Resolution of the issue
40The resolution of the issue in this matter does not require any analysis of, or dissertation upon, the legal principles involved in the interpretation of business contracts. None of the submissions of the parties raised any controversy or doubt about those principles. For that reason I will not add to the comprehensive and exhaustive analysis of the authorities already undertaken in recent times by members of this court (see, for example, Frankins Pty Ltd v Metcash [2009] NSWCA 407; 264 ALR 15 per Allsop P [1] - [24], per Campbell JA [239] - [292]; The Movie Network Channels Pty Ltd v Optus Vision Pty Ltd [2010] NSWCA 111 per Macfarlan JA at [97] - [106]; QBE Insurance Australia Ltd v Vasic [2010] NSWCA 166; 16 ANZ Ins Cas 61-851 per Allsop P [28] - [35]; and extra-curially, Spigelman CJ, 'From text to context: Contemporary contractual interpretation' (2007) 81 ALJ 322). I will simply restrict myself to the following brief statements which, to my mind, encompass the principles most directly connected with the interpretation of the business contract in the present matter. The references to authorities are not intended to be exhaustive.
(a) The interpretation of a commercial contract requires that a business-like interpretation be given. Attention is to be given to the language used by the parties, the commercial circumstances which the agreement addresses, and the objects it is intended to secure ( McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) CLR 579 at 589 [22] per Gleeson CJ; International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 at 160 [8] per Gleeson CJ)
(b) The interpretation of a commercial contract is to be determined by what a reasonable person in the position of the parties would have understood it to mean in the circumstances and context in question. The post-contract conduct of the parties cannot be used as an aid in the interpretation of their agreement ( Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451 at 461 - 462 [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 at 179 - 181 [40] - [46]; Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; 238 CLR 570 at 582 [35]).
41I now turn to the text of the Share Retention Policy. The relevant phrase is:-
If the employee ceases employment with Macquarie, any retained profit share allocation that is not vested to them will be forfeited.
42It is to be noted at the outset that there is no grammatical agreement between the singular word "employee" and the plural "to them" appearing in the last section of the sentence. This piece of ungrammatical clumsiness has no bearing, however, on the construction of the phrase for present purposes. It is probably no more than an endeavour to avoid gender inequality.
43The textual argument suggested on Mr Byrne's behalf, that the verb in the relevant phrase - "if the employee ceases employment with Macquarie" - is transitive, that is, it transfers the action from the subject (the employee) to the object (employment). If this be the case, so the argument runs, it lends support to the construction that the phrase is only concerned with the situation where the employment was terminated by the employee. It is not concerned with the situation where the employment is terminated by the employer. In the latter case, there will be no forfeiture.
44The first response to this argument is that, before a verb can be seen to be transitive, the rules of grammar require that the entire sentence structure be scanned. When that is done in the present case, and an endeavour is made to understand the entire meaning of the sentence, the position is not necessarily as suggested by Mr Walker's argument. Indeed, to conclude that the verb "ceases" is transitive, with the word "employment" as its object, merely begs the question.
45Secondly, a more natural meaning that is suggested by the sentence, read as a whole, is that it simply means, "if the employment ceases". That is the meaning that was attributed to the phrase by the primary judge. Again, more naturally, it may mean "if an employee ceases to be employed with Macquarie". The heading above the sentence in which the phrase appears does not assist Mr Walker's argument. The expression "ceasing employment" may be described, in grammatical terms, as a compound verb (where each of the two words perform together the function of a verb) or, perhaps more accurately, as a gerund where it functions as a noun.
46Indeed, to regard the word "ceases" as a transitive verb in the sentence under discussion (as suggested on Mr Byrne's behalf) is to give a strained meaning both to the phrase and to the sentence in which it appears, one not consistent with ordinary everyday usage. During argument, it was suggested that, if Mr Byrne were asked in the course of a hypothetical discussion, "When did you cease employment with Macquarie?" he would not be expected to reply, "I did not cease employment with Macquarie, they terminated my services".
47Mr Walker fairly acknowledged the point being made, although he cautioned against testing the meaning of the relevant phrase by reference to dinner-party or casual conversation. However, Mr Walker conceded that it was not possible to depend wholly on the grammatical construction argument. Senior counsel submitted that the other arguments on which he placed reliance gave weight to the syntactical argument, whatever its shortcomings in absolute terms.
48It might also be observed that the claim that "ceases" is a transitive verb, directly transferring the action from the employee to the "employment", has a somewhat Elizabethan ring to it, rather well removed from the contemporary way in which the phrase would be used and understood by business people in discussions concerning their relationship. In my opinion, the more natural meaning of the relevant phrase, in its immediate context, is that it is describing a status, namely, the coming to an end of a bilateral relationship. It is not concerned to identify the terminating party or the circumstances leading to the cessation of the relationship.
49It is appropriate at this point to mention a case relied on in the written submissions filed on behalf of Mr Byrne. This was a decision that had been examined by the primary judge and found to be of little assistance. In General Surgery PA v Suppes 24 Kan App 2d 753 (1998), the Kansas Court of Appeal affirmed the trial court's finding that a relevantly identical provision - "should (the employee) cease employment" - applied only when the employee (Dr Suppes) terminated the employment relationship. The words did not apply, it was held, when the employer was the party ending the employment relationship.
50In that case, the employer, General Surgery, had ended the employment relationship by giving Dr Suppes 30 days written notice of termination of her employment. She subsequently commenced medical practice in the city of Lawrence, whereupon General Surgery sued her for breach of the following provision of the employment contract: "The doctor agrees that should she cease employment with General Surgery then she will not engage in the practice of medicine within 25 miles of the city limits of the City of Lawrence, Kansas for a period of two years."
51In affirming the dismissal of General Surgery's claim, the Kansas Court of Appeal stated:-
As a transitive verb, cease means "to bring an activity or action to an end: discontinue" (Webster's Ninth New Collegiate Dictionary 218 (1989)).
The trial court gave the word a precise meaning based on the subject "she" and the direct object "employment". The syntax indicates the verb is being used transitively, with Dr Suppes as the only subject. The non-competition clause therefore would operate only in the event that Dr Suppes were the agent bringing about the end of employment. Applying the Webster's definition, the contract would read: "The doctor agrees that should she bring her employment to an end". The trial court reasoned that this situation is different from "should either party cease employment" or "should her employment cease"... We note this is a logical interpretation. It provides that if Dr Suppes ends the relationship, she may not continue to practice in the area. If she does not end the relationship, she is not compelled to practice elsewhere.
52Mr Walker argued that the contractual provision in Suppes was precisely the same as that involved in the present matter. He argued that the primary judge should have accepted the value of the decision of the Kansas Court of Appeal, and concluded that the relevant phrase operated only when the employee was "the agent bringing about the end of his employment".
53Mr Jackman argued, however, Suppes was not on all fours with the present case. The decision there involved the construction of a restraint of trade (and not a profit scheme). Senior counsel submitted that the nature of the restraint was essential to the reasoning of the court. There were no surrounding circumstances of the kind in the present case (including the 2006 and 2007 remuneration reviews).
54It may be said with some certainty that, as the primary judge found, the contractual context in Suppes was rather different to that involved in the present matter. More significantly, in my view, the reasoning of the Kansas Court of Appeal in Suppes is not, by any means, compelling. The court there simply asserted that the verb "ceases" was being used transitively, and said this, without more, was determinative of the issue before it. No reasoning was given to support the conclusion. I do not accept that the Kansas case is of any real assistance in the present matter.
55I am, in the end, persuaded by Mr Jackman's submission, that the relevant phrase in the particular sentence is simply neutral as to who is to initiate the outcome of the cessation of the employment. It is, as senior counsel submitted, a reference to a resultant status. One would ask, "has the employee ceased employment?" If the answer is that the bilateral relationship between the employer and the employee has come to an end (no matter who initiated the cessation), the consequences stipulated in the sentence come into play.
56That this is the position is, I think, made more certain when one has regard to a number of the situations arising from, and contemplated by, the Profit Share Retention policy.
57It is true, of course, as Mr Walker strongly submitted, that a purpose, perhaps a primary purpose, of the policy is that it is, as expressed:-
In order to assist in retaining its high performance employees.
There is more, however, to it than that. For example, it is clear that in the case of the death of an employee, or that employee's Total and Permanent Disability, the retained profit share allocation "will vest to the employee or their estate" (note, once again, the use of the plural "their"!).
58In the case of TPD, it would be anticipated, as a general matter, that the employer would ordinarily terminate the employment. If Mr Walker's construction were correct, there would be no need for this contractual stipulation, because any retained profit share allocation would not be forfeited and would, in due course, vest. The context of this contractual stipulation suggests that care has been taken to ensure that the "ceasing employment" stipulation (where the employer has terminated the employment) does not operate to the disadvantage of the disabled ex-employee. It is an exception to the general situation contemplated by the language of the policy, namely that cessation of employment (whoever initiated it) prior to vesting will lead to forfeiture.
59A second textual argument relied upon by Mr Jackman concerned the opening phrase in the Retention Policy, "in order to assist in retaining its high performing employees, the bank may retain a portion of allocated profit share. Mr Jackman submitted that "retaining" is a continuous activity, and thus an employee should count as a "high performing employee" throughout the period of retention. If a person ceases to be a high performing employee, and hence not one that the bank wants assistance in retaining, the purpose of retaining the portion of allocated profit share (for that employee to receive later) has gone. In my opinion, this argument provides further support for the construction urged by Mr Jackman. When the purpose of retaining the profit share allocation for later payment to the employee has gone, it is a consistent consequence that the retained profit share is to be forfeited if the employee ceases being employed because his services have been terminated by notice.
60There is a further matter, not arising from the precise terms of the policy, that may properly be regarded as a relevant contextual matter. Before the primary judge, it had been accepted on Mr Byrne's behalf that the retention allocation would be forfeited in the event that the employer (for proper cause) terminated the employment before vesting. This meant that, for example, where an employee had been guilty of fraud, forfeiture would occur in a situation where cessation occurred at the behest of the employer.
61That being the agreed situation between the parties, it would be a very odd result, in terms of construction, if, by contrast, termination by four weeks notice (in a situation where no wrongdoing was involved) prohibited forfeiture where the notice had been given by the employer. This, in my view, is a powerful reason for rejecting the construction urged on Mr Byrne's behalf.
62Mr Walker put his primary submission in this area as follows: is an earned share from past accomplishments to be lost in the future by an event which has nothing to do with the recognition of those past accomplishments? With that question in mind, senior counsel asked, how would the construction urged on Macquarie's behalf fulfil the stipulated aim of assisting Macquarie in "retaining its high performance employees"? Mr Walker suggested that Macquarie's construction of the relevant phrase would have the opposite effect. It would lead to, senior counsel argued, highly qualified employees seeking greener pastures. The simple answer, I think, is that the Profit Share Retention policy exists to assist the employer in the retention of its high performance employees, by discouraging them from terminating their employment and thereby forfeiting their retained profit share allocations. They may forfeit those allocations as a result of the employer terminating the employment but the encouragement of them not to terminate the employment themselves remains.
63For the foregoing reasons, I am satisfied that the primary judge was correct in the construction he gave to the relevant phrase in the Profit Share Retention policy. The grammatical construction of the phrase, in the light of the overall context of other matters in the policy, and the need to give a consistent and business-like interpretation to the Profit Retention arrangement between the parties, leads me to this conclusion. There is no occasion to rely on the contra proferentem rule. Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28; 217 CLR 424 does not stand for a general proposition that all contracts must be construed contra proferentem in the case of ambiguity. Rather, the reasoning in it is closely confined to contracts of guarantee and indemnity. The rule is one of last resort ( North v Marina [2003] NSWSC 64; 11 BPR 21359 per Campbell JA; World's Best Holdings Ltd v Sarker [2010] NSWCA 24 at [22] per Handley AJA; Batterham v Makeig [2010] NSWCA 86 at [36] per Young JA). In the present case, where the application of proper principles of construction yields a preferable and satisfactory meaning, there is no need to use the contra proferentem rule at all.
64I am not, however, attracted to Mr Jackman's remaining two arguments. The first of those related to the stipulations in the option plan, the restraint of trade clauses and the termination clauses generally. While it is true that each of those stipulations recognise that, in certain situations, the employer may terminate employment with consequences for other benefits, I do not see that those other provisions in the wider contractual relationships between the party have any real bearing on the interpretation of the relevant phrase in the Profit Share Retention policy that is at the heart of this appeal. At best, it should be said that they give little guidance, one way or the other, as to the meaning of the relevant phrase. At worst, they distract from the actual words used in the Retention Policy.
65The so-called pre-contractual statements and their contents do not have the value argued for by Mr Jackman, in my opinion. This is because, although a new contract was entered into on 26 th October 2007, the terms and conditions of the employment were already determined by Mr Byrne's current employment documentation in force prior to the new contract. In particular, there was to be no material change to the profit share arrangement, including the arrangements as to any retained profit share. In those circumstances, the 2006/2007 remuneration notices are not properly to be seen as statements capable of contradicting, in their terms, remuneration matters previously agreed to between the parties. They were post, not pre, contractual statements. Thus, for example, the footnotes in the remuneration notices upon which Mr Jackman placed reliance could not, in my opinion, be used to contradict the remuneration terms already agreed to between the parties. The footnotes could not alter the terms of the Retention Policy. In that regard, the primary judge may have been wrong in placing reliance on this post contractual material, but even so, leaving it out of consideration, he was otherwise correct in the conclusion he reached.
66For the reasons stated earlier, I have concluded that the answer given by Tamberlin AJ to question (1) was correct and that the appeal must fail.
67I propose the following orders:
(1) Leave to appeal be granted
(2) Appeal dismissed
(3) The applicant to pay the respondent's costs of the leave application and the appeal.