Byrne v Macquarie Group Services Australia Pty Ltd

Contracts Review Act 1980 (NSW) ss 6(2), 7, 8, 16(3) & 17(3) LEGISLATION CITED : Uniform Civil Procedure Rules 2005 (NSW) r 28.2 Workplace Relations Act 1996 (Cth) ss 13(1) & 17(4) Workplace Relations Regulations (2006) (Cth) r 1.4

Australian Bank Ltd v Stokes (1985) 3 NSWLR 174 Bolton Gems Pty Ltd v Gregoire (10 November 1995, unreported, Young J, Eq Div) CASES CITED : Coleman v Graybar Electric Co Inc 195 F 2d 374 (5th Cir, 1952) General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 General Surgery v Suppes 24 Kan App 2d 753 [1998] Toscano v Holland Securities Ltd (1985) 1 NSWLR 145

PARTIES : Maghnus P Byrne (P) Macquarie Group Services Australia Pty Limited (D)

COUNSEL : V R W Gray (P) I M Jackman SC with A B Gotting (D)

SOLICITORS : Somerset Ryckmans (P) Maddocks (D)

• 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2009/288820 MAGHNUS BYRNE v MACQUARIE GROUP SERVICES AUSTRALIA PTY LTD JUDGMENT 1 HIS HONOUR: These reasons relate to the determination of preliminary questions as to the construction of an employment arrangement between Macquarie and Mr Byrne and to strike out applications brought by each party in relation to the Statement of Claim and the Defence respectively. 2 The parties agree, and I accept, that this is an appropriate case in which an order should be made pursuant to r 28.2 of the Uniform Civil Procedure Rules 2005 (NSW) that separate questions be determined before the trial of any other issue in the proceedings and I so order. 3 The questions posed in the Notice of Motion filed by Mr Byrne are as follows: "(A) As a matter of construction, does the 'Profit Share Retention Policy (Macquarie-wide excl Canada)', which contains the words 'If the employee ceases employment with Macquarie, any retained profit share allocation that has not vested to them will be forfeited', authorise a forfeiture of the Plaintiff's retained profit share allocation in circumstances where the Plaintiff's employment was terminated by Macquarie?

(B) If the answer to question A is 'no', was the Plaintiff entitled to be paid his retained profit share allocation which had not vested to him as at 4 December 2008?

(C) As a matter of construction, does Macquarie's ESOP, containing the words '… each Option also lapses … if the relevant Executive … ceases to be an Employee or Consultant of the MBL Group before the Option has vested', result in the lapsing of the Plaintiff's Options in circumstances where the Plaintiff's employment was terminated by Macquarie?

(D) If the answer to question C is 'no', do the Plaintiff's unvested an unexercised Options as at 4 December 2008 continue to vest and continue to be exercisable until the fifth anniversary of the date of their grant?" 4 In 2001 Mr Byrne commenced working with Macquarie Bank Limited, and, from time to time thereafter, on an annual basis, was remunerated by reference to a basic figure together with an allocation of profit share, and, at a later stage, provision was made for the issue of options as part of his remuneration package. 5 On 22 December 2005 Mr Byrne accepted an offer from Macquarie Bank of permanent employment as manager and entered into an employment agreement with the bank by signing copies of the relevant documents on that date. The remuneration package included: salary; superannuation; share options and discretionary profit share bonuses. 6 The Annexure to the Employment Agreement provided: "All profit share monies will be allocated in instalments in accordance with the profit share and profit retention policies." 7 The relevant profit share policy referred to in the Annexure to the Agreement dealt with the allocation of profit share by providing: "All permanent employees are eligible to participate in the profit share program. If an employee's employment with Macquarie ends before the date profit share crystallises (Crystallisation Date) they will forfeit their profit share allocation." 8 The retention of profit share is provided for in the "Profit Share Retention Policy (Macquarie-wide excl Canada)". The primary purpose of that policy was expressed to be: "In order to assist in retaining its high performance employees Macquarie will retain a portion of allocated profit share. Macquarie's retention rules will be applied to all profit share allocations prior to the funds being available for election to other investment products or schemes." [emphasis added] 9 The profit retention policy provides vesting rules in relation to an employee's retained profit share. Under the heading "Ceasing Employment" the Profit Share Retention Policy contained the following critical term: " If the employee ceases employment with Macquarie, any retained profit share allocation that has not vested to them will be forfeited." [emphasis added] 10 The principal issue raised by the preliminary questions turns on the meaning of the expression "if the employee ceases employment with Macquarie". 11 In addition, since 1995 Macquarie has had an Employee Share Option Plan ("ESOP") which provides for the issue of options to employees and the vesting of them as part of an employee's remuneration package. Clause 5.6 of that plan provides for the lapse of options in these terms: "5.6 Lapse Each option lapses on the earlier of the following times: (a) On exercise of the option under clause 5.1; (b) If the option is not exercised under clause 5.1 during the option period, at the end of the option period; (c) Subject to any determination of the committee being made under clause 2.8 before or at any time after the relevant participant of the grantee dies or ceases to be an employee , if the relevant participant of the grantee dies or ceases to be an employee; (i) during the vesting period or (ii) after the vesting period and the option is not exercised within six months after that happens; …" [emphasis added] 12 Clause 2.8 of the ESOP empowers the Committee (the Board or its appointee) to decide that the option does not lapse or that any exercise conditions be waived. In making its decision the Committee may take into account any relevant matter including whether the participant ceased to be an employee by reason of death, retirement, ill health, accident or redundancy and whether the event occurred during or after the vesting period for the option. 13 The Employment Agreement provided for the termination of employment by the employer or the employee giving four weeks notice in writing to the other, or by the employer giving a payment equivalent to four weeks salary in lieu of notice. 14 Mr Byrne submits that at all material times, he worked diligently and effectively for Macquarie. He was awarded salary options and bonuses in 2005 and 2006. On 21 June 2006 he was promoted to the position of Associate Director Equity Derivatives Trader and offered an international assignment to Macquarie Services Hong Kong. On 7 July 2006 he accepted this offer. 15 Under the Letter of Offer the terms and conditions of his employment, including entitlement to share options and allocation of profit share, were as set out in the Employment Agreement applicable at that time. 16 Mr Byrne's profit share allocation for 2007 was A$75,000 plus HK$2,364,488 reflecting time worked in 2006/07 in both Sydney and Hong Kong. His salary was increased to HK$1,350,000. In addition, effective from 1 July 2007 he was granted 1500 five-year share options. On 26 October 2007 he was notified by letter that with effect from 1 December 2007 he would cease to be employed by Macquarie Bank Limited and would become employed by "Macquarie Group", because the business area in which he was employed would transfer to the non-banking group. The letter stated: "You terms and conditions of employment (including any post employment restraint), will continue in accordance with your current employment documentation." 17 On 1 July 2008 Mr Byrne's salary was increased to HK$1.4m. He was also awarded a profit share allocation for 2008 of HK$15,174,700 and was granted 10,000 five-year share options. 18 On 7 November 2008 Macquarie terminated Mr Byrne's employment, effective from 4 December 2008. Relevantly that letter read: "Dear Maghnus

I refer to your various meetings with Kieran Moffat and/or Peter Alderson on Thursday 30 October 2008, Monday 3 November 2008 and again on Thursday 6 November 2008, during which they discussed with you a number of serous concerns relevant to your performance.

These concerns more specifically relate to the significant losses in your books over the past two months, the general strategy behind some of these positions and not consistently marking your positions to market.

Over the past three months, there has been a general and repeated directive to the trading desk to reduce risk in the trading books given the increased uncertainty and volatility in the markets. We are not satisfied you have done this.

You were given an opportunity to provide a response to MSG's concerns and advised that Macquarie would consider your responses, and until that time you would be on leave from the office.

After having considered your responses and reviewing all of the circumstances we advise that your responses do not satisfy Macquarie's concerns. As a result this has led to a loss of trust and confidence in you by Macquarie.

I therefore advise that in accordance with your employment agreement and your International Assignment letter, Macquarie is providing you with four weeks' notice from today that your International Assignment to Macquarie Services (Hong Kong) Limited and your employment with Macquarie Group Services Australia Pty Limited will both cease on 4 December 2008. During this notice period you are not required to attend work or undertake any work for Macquarie, including contacting clients." 19 On 21 November 2008 Mr Byrne wrote to Macquarie referring to his "entitlement" to sums that Macquarie had retained over the years in the form of retained profit share as well as company share options which he says were granted to him as a result of promotion and excellent performance. 20 On 12 December 2008 Macquarie replied with a letter which set out its position as follows: "As stated in your employment documentation, which you signed in December 2005, "all Profit Share monies will be allocated in instalments in accordance with the Profit Share and Profit Share Retention policies". The Profit Share Retention policy provides that "if the employee ceases employment with Macquarie any retained profit share allocation that has not vested to them will be forfeited." This policy is available on Macnet and a copy of the policy was provided to you on or about 18 November 2008 …

As you may know, forfeiture rules also apply to Macquarie Group Limited options pursuant to the option plan rules … All unvested options lapse immediately on termination of employment and any vested options can be exercised within six months of the effective date of termination of employment subject to the Staff Dealing Rules.

As a result, your retained profit share and unvested options will be forfeited following the termination of your employment." 21 Mr Byrne says that before 30 October 2008 Macquarie did not give him any prior notification that his employment might be terminated or give him an opportunity to respond to reasons relied on by Macquarie or provide an opportunity to remedy any alleged deficiencies or to investigate the alleged deficiencies. 22 In substance, Mr Byrne says that the true meaning and effect of the employment contract is that retained profit share allocations were only forfeited, and the vested or unvested share options only lapsed, if the employee actively initiated cessation of employment with Macquarie, for example, in the form of a voluntary resignation. He says that under the Employment Agreement the retained profit share allocations and the share options have not been forfeited and did not lapse upon the termination by Macquarie of the employee's employment whether for cause, or without cause. He says that in breach of the employment contract Macquarie has refused to pay or acknowledge liability to pay him an amount equal to his retained profit share allocations as at 4 December 2008, despite due demand having been made by him. Mr Byrne also alleges that in further breach of his employment contract, Macquarie has wrongfully determined that the share options have lapsed, and he seeks compensation. 23 In the alternative Mr Byrne seeks to rely on s 7 of the Contracts Review Act 1980 (NSW) ("Contracts Review Act") and alleges that if on its true construction the agreement operates to cause forfeiture of the retained profit allocation or lapse of the share options then the employment contract is unfair, unjust and unconscionable, and that he has suffered an unjust consequence or result. On this ground Mr Byrne says that he is entitled to an order for payment consequent on variation of the employment contract pursuant to s 8 of the Contracts Review Act. 24 Accordingly, the substantive issue between the parties is whether, on the true construction of the employment contract, the ESOP and the Profit Share Retention Policy, Mr Byrne is entitled to retained profits and unvested options in circumstances where his employment is "ceased" by Macquarie. Submissions and Reasoning on Construction 25 Mr Byrne submits that Macquarie's employment contracts are commercial contracts and must be given a construction which is practical in the commercial sense. 26 Secondly, he relies on the contra proferentem rule and says that the Agreement and the option plan have been drawn up by Macquarie, and, accordingly, the ambiguous provisions inserted by it should be construed favourably to Mr Byrne. 27 Further, he says that the contract is to be construed by reference to what a reasonable person in the parties' position would have understood it to mean, both in the circumstances and in the context. In addition, Mr Byrne submits that post-contract conduct is not admissible for the purpose of determining the meaning of expressions used in the contract. 28 Mr Byrne submits that the expression "if the employee ceases employment" requires, as a matter of syntax, that the person initiating the cessation of employment be the employee, before the forfeiture or lapse can come into effect. The subject of the expression "ceases employment" is the "employee" and therefore it follows as a matter of plain English grammar that the cessation must take place as a result of the action or initiative of the "employee". 29 In support of this approach, reference is made to a decision of the Kansas Court of Appeal in General Surgery v Suppes 24 Kan App 2d 753 [1998]. That case related to a restraint of trade covenant which provided that the doctor agreed that, should she cease employment she would not engage in the practice of medical within 25 miles of the city limits. Her employment was subsequently terminated, whereupon she started medical practice within that area. She was sued for breach of the covenant in the employment contract. The Kansas Court of Appeal found that there had been no breach of the restrictive covenant and construed the expression "should she cease employment" as logically meaning if she ended the relationship she might not continue to practice in the area. However, if she did not end the relationship, she was not compelled to practice elsewhere. The Court there applied the principle that a non-competition covenant in an employment contract should be strictly construed against the employer. 30 Mr Byrne submits that the present case is in all material respects the same as that of Suppes because the verb "cease" was there used, as in the present case, in a transitive sense with the "employee" as the only subject and "employment" as the direct object. 31 It is common ground that one purpose in retaining a portion of an employee's profit share allocation is to provide an incentive to employees to remain in the employ of Macquarie and forfeiture of the retention sum without due cause would frustrate that purpose. However, Mr Byrne submits that the allocated profit retained by Macquarie has been "earned by him". 32 In further support of this approach Mr Byrne refers to a decision of the Fifth Circuit in the United States in Coleman v Graybar Electric Co Inc 195 F 2d 374 (5th Cir, 1952). In that case the employee accepted a salaried position with the defendant company together with a bonus based on his sales during the calendar year 1948, to be paid on 1 April 1949 if he then remained in the defendant's service. Prior to the payment date the employee was discharged without stated cause. 33 The court noted that the stated purpose of the compensation plan was to provide an incentive to continue service with the company and that this was consistent with the plan's provision that in order to receive a bonus the employee must remain in service through to 1 April. The Court noted that the plan included a provision denying a bonus if the employee leaves or ceases to be in the employment of the company before the April date. The court decided that a construction which arbitrarily deprived the employee of his earned bonus without any proper cause and as a matter of arbitrary choice, would be inconsistent with the purpose of the plan and in the absence of clear language should not be adopted. 34 Taking a similar approach in the present case, Mr Byrne submits that the Court should refuse a construction which would allow Macquarie to forfeit his retained profit share allocation because it had the right to terminate his employment at any time on the giving of four weeks' notice. Such a construction, Mr Byrne submits, would be inconsistent with the stated purpose of the retention policy, which was to assist in retaining high-performance employees. Mr Byrne says that he has earned the right to the profit retention moneys and that to deprive him of this entitlement without cause would be harsh, unfair and unconscionable. That the construction contended for by Macquarie would lead to an unreasonable result is, Mr Byrne submits, a further indication that it should not be adopted. 35 The merits of the cessation of employment are not before me on this preliminary construction question. 36 Neither of the cases advanced are of assistance in this case, since the language of the contract and the contractual context is different. In the Coleman case the language was "leaves or ceases to hold the employ". In the Suppes case there had been a finding that the employee had not breached the employment contract. 37 Finally, it is submitted that if the employer wished to provide that the retention moneys should be forfeited regardless of whether it was terminated by the employer or the employee, then it would have been a simple matter to expressly make a provision to this effect and this has not been done. However, it would also have been simple both to have read the word "terminated" after the word "employee". This submission does not assist Mr Byrne in my view. 38 I note that there is a minor difference in the wording of the two primary questions in relation to ceasing employment. The Profit Share Retention Policy states: "… if the employee ceases employment with Macquarie", whereas the ESOP states: "… each option lapses [if the] Relevant Participant (employee) … ceases to be an employee." However, no attempt to draw a relevant distinction in relation to the forfeiture of profits and the lapsing of options provisions was made by the parties. 39 The construction advanced by Mr Byrne faces a number of difficulties. 40 Firstly, as a matter of language, the reference is to the fact that the employee ceases employment with the bank. There is no limitation to the cessation being based on an initiative of either party and in particular no indication that it is necessary to have a "termination" by the employee in order for there to be a forfeiture. As a matter of ordinary English usage, to cease employment envisages a situation where the employment comes to an end or ceases to exist for whatever reason. It is common ground that one relevant meaning of the expression "cease" is to "stop". In the present case, the employment has "stopped" and the consequence is that the employee ceases his employment with the bank. The construction urged by Mr Byrne requires the insertion of a provision to the effect that the ceasing of employment must be as a result of an initiative of the employee, whereas the expression is silent on this aspect. No sound basis is provided for this significant substantial change in the language of the provision. 41 Secondly, it is important to read the provision having regard to the whole of the contractual arrangements and the language used in the profit share policy as a whole. It is not enough to focus only on the precise expression in isolation. The policy includes provisions dealing with "death or total and permanent disability" which are used in the context of the provision concerning the employee ceasing employment with the bank. In the case of total and permanent disability the provision reads: "In the case of the death of an employee or that employee's Total and Permanent Disability (TPD), the retained profit share allocation will vest to the employee or their estate." 42 This provision can be seen as an exception to the forfeiting of retained profit share allocations which would occur on the employee ceasing employment with the bank. In the case of death the employment will cease but this will not be as a result of the initiative of the employee. Such a provision is only necessary if the entitlement would otherwise cease. The reference to vesting in the case of death is directed to make it clear that there is no forfeiture under the provision concerning the ceasing of employment. Likewise, in the case of total and permanent disability, the employment can be terminated by the employer or the employee and this is another exception consistent with the construction of the expression so that it applies in circumstances where the employment comes to an end as a result of the action of the employer. 43 A similar line of reasoning applies in relation to the lapse of the options under clause 5.6 of the ESOP. Here, the option lapses, subject to a determination of the Committee under clause 2.8, where the employee dies or ceases to be an employee during the vesting period. The Committee can modify or vary the exercise period and also the conditions of vesting, having regard to whether the employee ceased to be an employee by reason of death, retirement, ill health, accident or redundancy, and whether the event occurred during or after the vesting period. This exception clause contemplates the cessation of employment for a number of reasons, which are not limited to voluntary actions or initiatives at the instance of the employee. The reference to the employee "ceasing" to be an employee for a range of reasons not limited to the employees initiative is consistent with an interpretation that an employee can cease employment in circumstances where his employment is terminated by an act of the employer. In other words, the concept of an employee ceasing employment is sufficiently broad to cover circumstances where the cessation occurs by matters outside the control of the employee. 44 This indication is inconsistent with the construction advanced by Mr Byrne. 45 At the hearing there was some debate as to whether the purpose and policy of the retention provisions and forfeiture was forward-looking or backward-looking. Mr Byrne submitted that weight should be given to the fact that he had already earned the profit allocation that had been retained, and the options, although they had not vested. In response, Macquarie contends that the provision is forward-looking, and is designed to ensure that the employee stays with the company in the future, by providing an incentive in the form of retained allowances which would lapse on cessation of employment. 46 The policy of retention, in my view, can be effected by providing for a retention allowance and the forfeiture of that benefit in the event of cessation of employment. 47 Thirdly, the retained profit share and the share option provisions were the subject of communications, notifications and earlier agreements in similar terms prior to the relevant contractual provisions here under consideration. In the course of these communications expressions similar to the concept of cessation for any cause were used. For example, in a letter of 16 May 2005 notifying him of his remuneration review on 16 May 2006 the bank states that: "The Bank's policy is to retain 25% of profit share in excess of A$50,000 which is released in three equal instalments in the second, third and fourth years after allocation subject to you remaining employed on the Crystallisation Date for each respective year." [emphasis added] 48 The reference to "remaining employed", and in a later paragraph, to allocations being conditional including the requirement that you "remain employed" with the Bank are not determinative but are consistent with forfeiture taking place in circumstances where there has been no act or initiative on the part of the employee. In another document entitled "Profit Share Policy (Macquarie-wide)" updated 30 March 2007 it is stated: "If an employee's employment with Macquarie ends before the date profit share crystallises (Crystallisation Date), they will forfeit their profit share allocation." [emphasis added] 49 Again, this usage of the expression, namely "if the employee's employment ends" is also consistent with the cessation taking place for any reason and by either party. 50 In the documents leading up to the agreements and policies under consideration, there is a reference by way of a note to the statement that: "Profit share and profit retention policies can be changed with or without notice at Macquarie's discretion." 51 Also, in notifications of the remuneration reviews for 2007 and 2008, for example, there is reference in footnotes to the statement that: "Profit share allocations are conditional including the requirement that you remain employed with Macquarie up to and including the relevant Crystallisation Dates: ……" [emphasis added] 52 In these notifications the reference is to "remaining employed", and this is consistent with the simple fact of the employment relationship ending, and it is not limited to termination by the employee. 53 Macquarie contends the equivalence in usage between the expressions "employer ceases employment" and the other references to "remaining employed" and "employment ending" indicates that at the time the parties entered into the arrangements they understood, by reference to previous dealings between them in relation to the employment, that the expression referring to the employee ceasing employment was in fact a general reference to the employment being terminated, ceasing to exist for whatever reason. 54 Moreover, it is accepted on behalf of Mr Byrne that the options could lapse and the retained profit allocation could be forfeited in the event that the employer, for proper cause, terminates the employment. This concession indicates that the reference to ceasing employment in the critical provisions is not restricted to circumstances where there is a termination by the employee so that there is a strong indication from this concession that the cessation of employment is not controlled by the identity of the party who brings about the cessation of employment. 55 For the above reasons, I prefer the construction advanced by Macquarie as to forfeiture and lapse. Strike Out Applications 56 There are two strike out applications before me. 57 Mr Byrne submits that if the provisions of the Profit Share Retention Policy and the ESOP operate to deprive him of retained profit share allocations and of the unvested share options, then the provisions are "unjust" within the meaning of the Contracts Review Act. He submits that insofar as the employment contract was unjust he has suffered an unjust consequence within s 7 of the Act by losing retained profit share allocations and the lapse of share options. Accordingly, he seeks an order for payment under s 8 of the Act consequent on variation of the contract to avoid, as far as practicable, an unjust consequence or result. 58 In its defence, Macquarie says that Mr Byrne is not entitled to relief under the Contracts Review Act because it was entered into in the course of, or for the purposes of a trade or profession carried on by him and the granting of relief would be contrary to the express exclusion provided for by s 6(2) of the Contracts Review Act. In addition, Macquarie submits that by reason of the Workplace Relations Act 1996 (Cth) ("Workplace Relations Act") and the Regulations made pursuant to it (r 1.4 of the Workplace Relations Regulations 2006 (Cth) the operation of the Contracts Review Act is excluded in relation to an employee or employer. 59 Mr Byrne has filed a motion to strike out these defences. Macquarie has filed a motion to strike out the paragraphs of the statement of claim that seek to rely on the Contracts Review Act provisions. 60 The principles which apply in relation to strike out applications are well settled. The moving party must establish in a case such as he presents that there is plainly no reasonable cause of action or defence such as could give rise to a real issue to be tried: see General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 at 130. 61 The first submission for Macquarie in its strike out application is that under s 6(2) the Contracts Review Act does not apply where the contract is entered into in the course of, or for the purpose of a trade, business or profession carried on by the person or proposed to be carried on by the person. 62 Macquarie says that the employment contract of Mr Byrne was entered into in the course of, or for the purpose of a trade or profession carried on by him or proposed to be carried on by him, namely, as an Associate Director Equity Derivatives Trader. Mr Byrne submits that as an employee of Macquarie Bank he did not enter into the contract for the purpose of a business to be carried on by him, but rather for the purpose of, or in the course of, a trade or business carried on by Macquarie as an investment banker. Mr Byrne relies on a decision of Young J in Bolton Gems Pty Ltd v Gregoire (10 November 1995, unreported, Young J, Eq Div). In that case, his Honour held that a defendant who was a sales representative for gems in the jewellery business carried on by the plaintiff was not employed in the course of, or for the purpose of, a trade or business carried on by him, but rather was employed in the course of, or for the purpose of, the business carried on by his employer. Accordingly, he decided that the defendant sales representative could not rely on the provisions of the Contracts Review Act. A similar approach was taken by McClelland J in Toscano v Holland Securities Ltd (1985) 1 NSWLR 145 at 149, and by Rogers J in Australian Bank Ltd v Stokes (1985) 3 NSWLR 174 at 176. 63 Having regard to these authorities, which are only first instance decisions and are in a different factual context, I am not persuaded that the paragraphs in the statement of claim relying on the Contracts Review Act ought to be struck out. It follows that the paragraphs in the defence which contend that s 6(2) excludes the operation of the Act in the present case are not beyond argument. Accordingly, I decline to strike out the pleadings and defence insofar as they concern the operation of s 6(2). 64 In relation to the operation of the Workplace Relations Act as excluding the application of the Contracts Review Act in this case, I am also not persuaded that the point is sufficiently unarguable to warrant a strike out. 65 Macquarie submits that the Workplace Relations Act is part of the law of New South Wales and as such it operates in relation to the contract of employment in the present case, to exclude the application of ss 7 and 8 of the Contracts Review Act. Macquarie refers to the provisions of s 17(4) of the Workplace Relations Act which provides that it applies to exclude the laws of a State in relation to a law that a Court or Tribunal finds is unfair. 66 Section 17(3) of the Contracts Review Act applies where the law of the State is the proper law of the contract. In the case of the employment agreement of Mr Byrne it is reasonably arguable that the law of New South Wales is the proper law. The parties have agreed on that law as governing the position and the employment has substantial links with New South Wales. The law of New South Wales will in turn include the Workplace Relations Act which operates to exclude the operation of the Contracts Review Act.

67 In relation to the ESOP, the Option Deed is expressed to be governed by the law of the Australian Capital Territory which does not include the Contracts Review Act. It could reasonably be argued, in my view that notwithstanding this provision the proper law is that of New South Wales because the contract has a more proximate and direct connection with New South Wales and if that is the case the Workplace Relations Act will arguably operate to exclude the operation of the Contracts Review Act.

68 Mr Byrne, in response, contends that having regard to s 13(1) of the Workplace Relations Act, it does not have an extraterritorial effect and therefore cannot apply in relation to the Hong Kong employment in this case, because a substantial amount of the work in question was performed there by Mr Byrne who was a Hong Kong resident and was paid in Hong Kong dollars. Macquarie responds by submitting that New South Wales law is the proper law of the contract by reason of s 16(3) of the Contracts Review Act and says that since s 17(4) of the Workplace Relations Act was part of that law it operates to exclude the operation of the Contracts Review Act. 69 It is not necessary for me to decide these questions of law on these strike out applications. The questions raised are complex and there is no authority on a number of the points raised. Moreover, on their face, the questions raised are reasonably arguable either way. Therefore, I am not persuaded that the pleadings and submissions on either side are so without substance as to justify a strike out at this stage. 70 In summary, the questions raised by the pleadings which are sought to be struck out in relation to the operation of the Contracts Review Act are reasonably arguable on either side and I therefore decline to strike out those parts of the pleadings and I dismiss the two notices of motion. Conclusion 71 For the above reasons, I am of the opinion that on its true construction the expression "employee ceases employment" does not require that the employment must cease by reason of the act or at the initiative of the employee in relation to the contractual provisions concerning the lapse of options or the forfeiture of retained profits and that it also applies where the termination is the act or is at the initiative of the employer. I am also of the opinion that each of the strike out applications should be dismissed with costs. Macquarie, having been successful on the principal question of construction should be awarded costs on the preliminary question and the appropriate costs order therefore is that the plaintiff should pay the defendant's costs on the preliminary questions and I so order. Answers to Construction Questions

(A) Yes. (B) Does not arise. (C) Yes. (D) Does not arise. Orders

(1) The plaintiff's notice of motion to strike out is dismissed with costs. (2) The defendant's notice of motion to strike out is dismissed with costs.

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