 and at all material times subsequently: '(a) the Applicant was an excellent and highly valuable senior resource for the Respondent; (b) the Applicant possessed characteristics which were hugely valuable to the Respondent, including his ability to give good advice, his good judgment and the fact that he was completely ethical and trustworthy; (c) the Applicant was a strong broad ranging resource for the Respondent; (d) the Applicant had the strongest possible skills in Mergers and Acquisitions.' (para 11) 23 As foreshadowed from early February 2002, in or about March 2002 it was agreed between the applicant and the respondent that: '(a) based on careful consideration of the Applicant's past performance and future potential a new annual incentive process would apply to the Applicant for 2002; (b) the Applicant's incentive award for 2002 would be calculated upon a basis involving a prescribed formula linked to financial performance measures for the Respondent and its related companies, with a discretionary element reflecting the Applicant's performance limited to 15% variance; and (c) his incentive award target for 2002, which could be varied firstly in accordance with the prescribed formula and secondly with a discretionary variation reflecting the Applicant's performance of up to plus or minus 15%, was $2.5m.' (para 12) 24 The agreement of March 2002 is particularised as having been made in a letter from the respondent to the applicant dated 12 March 2002, in previous conversations and in subsequent emails and conversations. The letter is in evidence. In substance, the respondent submits that para 12 of the amended statement of claim quoted above, and the letter, combine to make it clear that the bonus payable to the applicant for calendar year 2002 was to be calculated in accordance with a 'formula', in substitution for the original bonus 'dependent upon the profitability of the company and the contributions of individual employees' referred to in para 4 of the amended statement of claim. The applicant, on the other hand, submits, first, that on a proper construction of the amended statement of claim, he is relying on the original Contract in the alternative to relying on the agreement of March 2002, and, secondly, that in any event there is a discretionary element provided for in the agreement of March 2002, which would make the documents relating to the other employees relevant to his case. 25 The first cause of action (paras 13-15) is that, in breach of contract, the respondent failed in or after January 2003 to pay the applicant any amount by way of bonus, calculated in accordance with the agreement of March 2002, pleaded in para 12. The applicant pleads that the respondent is obliged to pay him such sum as would have been determined if the respondent had complied with its obligations set out in para 12, or, in the alternative, a bonus of $1.610 million. The sum of $1.610 million represents the applicant's calculation of the proportion of $2.5 million being the proportion that the period of 235 days from 1 January 2002 to 23 August 2002 represents to the full 2002 year of 365 days, rounded up from $1,609,589.04 to $1,610,000. 26 The second cause of action (paras 16-19) is for breach of an implied term of the Contract. The implied term is pleaded in the alternative as being that: '(a) the Respondent would pay to the Applicant a reasonable bonus for the 2002 year quantified by reference to the matters in paragraph 12 or alternatively 4(b); (b) alternatively, the Respondent would pay to the Applicant a bonus for the 2002 year based upon a bona fide consideration of the matters in paragraph 12 or alternatively 4(b).' (para 16 - my emphasis) 27 The implied term is said to arise by reason of the matters in paras 4, 7 and 12, alternatively 4 and 7, or, alternatively 4 alone. (I note an anomaly: 'the Contract' is pleaded as having been entered into on or about 19 July 1999, yet the matters referred to in paras 7 and 12 post-date July 1999.) It will be recalled that para 4(b) of the amended statement of claim pleaded the express term that 'payment of bonuses [was] dependent upon the profitability of the [respondent] and the contributions of individual employees'. 28 The damages for breach of the implied term is again particularised as $1.610 million. 29 The third cause of action (paras 20-25) (breach of an express term by failure to make notice and redundancy payments) is not presently relevant. 30 The fourth cause of action (paras 26-32) is one of breach of an implied term by reason of failure to consider and approve an incentive bonus in good faith. By reason of paras 4, 7 and 12, alternatively 4 and 7, alternatively 4 alone, it was an implied term of the Contract that the respondent would carry out its obligations to consider and approve the payment of an incentive bonus in good faith (para 27). When the respondent, on 24 July 2002, terminated the applicant's employment with effect from 23 August 2002, the respondent was aware that: '(a) the salary payable to the Applicant in respect of the 2002 year was only about 10% of the total remuneration likely to be payable to the Applicant in respect of the 2002 year; (b) by 23 August 2002, the Applicant would have provided his services to the Respondent for about two thirds of the 2002 calendar year; (c) the Respondent had without qualification represented to the Applicant on or about 24 April 2002 that it wished the Applicant to remain in the Respondent's employment; ... (d) the Applicant had acted on the faith of the truth of that representation and had not sought or obtained alternative employment elsewhere; (e) the Applicant was providing his services on the understanding that he would be receiving an incentive award payment for the 2002 year.' 31 In breach of the implied term, the respondent failed to carry out in good faith its obligation to consider and approve the payment of an incentive award to the applicant for 2002, and in particular, to do so in the period from 24 July 2002 to 23 August 2002 (para 31). If the respondent had performed its obligation, it would have approved payment of an incentive award to the applicant in accordance with his incentive target arrangement, and the applicant's loss is particularised as 'a bonus of at least $1.610 million' (para 32). 32 The fifth cause of action (paras 33-38) is one of breach of an express term by reason of failure to implement termination of employment in a fair manner. It was an express term of the Contract that termination of employment 'would be implemented in a fair manner'; that 'compensation for all positions would be kept on a fair and equitable basis, with special consideration for recognition of superior achievement'; and that 'the respondent would conduct its business in accordance with international standards, with integrity, fairness and professionalism' (para 33). The respondent's termination of the applicant's employment at a time before the date for payment of the bonus for 2002, was not fair and was in breach of one or more of those express terms (para 37). If the term had been observed, the respondent would have paid the applicant 'a bonus of at least $1.610 million' or, alternatively, a sum calculated in accordance with, relevantly, para 12(c) (para 38).

33 The sixth cause of action (paras 39-44) is one of breach of an implied promise to act in good faith in performance of the Contract. The applicant firstly repeats para 4(para 39). Next, it was an implied term, in particular, that the respondent would act in good faith:

'(i) in considering and implementing the termination of an employee; (ii) in considering the retrenchment of an employee; (iii) in examining alternative options to the retrenchment of an employee; (iv) in selecting an employee as a person to be retrenched.' (para 40) Further, or in the alternative, it was an implied term of the Contract that in performing the Contract, the respondent would act in a manner that was consistent with its obligations set out in para 4 and act in a manner which would achieve the objects set out in para 4(para 41). Termination of the applicant's employment before the date for payment of a bonus for 2002 was in breach of the obligation referred in paras 40 and 41, in that the respondent should have examined and resolved, as an appropriate alternative, to continue the applicant's employment until the date for payment of the incentive award, to enable a bonus to be paid (para 43). (I need not recount the particulars of loss that are given in para 44.)

34 The seventh cause of action (paras 45-56) is one of contravention of s 52 of the Trade Practices Act 1974 (Cth) ('the TP Act'), consisting of a failure by the respondent to notify the applicant of certain matters, which may be summarily described as concerns which the respondent entertained from January 2002 to 23 July 2002 concerning the applicant and the formation or holding of a view in that period that he should be retrenched (paras 57-67).

35 I need not discuss the eighth cause of action (paras 57-67) (contravention of ss 51A and 52 of the TP Act consisting of representations as to continued employment for the 2002 year); the ninth cause of action (paras 68-74) (contravention of s 52 of the TP Act arising out of a conversation on 24 April 2002 and implied representations); the tenth cause of action (paras 75-81) (contravention of s 52 of the TP Act arising out of alleged continuing representations following 24 April 2002); or the eleventh cause of action (paras 82-86) (breach of a duty of care consisting of negligent misstatement and concealment). 36 The twelfth cause of action (paras 87-91) is one of unconscionable conduct in contravention of s 51AC of the TP Act. The agreement to pay an incentive award and the proposed incentive award were 'services' within the TP Act (para 88). By reason of the matters in numerous preceding paragraphs, the respondent engaged in conduct that was, in all the circumstances, unconscionable, in contravention of s 51AC of the TP Act (paras 89 or 90). By reason of the contravention of s 51AC the applicant suffered loss (para 91). Particulars of loss are given by way of cross-reference to particulars of loss given in earlier paragraphs.

First Class of documents (categories 3-13) 37 Categories 3-13 were set out at [7]. 38 In submissions, no distinction was drawn between those categories. Indeed, it was accepted that some of them were more specific forms of another. Their appropriateness was treated as turning, in the first instance, on the question whether the applicant had pleaded a case for determination of a bonus wider than that provided for in the respondent's letter to him dated 12 March 2002, on which para 12 of the amended statement of claim was founded. The substance of that paragraph was set out at [23] above. The letter informed the applicant:

that, in determining the funding for his incentive award, 75 percent would be dependent on the revenue performance of the respondent's Australian business and 25 percent would reflect the net contribution of the respondent globally;
that the initial calculation of the annual incentive award would be a 'direct formula based on the budgeted revenues for Corporate Finance Australia, the Australian business as a whole and the net contribution of USB Warburg as a whole';
that the incentive award for an individual might be 15 percent greater than or less than the 'target incentive opportunity' and the applicant's incentive target was stated to be AUD 2,500,000; and
that a portion of the applicant's annual incentive would be paid to him in the form of 'Equity Ownership Plan vehicles based on the terms of the scheme in operation at that time'. 39 The applicant submits that the amended statement of claim pleads an alternative basis for bonus which depended on, inter alia, the contributions of individual employees. He submits that if, for some reason, he should fail in his case based on the March 2002 agreement pleaded in para 12, he is entitled, consistently with the amended statement of claim, to fall back on the original bonus system pleaded in para 4. 40 I accept this submission. Paragraphs 16, 27 and 39-41 make it clear that the applicant pleads, inter alia, causes of action that do not depend exclusively on the new agreement of March 2002. 41 According to para 6, the respondent had paid to the applicant, in early 2002, an incentive award of $2.5 million in respect of the calendar year 2001. The new agreement, foreshadowed from early February 2002 and made in or about March 2002, took that amount as the applicant's incentive award target for 2002, which stood to be varied, firstly, in accordance with the prescribed formula, and secondly, in accordance with a discretionary variation reflecting the applicant's individual performance of up to 15 percent. The respondent submits that the numerous references to $1.610 million in the amended statement of claim should be understood as directing attention exclusively to the new agreement of March 2002. However, they could, I suppose, if read generously to the applicant, also be understood as a reference to the fact that the 2001 bonus was $2.5 million. (It was apt to mislead the respondent for the applicant not to give more detailed particulars.) 42 Even if the reference in the particulars to $1.610 million is properly understood as a reference exclusively to the new agreement of March 2002, that agreement also incorporated a discretionary element to the extent of 15 percent above or below the figure calculated by the formula. 43 The documents in categories 3-13 are also relevant to paras 7(a), 30(a), 33 and 90 of the Amended Statement of Claim. 44 In the result, subject to the matter to be noted next, I think that the applicant is entitled to discovery of the first class of documents, that is the documents in categories 3-13. Those category descriptions appear to refer only to the documents which fall within O 15 r 2(3), in the light of the issues raised on the pleadings to which I referred above. I have not seen the documents, however, and it is conceivable that some documents referred to in those categories do not. Therefore, for more abundant precaution, I would limit the categories by reference to O 15 r 2(3). Accordingly, the discoverable documents are those documents within categories 3-13 which satisfy the description in O 15 r 2(3). 45 As will be seen below, the case for adding that qualification is clearer in respect of the second and third classes of disputed categories.

Second Class of documents (category 20) 46 Category 20 was set out at [7] above. 47 The effect of paras 33-37 and 40-43 was summarised earlier. 48 Particular category 20 documents may or may not be relevant to the applicant's case pleaded in those paragraphs. Documents within that category that satisfy O 15 r 2(3) should be discovered. 49 It is no answer that, in so far as that category relates to the applicant himself, there is an overlap between it and the documents referred to in category 19.

Class Three documents (category 27) 50 Category 27 was set out at [7] above. 51 An affidavit of the applicant's solicitor, Edward Haggerty, sworn 5 April 2005, states on information and belief as follows: '(a) In 2001, Mr Peter Scott was employed by the respondent in the position of Executive Director. (b) In or about early 2002, Mr Scott was promoted to the position of Managing Director; (c) At that time, the applicant was (amongst other things) the Head of the Financial Institutions Group; (d) On 10 April 2002, it was announced by the respondent that Mr Scott would be Joint Head of the Financial Institutions Group Sector Team with Mr Shane Doyle; (e) The documents sought to be discovered pursuant to paragraph 27 of the applicant's List of Categories of Documents for Discovery, being all documents relevant to or recording Mr Scott's annual staff review (also known as a "PMM" review) for 2000 and 2001, are likely to contain material that demonstrates or is relevant to the decision of the respondent to remove duties and responsibilities from the applicant, and/or to terminate the applicant's employment for reasons of redundancy or otherwise.' 52 The applicant submits that category 27 is relevant to the claim of breach of an implied obligation to act in good faith in connection with retrenchment, pleaded in paras 39-44, and the TP Act claim pleaded in paras 45-56, both summarised earlier. 53 Consideration of a reallocation of a role from the applicant to Mr Scott does not necessarily bespeak a decision to terminate to employment of the applicant, but it may do so. Only a reading of the documents will tell. 54 In my opinion, the respondent should not be required to discover documents within this third class unless the category is expressed to be subject, again, to any particular document satisfying the terms of O 15 r 2(3).

CONCLUSION 55 I will publish these reasons and stand the proceeding over to a date for the making of orders. This will give the parties an opportunity to attempt to agree on orders, including an order as to costs, and an order limiting inspection in view of the apparent confidentiality of documents relating to other employees of the respondent. 56 At present I am disposed either to make no order as to costs, or to order that each party bear his or its own costs, or to order the costs of the motion be the respect parties' costs of the proceeding. The reason is that although the applicant has obtained further discovery, he has not obtained all that he was seeking because of the O 15 r 2(3) qualification. Another consideration is that his reference in 'particulars' to $1.610 million without elaboration was apt to mislead the resondent. I certify that the preceding fifty-six (56) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.

Associate: Dated: 13 April 2005 Counsel for the Applicant: H K Insall SC Solicitor for the Applicant: Toomey Pegg Drevikovsky Counsel for the Respondent: H Dixon SC and A Gotting Solicitor for the Respondent: Shanahan Tudhope Lawyers Date of Hearing: 5 April 2005 Date of Judgment: 14 April 2005

Trade Practices Act 1974(Cth)

INTRODUCTION 1 The motion before the Court concerns yet another dispute over categories of documents of which discovery is to be given; cf Australian Competition and Consumer Commission v Advanced Medical Institute Pty Ltd [2005] FCA 366 ('ACCC v Advanced Medical Institute')decided on 7 April 2005. 2 By a notice of motion filed on 18 March 2005, the applicant seeks an order that the respondent discover the documents identified in certain paragraphs of a list which the applicant served on the respondent on 29 December 2004. 3 The proceeding arises out of the employment of the applicant by the respondent in a senior executive position. In particular, it concerns the termination of his employment by the respondent with effect from 23 August 2002, and the non-payment to him of any amount by way of 'bonus' or 'incentive award' in respect of the part of the calendar year 2002 down to that date. 4 Apparently the applicant's employment commenced on 19 July 1999, and for the period down to 31 December 2001, by far the greater part of his remuneration was by way of bonus, the amount of his salary having been relatively small - though only 'relatively' by comparison with the amount of the bonus. 5 On 17 November 2004 I ordered by consent that the parties serve lists of categories of documents by 24 December 2004 and that inspection of documents take place by 4 February 2005. On 29 December 2004 the applicant served his list of categories. If there had been no dispute over the categories, the parties' discovery obligations would have been sourced in the order and the categories listed, as distinct from being sourced in a notice for discovery: ACCC v Advanced Medical Institute at [22].

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