Was there a condition precedent to the formation of a binding contract?
82 It is well established that the rights and obligations of parties to a contract are determined objectively. As the High Court said in Toll at [40]:
It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.
83 Conditions precedent fall into two classes. In Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 551-2 Mason J said:
There is an obvious difference between the condition which is precedent to the formation or existence of a contract and the condition which is precedent to the obligation of a party to perform his part of the contract and is subsequent in the sense that it entitles the party to terminate the contract on non-fulfilment.
In the first category the transaction creates no rights enforceable by the parties unless and until the condition is fulfilled. In the second category there is a binding contract which creates rights capable of enforcement, though the obligation of a party, or perhaps of both parties, to perform depends on fulfilment of the condition and non-fulfilment entitles him to terminate.
Conditions precedent within the first category may produce different consequences. In most cases, but perhaps not in all, a party may be able to withdraw from the transaction before fulfilment of the condition. But in each class of case, the transaction creates no enforceable rights in respect of the subject matter of the transaction unless the condition is fulfilled because, until the occurrence of that event, there can be no binding contract.
…
Generally speaking the court will tend to favour that construction which leads to the conclusion that a particular stipulation is a condition precedent to performance as against that which leads to the conclusion that the stipulation is a condition precedent to the formation or existence of a contract. In most cases it is artificial to say, in the face of the details settled upon by the parties, that there is no binding contract unless the event in question happens. Instead, it is appropriate in conformity with the mutual intention of the parties to say that there is a binding contract which makes the stipulated event a condition precedent to the duty of one party, or perhaps of both parties, to perform. Furthermore, it gives the courts greater scope in determining and adjusting the rights of the parties. For these reasons the condition will not be construed as a condition precedent to the formation of a contract unless the contract read as a whole plainly compels this conclusion.
84 Pacific National argued that, if the Court were to find there was a contract which required it to pay the applicants severance pay and other entitlements on termination, it was subject to a condition precedent that the roles the employees were performing were actually redundant and their employment was in fact terminated. That contention must be accepted. It is clear that Pacific National's obligations to pay severance pay and accrued annual leave entitlements only arose on termination of employment for redundancy. As the 1 October letters stated:
[Y]our employment will not terminate until such time as your role actually becomes redundant, which will not occur until such time as we no longer require you to perform work which is within the scope of your skills, expertise and qualifications.
85 Read in context, the confirmation that 31 December 2021 was "the latest date upon which your role will become redundant" does not constitute a promise to terminate the applicants' employment on the ground of redundancy by 31 December 2021. Rather, it is a representation that, if their roles actually became redundant, termination would occur by that date.
86 The terminology in the correspondence largely reflects the consultation process mandated by the Enterprise Agreement. Although the notification and consultation process in cl A31.1 is expressed to be engaged only where Pacific National has made a "definite decision" that it "intends to proceed with any significant change" (para A31.1(c)), it imposed no requirement on Pacific National to implement the change. Circumstances may arise which make the change unnecessary or undesirable such that the intention may never be realised, as common sense indicates and the Enterprise Agreement contemplates. Paragraph A31.1(i) provides that Pacific National may implement change after the notification and consultation process has satisfactorily taken place. In other words, Pacific National was only entitled to implement the proposed change if it first followed the notification and consultation process set out in the Enterprise Agreement. Once that process concluded, it was under no obligation to do so.
87 On the other hand, the applicants submitted that there was no condition precedent and that the contracts required Pacific National to make the applicants redundant by 31 December 2021 and terminate their employment on that basis so as to attract severance payments under the Enterprise Agreement. To the extent that any condition precedent existed, they argued that condition was the acceptance of the binding expressions of interest in voluntary redundancy submitted by the applicants.
88 In support of this construction, the applicants relied on the same passage of the 1 October letters as Pacific National. They submitted that the phrase "the latest date upon which" provided 31 December 2021 as the outer limit of the time by which Pacific National was to perform. Any ambiguity in that phrase, the applicants submitted, could be resolved in favour of their construction because:
the full text of the 1 October letters was "replete with certainty as to termination occurring at some point", as opposed to merely suggesting its possibility;
the surrounding documentary context was "equally certain";
the contracts were negotiated in the context of Pacific National having communicated a "definite decision" to reduce the number of roles at Werris Creek; and
it is inherently unlikely, having regard to the significance of termination in an employment relationship, that either party would have agreed to a term as uncertain as one which made performance subject to an actual decision by Pacific National to make the applicants redundant.
89 The applicants submitted that the contracts were made in a context where Pacific National had already decided to make the applicants' positions redundant and that the only outstanding question was precisely when that would occur. They characterised Pacific National's construction as conferring upon it a "general discretion to perform", and as having the result that "the contracts imposed no real obligations on Pacific National at all". This construction was said to be "inherently unlikely".
90 Yet the 1 October letters offered no certainty that the positions the applicants occupied would become redundant by 31 December 2021 or at all - whether the statements in the letters are read on their own or in the context of the earlier correspondence.
91 The 11 September letters to which the binding EOI forms were attached included two firm indications that binding expressions of interest in voluntary redundancy would not necessarily lead to redundancies. They were the following statements:
"Pacific National can confirm that it may be forced to move to redundancies at Werris Creek"; and
"Please be aware that even if you confirm your EOI, there is no guarantee that your position… will be made redundant.".
92 The binding EOI form itself, which the applicants characterised as the offer, required each of the employees to "acknowledge and understand" that, confirming his expression of interest for voluntary redundancy meant that "should Pacific National determine that my role is surplus to requirements… my employment may terminate for reason of redundancy" (emphasis added).
93 I recognise that in the covering letter the applicants were advised that they were not to assume that their roles would be made redundant "until Pacific National has notified you that your application has been accepted" and that the 1 October letters informed them that their applications had been accepted. Read in isolation, the applicants could be forgiven for thinking that, upon the acceptance of their applications, they could assume that their roles would become redundant. But these statements cannot be read in isolation.
94 Not only did the 11 September letters offer no assurance of redundancy but it is also clear that the 1 October letters merely advised the applicants of the expectations held by Pacific National at the time. They advised the applicants in no uncertain terms that their positions were not then redundant and may not become redundant. For example, the letters state:
"… it is anticipated your position will become redundant in the future";
"… your employment will not terminate until such time as your role actually becomes redundant, which will not occur until such time as we no longer require you to perform work which is within the scope of your skills, expertise and qualifications";
"… we must be very clear that this letter does not serve as notice of termination" (original emphasis);
"[y]ou will be notified as soon as your role becomes redundant and provided at this time with notice of your termination date";
"[a]s stated above, your role has not yet become redundant"; and
"[y]ou will only be eligible for, and receive, a severance payment if your employment ceases due to the redundancy of your role".
95 It is true that the 1 October letters advised that each applicant's "expression of interest in Voluntary Redundancy ha[d] been accepted", that the "latest date upon which [their] role[s] will become redundant is 31 December 2021", and that each applicant "will be entitled to a severance payment". I also accept that the use of the modal verb "will" in some of these phrases suggests certainty. But certainty as to what? It does not follow that Pacific National had made an irreversible commitment to going through with the proposed redundancies. Read in context, a reasonable person would understand these references to be subject to Pacific National deciding that the roles were in fact redundant and advising the applicants that it no longer required their services by issuing a notice of termination. In other words, if the company's expectations were realised and the applicants' positions became redundant, then the latest date that would occur would be 31 December 2021. In the context of the other statements contained in the 1 October letters and the earlier correspondence, I find that a reasonable person would have understood that performance of the contracts was conditional upon the applicants' roles becoming redundant and that that condition has never been met.
96 It is tolerably clear that the agreement the parties made was that the applicants would accept voluntary redundancies if Pacific National determined at some future date that their roles were surplus to requirements and decided to terminate their employment for that reason. Similarly, read in context, a reasonable person would understand statements that the applicants "will be entitled to severance payments", to mean that, in the event that their positions are made redundant, they would be paid severance as required by the terms of the Enterprise Agreement.
97 No significance should be attached to the use in the correspondence of the phrase "definite decision". Paragraph A17.4(a) of the Enterprise Agreement provides that where Pacific National decides it no longer requires a position to be filled, it must undertake consultation in accordance with cl A31. Paragraph A31.1(c) requires that Pacific National issue a notification once it has made a "definite decision" that it intends to proceed with any significant change, and that notification marks the commencement of the consultation procedure set out in the remainder of cl A31.1. Paragraph A31.1(i) provides that Pacific National "may" implement change once the notification and consultation process has satisfactorily taken place, and accordingly Pacific National is not required to implement change even where it has made a "definite decision". In this context, the phrase was being used to invoke the notification and consultation process under the Enterprise Agreement, not to communicate to the applicants that it was obliged to terminate their employment on the basis of redundancy. That conclusion is supported by the statements in the correspondence that the applicants' positions were anticipated to become redundant and that they would only be terminated when Pacific National determined to issue a notice of termination to each applicant.
98 I reject the applicants' contention that Pacific National's construction would confer on it a general discretion to perform. There is nothing unusual about the fulfilment of a condition precedent being within the control of one party to a contract or the condition precedent being a particular state of mind of one contractual party only. Neither type of condition precedent confers upon the party, who is required to take the action or have the state of mind, a general discretion to perform. Contracts for the sale of land, for example, are commonly expressed to be subject to finance on satisfactory terms, that is, conditional upon the purchaser successfully obtaining finance on terms they consider satisfactory. This condition is in two parts: that the purchaser successfully obtains finance (which is entirely within the purchaser's control as the vendor has no ability to apply for finance on the purchaser's behalf) and that the terms of the finance obtained be satisfactory to the purchaser (again, entirely a matter for the purchaser). A condition precedent of this kind provides little certainty to the vendor that performance will occur but it does not confer on the purchaser a discretion to perform. The purchaser is at least required to act honestly in attempting to obtain finance and in determining whether its terms are satisfactory: Meehan v Jones (1982) 149 CLR 571 at 589-90 (Mason J). It would not be open to the purchaser to simply declare that they could not obtain satisfactory finance.
99 Here, Pacific National was required to act honestly in assessing whether it no longer required the services of the applicants, and if it concluded that this was the case, to terminate the applicants' employment with their consent and pay them severance pay and their accrued statutory leave entitlements. The contracts still imposed real obligations on Pacific National.
100 The applicants argued that the exchange of correspondence and the careful solicitation of employees for voluntary redundancy told against such a "one-sided" construction, given that the process would be rendered "largely inutile" by it. But that is not the case. Both parties to the contracts benefited from the careful selection of applicants for voluntary redundancy, even if performance of the contract was conditional on Pacific National no longer requiring the applicants to perform work. The applicants secured certainty that they would be selected for redundancy and receive severance pay if their roles were made redundant and, as I have already observed, Pacific National minimised the risk of disputation by making redundant only the positions occupied by those employees who agreed to accept redundancy.
101 The existence of the condition is also consistent with the objective purpose of Pacific National's obligations under cl A17.11 of the Enterprise Agreement, namely to make severance payments to employees whose positions have become redundant. The purpose of severance pay, as explained nearly 40 years ago by the Full Bench of the Australian Conciliation and Arbitration Commission in the Termination, Change and Redundancy Case (1984) 8 IR 34 at 73 (and essentially confirmed in the Redundancy Case (2004) 129 IR 155 at [133] by the Australian Industrial Relations Commission per Giudice J, Ross VP, Smith and Deegan CC) is to compensate "for non-transferable credits and the inconvenience and hardship imposed on employees" by providing temporary income maintenance while the retrenched employee searches for other employment, and to allow for the possibility of retraining or relocation to take up a new job. "Non-transferable credits" are accrued benefits like sick leave, long service leave, loss of seniority, and employer contributions to pensions or superannuation. The financial position of employees who continue to be employed is assured by the continued payment of wages in return for their labour. Construing the contracts as requiring Pacific National to terminate the applicants' employment when ample amounts of work are available for them is antithetical to the purpose of severance pay.