The promised pay rise
137 The claim for what is characterised by Dr Cohen as an "[u]nderpayment of remuneration between 1 July 2010 and 30 September 2011" is in the sum of $74,500.42. This was a claim made against the First Respondent as the "employer" of Dr Cohen as at the date of the termination of his services.
138 Attention had been given to the question whether Dr Cohen's salary should be increased from at least September 2007. In October 2007 a meeting of the Appointments and Compensation Committee of IBA Health Limited considered that "further salary data was required" before a decision could be made.
139 The present claim, however, is in respect to an alleged failure to give effect to a pay rise which was agreed in July 2009. The claim has its origins in the following letter sent by Mr Gary Cohen in his capacity as the Executive Chairman and CEO of iSoft to Dr Cohen on 6 July 2009:
Dear Brian
I am pleased to be able to inform you that as a result of a recent review of executive pay, your Annual Base Salary has been increased to AUD$396,440, representing an increase of 6%. Your new Annual Base Salary will be paid with effect from 1 July 2009.
In addition to this increase, your Annual Base Salary will be increased a further 6% to AUD$420,227 effective 1 July 2010.
All other terms and conditions of your employment remain unchanged.
I would like to take this opportunity to thank you for all your consideration efforts and achievements over the past year and to wish you every success for the future.
It was common ground that the first increment in salary was paid but that the second increment was not paid.
140 Attention was thus being given to the appropriateness of a pay increase immediately before Dr Cohen commenced his secondment in Chennai and during that secondment. Indeed, the July 2009 letter was relied upon by Counsel for Dr Cohen to support his submission that Dr Cohen's employer at this point of time was the First Respondent and not IBA Health (Asia) Pte Ltd. The letterhead, it was submitted, was not on IBA Health (Asia) letterhead - but that of iSoft. The submission in respect to the identity of the employer has been rejected. But the claim in respect to the failure to give effect to Dr Cohen's pay rise can be briefly addressed.
141 As at July 2009 the First Respondent, it has been concluded, was not the "employer" of Dr Cohen. The claim as against it for "underpayment of remuneration" should thus be rejected on that basis alone. Senior Counsel on behalf of the Respondents separately submitted that there was in any event no consideration provided by Dr Cohen in exchange for a contractual variation to accommodate the promised increase. Had it been necessary to resolve that further submission, it would most probably have been also accepted.
142 On behalf of Dr Cohen it was submitted that the terms in which the July 2009 letter were expressed were not such as to amount to an offer which had to be accepted by Dr Cohen but rather as a variation of a prior agreement: cf. O'Sullivan Partners (Advisory) Pty Ltd v Foggo [2012] NSWCA 40 at [60] per Campbell JA (Macfarlan and Young JJA at [101] and [120] agreeing). Consideration for the pay increase, it was submitted, was provided by Dr Cohen continuing to provide services and in not seeking to terminate his contract of employment. He continued to provide his services, such was the submission, in the belief that he would receive a pay increase which had long been under deliberation.
143 Consideration, it has been held, may be found by an employee continuing in employment. Thus, for example, in Ajax Cooke Pty Ltd t/as Ajax Sparway Fastners v Nugent (unreported, Supreme Court of Victoria, Phillips J, 29 November 1993). Phillips J there concluded that an employee was entitled to be paid certain sums for "redundancy". His Honour relevantly observed:
In my opinion, the notice containing the terms and conditions of the redundancy package was an offer to the plaintiff (among others) on condition: if the plaintiff continued in his employ until retrenchment then, if retrenchment occurred during the currency of the agreement, the benefits spelled out in the redundancy package would be paid by the employer. …
To this, the defendant responded that, by continuing in employment, the plaintiff was doing no more than he was already bound to do by his contract of employment, in the absence of any notice from him to terminate that employment. It was said that the plaintiff was bound to continue working unless and until he gave notice to quit and that therefore his mere continuing in employment could not constitute consideration for the employer's offer of the redundancy package. But I think this should be rejected. The plaintiff was not bound to continue in his employment: even if the employee was bound by his existing contract not to quit his employment without giving due notice, he was not bound to continue in employment until retrenchment. By doing so in the belief that the package applied to him, he both accepted the offer made of further benefits upon retrenchment, and he gave consideration at the same time.
His Honour, it should also be noted, there found that there was a "benefit" to both the employer and the employee. His Honour thus stated that:
… it was at least open to the magistrate to have found mutual advantage to both plaintiff and defendant in the redundancy package. The benefit to the plaintiff is obvious. As for the defendant, was it not open to infer that, in posting notice of the redundancy package, and thereby announcing the benefits to be paid during the relevant period, the defendant acted to secure some benefit or advantage to itself, whether by inducing its employees to refrain from further industrial disputation or by encouraging them to continue in their present employment? …
144 The most useful examination of whether the continued performance of an existing contractual obligation may provide consideration for a promised future benefit is that undertaken by Santow J in Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723. His Honour there examined whether a "practical benefit" would suffice to permit enforcement of such a promise. After reviewing the authorities and the commentary provided by text writers, his Honour concluded:
"The present state of the law on this subject can be expressed in the following proposition:
(i) If A has entered into a contract with B to do work for, or to supply goods or services to, B in return for the payment by B, and
(ii) At some stage before A has completely performed his obligations under the contract B has reason to doubt whether A will, or be able to, complete his side of the bargain, and
(iii) B thereupon promises A an additional payment or other concession (such as reducing A's original obligation) in return for A's promise to perform this contractual obligation at the time, and
(iv) (a) As a result of giving his promise B obtains in practice a benefit, or obviates a disbenefit provided that A's performance, having regard to what has been so obtained, is capable of being viewed by B as worth more to B than any likely remedy against A (allowing for any defences or cross-claims), taking into account the cost to B of any such payment or concession to obtain greater assurance of A's performance, or
(b) as a result of giving his promise, A suffers a detriment (or obviates a benefit) provided that A is thereby foregoing the opportunity of not performing the original contract, in circumstances where such non-performance, taking into account B's likely remedy against A (and allowing for any defences or cross-claims) is capable of being viewed by A as worth more to A than performing that contract, in the absence of B's promised payment or concession to A.
(v) B's promise is not given as a result of economic duress or fraud or undue influence or unconscionable conduct on the part of A nor is it induced as a result of unfair pressure on the part of A, having regard to the circumstances, then,
(vi) The benefit to B or the detriment to A is capable of being consideration for B's promise, so that the promise will be legally binding."
Dr Cohen, it is concluded, cannot bring himself within this statement of principle. On the case advanced on behalf of Dr Cohen, consideration for the promised pay rise was to be found simply in the continued performance of an existing contractual obligation. The law, however, has not as yet embraced such a proposition; indeed, it has long rejected it: Stilk v Myrick (1809) 2 Camp 317, 170 ER 1168.
145 The present case is a long way removed from the remaining sailors in Stilk v Myrick who sailed a ship home after other sailors had deserted. The remaining sailors were promised, but did not receive, the wages otherwise payable to the deserters. The principle established by that decision may well be in need of reform: Meyer-Rochow, The Requirement of Consideration (1997) 71 Australian Law Journal 532. The need for change has long been mooted. Thus, after conducting a case-law study of French law, Mason wrote in 1941:
III. Shall We Change The Law Of Consideration ?
Our law of consideration, in its relationship with the law of formality, is inharmonious and unbalanced. It fails to provide a useable guide to direct the formalities of contract making. It has improperly intruded itself into the doman of tort. It fails to make suitable provision for gratuitous promises of service. Above all, it fails to respect the reasonable requirements of business and does not aid to equitable decision in commercial cases: The Utility Of Consideration - A Comparative View (1941) 41 Columbia Law Review 825 at 847.
146 In the present proceeding, however, there was no suggestion that Dr Cohen would resign in the event that his remuneration was not increased. There was no case sought to be advanced, for example, that Dr Cohen continued his employment against a background of threatened industrial action or contractual uncertainty. Nor was any suggestion put that the promised increase in remuneration was made to improve the chances of securing Dr Cohen's services. It was never contended that Dr Cohen was even giving any thought to seeking employment elsewhere. Indeed, there was no evidence of anything other than consideration being given to increasing his salary.
147 Given the fact that this claim made by Dr Cohen must nevertheless fail, it is perhaps prudent to not attempt any further analysis of the First Respondent's submission that the pay rise was not supported by consideration.
148 Dr Cohen's claim in contract as against the First Respondent for "underpayment of remuneration" is thus rejected. As at the date of the promised pay rise, the First Respondent was not Dr Cohen's "employer" and, in any event, there was most probably a lack of consideration provided by Dr Cohen in return for the increase.
149 It should, perhaps, also be mentioned that the facts relevant to the separate claim for a "retention payment" also assume some relevance to the conclusion that there was an absence of consideration provided by Dr Cohen in return for the promised pay rise. Rather than some "practical benefit" being held out to Dr Cohen if he continued to provide those services, the facts relevant to the claim for a "retention payment" seem to suggested the very opposite. Rather than some "practical benefit" - perhaps in the form of a "retention payment" - being offered to Dr Cohen in return for his continued services, Dr Cohen's claim is that all other senior executives other than himself were being offered the "retention payment".