Cushman & Wakefield (NSW) Pty Ltd v Farrell

Court of Appeal (NSW)|2017-02-06|Before: Macfarlan JA, Ward JA, Ms J, Sorby AJ

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Judgment

MACFARLAN JA: I have had the advantage of reading the judgment of Ward JA in draft. I agree with the orders that her Honour proposes and with the reasons that she gives.
WARD JA: These proceedings relate to a dispute as to the proper quantification of a payment due to the respondent (Mr Farrell) on the termination of his employment with the appellant, Cushman & Wakefield (NSW) Pty Ltd (C&W/NSW). It turns on the proper construction of his contract of employment. There is no dispute that C&W/NSW was entitled, as it did, to terminate Mr Farrell's employment without cause.
C&W/NSW paid an amount to Mr Farrell in respect of the termination (or so-called redundancy) payment. At first instance, Mr Farrell contended, successfully, that he had been underpaid and was entitled to a further amount in the order of $450,459.14 calculated, relevantly, by reference to his years of service with a "Related Company" of C&W/NSW. C&W/NSW contended, unsuccessfully, that it had overpaid Mr Farrell and claimed by way of restitution the amount of $58,333.34.
C&W/NSW now appeals from the primary judge's decision. Mr Farrell has in turn filed a notice of contention seeking to affirm the primary judge's decision on other grounds.

Background

In October 1991, Mr Farrell and a business partner, Mr Anthony Anderson, established a real estate agency business under a corporate entity, which came to be known as Laing & Simmons Commercial Pty Ltd (Laing & Simmons). In the period from 19 December 1991 to 2 January 2008, Mr Farrell was employed by that company.
On 2 January 2008, Cushman & Wakefield (Australia) Pty Ltd (C&W) effectively acquired the Laing & Simmons business. First, Messrs Farrell and Anderson set up a new company for the purposes of the overall transaction, L&S NewVic Pty Ltd. C&W then purchased the issued capital of that new company from Messrs Farrell and Anderson (the Share Sale Agreement). Second, Laing & Simmons sold its real estate business and all of its business assets to L&S NewVic Pty Ltd (the Sale of Business Agreement). L&S NewVic Pty Ltd later came to be known as C&W/NSW, the appellant in these proceedings. In that fashion, C&W became the holding company of the new owner of the Laing & Simmons business.
Execution of employment contracts between C&W/NSW and each of Mr Farrell and Mr Anderson was a condition precedent to completion both of the Share Sale Agreement (cl 4.2) and the Sale of Business Agreement (cl 3.1(h)). The requisite employment contract was to be in the form set out in Sch 18 of the Share Sale Agreement.
Mr Farrell's employment contract (the Employment Agreement) commenced on 2 January 2008. His position was there described as Executive Managing Director of L&S NewVic Pty Ltd (the Company). The contract, which was in the form of a letter addressed to Mr Farrell and signed by way of acceptance by him, noted that under his Employment Agreement Mr Farrell would report to and follow instructions of the Board of Directors of the Company, a wholly-owned subsidiary of C&W.
The Employment Agreement provided that Mr Farrell's employment was for a period until 30 June 2010 (the Initial Period), subject to certain termination rights and his ability to resign on three months' notice; and that, following the Initial Period, Mr Farrell's employment would "continue indefinitely" until terminated by C&W/NSW or his resignation, both on three months' notice, with the proviso that his employment might be terminated at any time without prior notice for cause in certain specified events (cl 4).
Attachment C to the Employment Agreement set out the payments to which Mr Farrell was to be entitled following termination of his employment under cl 4 of the agreement (cl 5). I refer to these in more detail below.
Under the Sale of Business Agreement the Purchase Price was $1.00 and on completion the buyer (i.e., C&W) assumed liability for the Assumed Liabilities, which included liability for certain Vendor Loans, thus effectively removing Mr Farrell's liability to repay an unsecured interest free loan he owed to Laing & Simmons.
Under the Share Sale Agreement, the Purchase Price for the Sale Shares was comprised of a number of payments (cl 3). On completion the amount of $1,990,000, together with a Net Asset Adjustment amount ($237,000), was payable to Messrs Farrell and Anderson (in the proportions of 50% each) (cl 3.1(a) and (b)). The agreement also provided for two payments of what was described as "Earn Out Consideration" and for payment of the sum of $1,501,000 as "Deferred Consideration" (the last-mentioned payment being due on the third anniversary of the completion date - cl 3.1(d)).
The First Earn Out Consideration was payable on the First Earn Out Consideration Date (the earlier of 30 days after the issue of an audit opinion in relation to C&W/NSW's financial statements for the financial year ending 30 June 2008, on the one hand, and 31 October 2008 or such later date as agreed in writing by the vendors, on the other hand). It was to be calculated by reference to the company's financial performance (EBITDA) for the period 1 July 2007 to 30 June 2008 (see Sch 1 Pt 1). There was provision for part of the First Earn Out Consideration to be retained in certain circumstances and for the retained sum to be payable on the third anniversary of the completion date (cl 3.1(e)).
The Second Earn Out Consideration was similarly to be calculated by reference to financial performance but this time by reference to the "EBIT" of the "EBIT Group" for the period from 1 July 2007 to 30 June 2010 (see Sch 1 Pt 2). It was capped at $2,500,000 and was payable on the earlier of 30 days after the issue of an audit opinion in relation to C&W/NSW's financial statements for the financial year ending 30 June 2010, on the one hand, and 31 October 2010 or such later date as agreed in writing by the vendors, on the other hand.
Pausing here, C&W/NSW points out that the timing for calculation of the Second Earn Out Consideration payment coincided with the expiry of the Initial Period of Mr Farrell's employment.
Mr Farrell's employment continued beyond the Initial Period. In 2011, there was an agreed variation to the Employment Agreement, documented by letter dated 4 October 2011 which was signed by him on 2 November 2011. The letter recorded that on or around January 2009 there had been an agreement with Mr Farrell for him to accept a 5% reduction in the remuneration stated in the Employment Agreement. The variations agreed in October 2011, which were stated to operate from 1 January 2011, included an amendment to the termination payments provided for pursuant to cl 5 of the Employment Agreement (see below at [19]) and a reduction in his annual remuneration to $150,000 per year plus superannuation contributions. There was also a variation to cl 6(a) of Attachment A of the Employment Agreement, to which I refer below (at [21]). The letter stated that, other than the Agreed Variations, the terms and conditions of the Employment Agreement remained unchanged.
There was one further change to Mr Farrell's employment arrangements. By letter dated 6 August 2014, signed by Mr Farrell on 8 August 2014, C&W/NSW wrote to Mr Farrell to "confirm the Commission Only arrangements under which [he] will be employed", the effective date of those arrangements being 1 August 2014. In effect, after 1 August 2014, Mr Farrell was no longer to be paid by way of an annual remuneration but by a commission where he was responsible for a property transaction. However, the letter made clear that the obligations with regard to the termination of employment and payments which would become due "as set out in the Employment Agreement dated 4 October 2011 … remain in place and are not amended by the commencement of this Agreement".
Mr Farrell's employment with C&W/NSW was terminated by the company without cause on 30 June 2015. There was no dispute that in those circumstances a termination payment as set out in cl 6 of Attachment C to the Employment Agreement was payable.
It is convenient here to set out the terms of that clause, it being one of six "scenarios" contemplated in Attachment C. As initially agreed, it provided as follows: 6. Employment is terminated by the Company without cause after the Initial Period If the Company terminates your employment following the Initial Period other than for cause pursuant to clause 4 of this agreement: (a) you will receive a minimum redundancy payment equal to six times the remuneration payable by the Company during the month prior to the termination of your employment, plus one further month for each full year of service with the Company or a Related Company, less applicable taxation; and (b) you will not be bound by the non-competition provisions of this agreement under clause 13(b) post-termination.
The term "Related Companies" was defined in the Employment Agreement (cl 4(g)) by reference to the definition of that term in s 50 of the Corporations Act 2001 (Cth). There was no suggestion that the singular did not bear a commensurate meaning.
The amendment made in October 2011 to cl 6(a) substituted the narrative description of the amounts to be paid with specific dollar amounts. It provided as follows: (a) You will receive a minimum redundancy payment equal to "$158,502.50" plus one further month's pay at the rate of $26,417.08 per month for each full year of service with the Company or a Related Company, less applicable taxation; …
It was not in dispute that the first of the dollar sums equated to six times the remuneration paid to Mr Farrell as at the time of the amendment and that the second of the dollar sums was based on that level of remuneration (not the reduced level recorded in the opening paragraph of the 2011 letter).
In July 2015, C&W/NSW paid Mr Farrell the sum of $158,502.50. He was also paid (C&W/NSW says by mistake) the second component of the termination payment calculated by reference to the period of Mr Farrell's employment from 2 January 2008 to 30 June 2015. A dispute arose as to the number of further months to be used in the calculation of the second component of the termination payment due to Mr Farrell.
Mr Farrell commenced proceedings in the District Court to recover the sum of $422,673.28 (together with interest of $27,785.86) that he claimed was owing to him. C&W/NSW denied liability for that amount and cross-claimed to recover by way of restitution the amount it claimed to have overpaid Mr Farrell (in the order of $58,333.34 representing a payment for the two full years of service between 2 January 2008 and 30 June 2010).
C&W/NSW's position at the hearing below and on this appeal was that Mr Farrell was not entitled to any additional payment for the period from 2 January 2008 to 30 June 2010 (i.e., before the expiry of the Initial Period). C&W/NSW did not dispute that, on and from the acquisition of the shares in Laing & Simmons pursuant to the Share Sale Agreement, Laing & Simmons became a "Related Company" of C&W/NSW within the meaning of s 50 of the Corporations Act 2001 (Cth). Mr Farrell's contention was that he was entitled to sixteen further payments relating to his years of service with Laing & Simmons over the period from 1991 to 2008.

Primary judgment

After summarising the facts and the opposing contentions of the parties, the primary judge's conclusion on Mr Farrell's claim was set out at [26]-[28], as follows: [26] The purpose of clause 6 was to cover an eventuality of the Plaintiff retiring without cause from the end of the Initial Period and envisages the possibility that some such event might occur in the future during the operation of the employment contract. The phrase "following the Initial Period" operates only, in my view, as the date from which the redundancy payment are to be calculated. The period of service in relation to this date from which the payment were to be calculated and made are 30 June 2010 the last day of the Initial period. The rate of the monthly payment, and the minimum redundancy is set out clearly. Added to that is the provision of a further monthly sum of $26,417.08 "for each full year of service" with the Company. The Plaintiff was paid this total sum. [27] The only "related company" at the time of the Plaintiff's resignation was Laing & Simmons Pty Limited for whom up until 2 January 2008, the Plaintiff had been employed since 1991. There were no other related companies in existence or employers of the Plaintiff at the time of the Plaintiff's resignation. The rational reason for including the words "related companies" was to recognise the years of work that the Plaintiff had carried out for Laing & Simmons, a subsidiary of the Defendant. [28] In my view the Plaintiff is entitled to his redundancy payment in accordance with the formula in clause 6(a) to be backdated to 19 December 1991 to reflect his period of employment with the related company Laing & Simmons Pty Ltd.
Pausing there, the appellant notes that the statement (at [27]) that Laing & Simmons was the only "related company" at the time of Mr Farrell's resignation was incorrect, in that C&W was also a related company of C&W/NSW at the time of his resignation. It was not suggested, however, that Mr Farrell had ever been employed by C&W (as opposed to C&W/NSW) and if the first sentence of [27] is read as being that Laing & Simmons was the only related company of C&W/NSW for whom Mr Farrell had worked over that period that statement would be correct. That said, during the time in which Mr Farrell worked for Laing & Simmons, up to the point at which its business was sold to C&W/NSW, Laing & Simmons had not yet become a related company of C&W/NSW.
On the basis of his Honour's conclusion (at [28]) that Mr Farrell was entitled to payment for his service to C&W/NSW and related companies dated back to 1991, his Honour held (at [31]) that C&W/NSW's cross-claim failed.

Appeal Grounds

C&W/NSW raises the following grounds of appeal: 1. The Learned Trial Judge: (a) erred in concluding (at Judgment [28]) that, upon the proper construction of clause 6 of Attachment C to the employment agreement executed on 2 January 2008 and amended on 4 October 2011 ("the Redundancy Clause"), the Respondent was entitled to a redundancy payment calculated by reference to his employment during the entire period of time dating back from 2 January 2008 to December 1991; and (b) ought to have concluded that the Respondent was only entitled, pursuant to the Redundancy Clause, to a redundancy payment referrable to the period of employment on and from 1 July 2010 and that all such entitlements had already been paid by the Appellant to the Respondent. 2. Further to Ground 1, having correctly concluded (at Judgment [26]) that the calculations required by the Redundancy Clause were to be undertaken only in respect of the period of time following the expiry of the Initial Period (namely 30 June 2010), the Learned Trial Judge: (a) erred in concluding (at Judgment [27]) that the additional words "or a Related Company" had the effect of altering what would otherwise have been his Honour's construction (as identified at Judgment [26]) of the Redundancy Clause; and/or (b) erred by failing to give adequate reasons as to why the matters identified at Judgment [27] were sufficient to alter his Honour's earlier conclusions at Judgment [26]. 3. Further to Ground 1, the Learned Trial Judge erred in his construction of the Redundancy Clause: (a) by failing to give sufficient weight to the commercial objectives and context of the employment agreement; and (b) by giving insufficient weight to the inconsistency created by the Respondent's proposed construction of the Redundancy Clause, namely (as recorded at Judgment [23]) that such a construction would have created a material incentive for the Appellant to terminate the Respondent's employment prior to expiry of the Initial Period rather than to permit it to continue indefinitely, for which the employment agreement expressly provided (Judgment [14]). 4. Having correctly concluded (at Judgment [26]) that the calculations required by the Redundancy Clause were to be undertaken only in respect of the period of time following the expiry of the Initial Period (namely 30 June 2010), the Learned Trial Judge: (a) erred by failing to find that, under the Redundancy Clause as properly construed, the Appellant did not have any payment obligations to the Respondent in respect of the period from 2 January 2008 to 30 June 2010; and (b) erred by failing to find that the payments made by the Appellant to the Respondent in respect of the period from 2 January 2008 to 30 June 2010 had been made on the basis of a mistaken interpretation of the Redundancy Clause and were thus properly the subject of an order for restitution; and/or (c) erred by failing to give adequate reasons as to why the matters identified at Judgment [27] were sufficient to alter his Honour's earlier conclusions at Judgment [26] and were sufficient to cause the Appellant's cross-claim to be dismissed, particularly as the Respondent's employment in the period from 2 January 2008 to 30 June 2010 had been with the Appellant, rather than with any "related company".

Notice of Contention

By his notice of contention, Mr Farrell contends that the primary judge's decision should be affirmed on the following ground: 1. Further and in the alternative to the reasons of the trial judge delivered on 26 August 2016 at [26], the orders made by the trial judge are also correct on the basis that, on the proper construction of clause 6(a) of Schedule C of the employment contract dated 2 January 2008 as amended by the parties on 4 October 2011, the respondent was entitled to, on the termination of his employment without cause on 30 June 2015, a payment of $158,952.50 plus one further month's pay at the rate of $26,417.08 per month for each full year of service with the appellant or Laing & Simmons Commercial Pty Limited (which was an entity that the appellant conceded in the proceedings below was a "Related Company").

Proper construction of cl 6(a) - grounds 1-3 of the grounds of appeal; ground 1 of the notice of contention

C&W/NSW's submissions

In essence, C&W/NSW's argument (as put in oral submissions - at T 16.8) is that, read in context, there is ambiguity as to the meaning of the expression "for each full year of service with the Company or a Related Company" in the operation of cl 6(a) of the Employment Agreement and that its construction of the clause is more commercially sensible and internally consistent with the transaction documents than that for which Mr Farrell contended. (Insofar as Mr Farrell submits that no issue of ambiguity was raised by C&W/NSW at first instance, C&W/NSW argues that this was implicit in the construction argument it put to the primary judge and submits that on Mr Farrell's own submissions he implicitly accepts the existence of ambiguity when noting that there is nothing which "de-limits" or provides a "temporal limit" to the operation of cl 6(a).)
C&W/NSW argues that the primary judge correctly (at [26]) construed the clause as operating such that the period of service from which the additional payment was to be calculated commenced on 30 June 2010; and says that there is no sensible commercial explanation for the construction contended for by Mr Farrell (and ultimately accepted by the primary judge) as this would mean there was a significant financial incentive for C&W/NSW to have terminated Mr Farrell's employment prior to the end of the Initial Period. It maintains that this is at odds with the parties' stated intention that Mr Farrell's employment would continue "indefinitely" after the expiry of the Initial Period.
C&W/NSW points to the apparent (and it says inadequately explained - see ground 2) inconsistency in his Honour's reasons at [26] and [27]. Insofar as the change in position is explained by the view taken by his Honour as to the rational reason for including the words "or a Related Company", C&W/NSW argues that those words gave his Honour no cause to depart from the conclusion apparently reached at [26].
The absurd consequences said by C&W/NSW to arise from the primary judge's construction of cl 6(a) are identified by reference to the following matters: that the Employment Agreement comprised "one continuous proposed period of service" which it was contemplated would extend indefinitely beyond the Initial Period; that, while there were no restrictions placed upon the entitlement of Mr Farrell to resign or upon C&W/NSW terminating his employment, different financial consequences would arise depending upon when and how that employment was brought to an end; and that it was only after the expiry of the Initial Period that the entitlement to the additional termination payment based on years of service would arise.
C&W/NSW argues that an obvious commercial objective of the Employment Agreement, understood in the context of the acquisition of the Laing & Simmons business, was to encourage a long and profitable working relationship between the parties. It points to: the substantial annual remuneration Mr Farrell was to receive under the Employment Agreement (initially that being $350,000, together with the opportunity pursuant to cl 7 to be paid an annual bonus if Mr Farrell also became entitled to the Second Earn Out Consideration); the incentives under the Share Sale Agreement for Mr Farrell to remain "a dutiful employee" at least until 30 June 2010 (having regard to the fact that Mr Farrell would not be entitled to the Second Earn Out Consideration if he resigned or his employment was terminated for cause prior to 30 June 2010); and the large financial rewards already received by Mr Farrell for the sale of the Laing & Simmons business.
C&W/NSW notes that there was no restriction on the termination of Mr Farrell's employment without cause prior to 30 June 2010 but that in those circumstances Mr Farrell would be entitled to a proportion of the Second Earn Out Consideration (Pt 2, Sch 1, cl (d)).
Hence, it argues that there was no financial disincentive from terminating Mr Farrell's employment prior to the expiry of the Initial Period, other than to the extent that C&W/NSW would lose a valuable employee; whereas, on Mr Farrell's construction of cl 6(a), which his Honour accepted, the consequence of termination of Mr Farrell's employment one day after the expiry of the Initial Period would render it liable for a substantial additional amount for which it would not have been liable had it terminated the employment a day earlier.
It draws a comparison in this regard between the scenarios contemplated in cll 3 and 6 in Attachment C of the Employment Agreement (which apply where Mr Farrell's employment is terminated other than for cause): the former where termination is prior to expiry of the Initial Period; the latter where it occurs after the Initial Period. In the former case, Mr Farrell would be entitled to his remuneration for the remainder of the Initial Period but with a minimum payment of 6 months (which is the same dollar amount stipulated in cl 6(a) as varied in October 2011) and would not be bound by any non-competition covenant; in the latter, Mr Farrell would be entitled to the amount stipulated in cl 6(a) but together with the additional amount for each full year of service (with the Company or a Related Company).
C&W/NSW argues that there is no commercial rationale for such a significant financial reward becoming payable from one fixed moment in time, rather than gradually accumulating over an extended period of time, as it would under its construction of the Employment Agreement.
C&W/NSW agrees with Mr Farrell that it was the objective intention of C&W/NSW to secure Mr Farrell's services until at least 30 June 2010 and as long as possible thereafter but says that this would only have been achieved if its construction of the Employment Agreement were to be adopted (having regard to the significant financial detriment occasioned to C&W/NSW, on Mr Farrell's construction, if Mr Farrell's employment were to continue beyond the end of the Initial Period). It argues that the additional reward being promised to Mr Farrell for lengthy service was additional compensation for the period of employment beyond 30 June 2010.
It argues that the reliance placed by the primary judge on the inclusion in cl 6(a) of the reference to "a Related Company" was misplaced and that, had the parties intended the termination payment to refer back to the period of Mr Farrell's employment from December 1991 to January 2008, it would have been easy for the contract to have made specific reference to Laing & Simmons (as was done in cl 4(n) of the Employment Agreement) which was known by all parties to have been Mr Farrell's employer prior to 2 January 2008.
C&W/NSW argues that the reference to service with a Related Company accommodated "some future potential and unforeseen restructure" of Mr Farrell's employment whereby he might come to be employed by a related company of C&W/NSW; and hence those words should be understood as forward-looking, not backward-looking, in their operation.

Mr Farrell's submissions

Mr Farrell argues that there is nothing in the text, grammar or structure of cl 6(a) that is ambiguous (and says that no contention to that effect was advanced by C&W/NSW). His position is that the clause is enlivened only if C&W/NSW terminated his employment without cause following the Initial Period (which it did) and that in those circumstances there was a minimum amount payable of $158,502.50 (which was paid by C&W/NSW) plus the additional amount for each full year of service with the "Company or a Related Company". As to the last, he maintains, in essence, that the enquiry is a straightforward factual one (as to what service he had had with C&W/NSW or a Related Company) and that, as he had had 23 full years of service with first Laing & Simmons and then C&W/NSW, he was entitled to payment of the additional sum for the 23 month period in question, in addition to other amounts due on termination. His notice of contention was filed in the event that there was found to be any infelicity in the primary judge's reasons at [26] (referring to the submission by C&W/NSW as to inconsistency between [26] and [27]-[28]).
As to the proposition by C&W/NSW (relevant to grounds 1-3 of the grounds of appeal and to C&W/NSW's cross-claim, ground 4 of the grounds of appeal) that the words "each full year of service" are confined to years of service after the Initial Period, Mr Farrell argues that there is no textual basis for "de-limiting" those words as commencing only on and from 30 June 2010 (there being no temporal limit as to when those years of service are to have occurred), nor any contextual basis for C&W/NSW's construction.
Mr Farrell argues that what C&W/NSW is effectively asking the Court to do is to write into cl 6(a) the words "performed after the Initial Period", after the words "for each full year of service" and says that this is not justified having regard to the ordinary language of cl 6(a) taken as a whole. C&W/NSW rejects that criticism, referring to the observation by Neave JA (with whom Kellam JA and Cavanough AJA agreed) in Morton v Elgin-Stuczynski (2008) 19 VR 294; [2008] VSCA 25 (at [33]; [36]) to the effect that the distinction between implication of terms and interpretation is not always clear-cut and will sometimes be a question of degree rather than one of kind.
Mr Farrell submits that the intent of the 2011 variation of his Employment Agreement was to leave the provisions of the original (2008) Employment Agreement standing, subject to the specified amendments, and hence that cl 6(a) is to be construed in light of its language, commercial purposes and surrounding circumstances as at the date of the variation (4 October 2011).
Mr Farrell says that the context in which cl 6(a) was varied reinforces the conclusion reached by the primary judge since, in 2011, Laing & Simmons was the only Related Company with which he had worked. It is submitted that if the parties had intended, in 2011, that "service with ... a Related Company" would cover only Related Companies with which he might work after 30 June 2010, then those words would have had little, if any, work to do because: he had not worked for a Related Company of C&W/NSW in the period after 30 June 2010 and, even if he did work with a Related Company in the future, the Employment Agreement would not be contractually binding on that company and to do so would effect a termination event for the purposes of his Employment Agreement.
As to the submission by C&W/NSW that, had the parties intended "Related Company" to mean Laing & Simmons, they could easily have stated that directly, Mr Farrell notes that it was not in issue before the primary judge that a "Related Company" included Laing & Simmons. As to C&W/NSW's submission that the phrase "Related Company" should be construed as capturing future employment, he submits that any future employment with a Related Company (which he says must necessarily be a different employer) would need to be dealt with in new contractual documentation, if that eventuality arose. He says that the only service which could exist with a Related Company, and not be the subject of separate agreement, was the past service with Laing & Simmons.
In response, C&W/NSW argues that the fact that Laing & Simmons was the only Related Company for whom Mr Farrell had worked does not assist in the construction of cl 6(a) noting that the following: first, that the reference to "Related Company" did not change as between the 2008 and 2011 versions of the Employment Agreement; second, that there was neither the need nor any utility in omitting a specific reference to Laing & Simmons (whether in 2008 or in 2011) and hence the omission favours the view that the reference to Related Company was forward-looking not retrospective; third, that lack of contractual privity does not assist because the existence of a future separate employment agreement with a Related Company would not of itself effect a release of any obligation under the Employment Agreement and it would be open to any new employer to promise to be bound by such an obligation; and, fourth, that employment with a Related Company would not necessarily be a termination event having regard, among other things, to cl 14 of the Employment Agreement which contemplated that the employee might act as a representative of any of the company's Related Companies.
Mr Farrell maintains that C&W/NSW's contentions do not take into account the commercial context and surrounding circumstances as at the date of the variation in 2011, by which time the Initial Period had ended and his salary had substantially reduced. He argues that, in those circumstances, there is no commercial "absurdity" in the parties having agreed to the operation of cl 6(a) in the way for which he contends.
Pausing there, C&W/NSW's position in this regard is that, for the purposes of construction, no distinction arises between the circumstances at the relevant dates: first, it says that there was no relevant change in surrounding circumstances by 4 October 2011 which is sufficiently relevant to lead to the conclusion that the Employment Agreement, as at 4 October 2011, had a different objective meaning than it did when first executed on 2 January 2008; and, second, it says that there was no material amendment to the terms of cl 6(a) on 4 October 2011 (the amendments then being made in order to preserve Mr Farrell's redundancy entitlements).
As to the reliance placed by C&W/NSW on the commercial incentives/disincentives of the respective constructions of cl 6(a), Mr Farrell argues that these are based on "an artificial and narrow view". He submits that there is nothing in the objective purpose or context to displace the ordinary grammatical meaning of the text and says that what C&W/NSW's analysis has ignored is the benefit to C&W/NSW of having an "obviously valuable employee" continue in employment after 30 June 2010. In other words, it is submitted that the structure of the termination provisions promoted a common commercial purpose (by imposing a detriment in the event of early termination on C&W/NSW and providing an increasing reward for lengthy service on the part of Mr Farrell).
Insofar as the provisions under the Share Sale Agreement in relation to the payment of the Second Earn Out Consideration have any relevance, Mr Farrell argues that he would have been entitled (on termination without cause or resignation within the Initial Period) to a pro-rata payment (of the Earn Out Consideration) and hence that if C&W/NSW had terminated his employment without cause prior to 30 June 2010 the true cost of termination would not be limited to the payment under cl 3(a) of the Employment Agreement. He argues that, objectively, this provided no incentive for either party to terminate prior to 30 June 2010.
Mr Farrell argues that a compelling commercial purpose served by cl 6(a) was that it provided an incentive for him to remain in employment after the Initial Period (so as to obtain the additional sum - there being no further entitlement to an Earn Out Consideration) and a disincentive against C&W/NSW simply terminating his employment immediately after he had received all the consideration payable under the Share Sale Agreement.
He notes that in McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; [2000] HCA 65 at [74], Kirby J cautioned that courts should not "attribute a different meaning to the words of a [contract] ... simply because the court regards the meaning as otherwise working a hardship on one of the parties".
C&W/NSW, in response, contends that a comparison of the commerciality of the results produced by each of the competing proposed constructions is an important element in the interpretation process in the present case and maintains its position that the commercial objective of inducing Mr Farrell to continue in employment with the company is best achieved by its construction of the contract.
Finally, as to the complaint made by C&W/NSW as to the alleged inconsistency in the reasoning of the primary judge (at [26]-[28]), Mr Farrell argues that what his Honour was addressing at [26] was the issue of when the entitlement to payment under cl 6(a) was first enlivened. In any event, he argues that the reasons at [26] are ultimately not relevant to the ultimate conclusion or outcome, which is made plain at [27]-[28]. C&W/NSW cavils with the proposition that there was simply an infelicity in expression in these paragraphs of his Honour's reasoning and submits, by reference to the transcript of the hearing at first instance (see T 32.26-46), that what was said at [26] is properly to be understood as an acceptance of its substantive argument (inconsistent with the award of judgment in favour of Mr Farrell).

Determination of grounds 1-3

The principles to be applied when construing commercial contracts were not in dispute. In Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (2015) 256 CLR 104; [2015] HCA 37, the plurality (French CJ, Nettle and Gordon JJ) confirmed that the contract was to be construed objectively by reference to its text, context and purpose (at [46]); that ordinarily the process is possible by reference to the contract alone (at [48]); that sometimes recourse to external events is necessary and that it may be necessary, in identifying the commercial purpose or objects of the contract to have regard to the background, context and market in which the parties are operating (at [49]). Their Honours also noted (at [51]) that a commercial contract should be construed so as to avoid it "making commercial nonsense or working commercial inconvenience". Similarly, in Electricity Generation Corporation v Woodside Energy Limited; (2014) 251 CLR 640; [2014] HCA 7 at [35] the plurality had emphasised the importance of giving a commercial contract a "businesslike interpretation" (French CJ, Hayne and Crennan JJ and Kiefel J, as her Honour then was).
Both parties referred to the decision of Leeming JA in Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184 though, not surprisingly, emphasising different aspects of that decision. Mr Farrell notes that, at [74], his Honour observed that, very often, language, when considered in its context will have a single, clear meaning and that nothing in the context will come close to displacing the ordinary grammatical meaning of the legal text. C&W/NSW notes that in that same paragraph his Honour nevertheless accepted that it is not always the case that language, when considered in its context, will have a single clear meaning and points to his Honour's observations that: "words do not have a "natural" meaning that can be determined in isolation" (at [75]) and that "to say that a legal text is 'clear' reflects the outcome of that process of interpretation" (at [77]).
Turning to the contract in question in the present case, the Employment Agreement, and starting with the text of cl 6 of Attachment C to that agreement read in its context with the other clauses of that attachment, the words "following the Initial Period" specify the temporal requirement for the application of that clause: namely, that it applies if (and only if) Mr Farrell's employment is terminated by C&W/NSW after the expiry of the Initial Period on 30 June 2010. Those words, appearing as they do in the opening words of the clause, say nothing about the period of time from which "each full year of service" is to be calculated. They merely determine which of the two clauses referable to termination by the company without cause is applicable (cl 3 if the termination is prior to the expiry of the Initial Period; cl 6 if the termination is after the expiry - "following" - that period). The structure of Attachment C, which makes provision for a series of circumstances (though by no means all the potential circumstances) in which Mr Farrell's employment might come to an end, reinforces that conclusion.
In my opinion, the conclusion by the primary judge (at [26]) that the phrase "following the Initial Period" operates only as the date from which the redundancy payments were to be calculated cannot, with respect to his Honour, be sustained.
Nor does his Honour's conclusion (at [26]) to the effect that the period of service (from which the relevant payment was to be calculated) was to date from 30 June 2010 gain any support from the text of cl 6 or its position within the structure of Attachment C as a whole. All that the reference to the expiry of the Initial Period does is to enliven the operation of cl 6(a) and (b).
There is, as Mr Farrell notes, no temporal limitation attaching to the phrase in cl 6(a) "for each full year of service". However, that does not mean that the operation of the clause is unambiguous. True it is that a simple factual enquiry is all that would be involved in determining how many full years of service Mr Farrell has had "with the Company or a Related Company", particularly bearing in mind that the definition of "Related Company" is by reference to the corresponding definition under the Corporations Act. However, what is not made clear by cl 6(a) is the time from which such service is to be calculated. In particular, is a period of service with a company that was not then but later becomes a related company of C&W/NSW service that falls within cl 6(a) for the purposes of calculating the additional termination payment provided for under that clause?
On Mr Farrell's case, all that is required is a calculation of the number of his full years of service with C&W/NSW and of the number of his full years of service with Laing & Simmons to produce the amount payable to him as an additional termination payment (irrespective of the fact that for all but an instantaneous point in time his period of service with Laing & Simmons did not coincide with it being a related company of C&W/NSW). On that argument, a period of service even before 1991 could be included within the calculation if the employer company later became a related company of C&W/NSW. While it is certainly true to say, as Mr Farrell submitted, that it was open to the parties to agree to a termination payment which recognised his earlier period of service with Laing & Simmons, and to do so in a way that only arose after he had worked with C&W/NSW for a specific period of time, what is not clear from the text of the agreement is that this is what the parties objectively intended by cl 6(a) to do. In that sense, I accept that the context in which cl 6(a) appears, coupled with the lack of any indication as to the temporal limitation on the service requirement, gives rise to ambiguity as to the operation of the clause.
That ambiguity is not resolved, as the primary judge (at [27]) appears to have considered it was, by reference to the fact that as at the time of termination of Mr Farrell's employment the only related company by whom Mr Farrell had been employed was Laing & Simmons. (I interpose to note that I assume his Honour was referring to the time of termination of Mr Farrell's employment when he spoke of "the time of the Plaintiff's resignation", since there is no suggestion that Mr Farrell had ever resigned from C&W/NSW.)
First, insofar as surrounding circumstances (such as the knowledge of the parties that Mr Farrell had been employed up until 2 January 2008 by Laing & Simmons) are of relevance in construing the contract they must be the surrounding circumstances as at the time the contract was made. The Employment Agreement was made in 2008. While it was varied in 2011, the terms of the agreement by which it was varied made clear that the variation was to operate by way of amendment of the terms of the existing agreement, rather than the existing agreement being superseded by a later agreement. Therefore, it is to the circumstances surrounding its making in 2008 that one would have regard if necessary to resolve any ambiguity in its operation (see Dan v Barclays Australia Ltd (1983) 57 ALJR 442, 448-449).
Second, the fact that Mr Farrell had only (as at 2008) worked for one company that had become a related company of C&W/NSW does not of itself compel the conclusion that the parties' common intention, objectively ascertained, was for the reference to "service with … a Related Company" to refer to that period of service or to have a retrospective or backward-looking operation. It is equally plausible that what was contemplated was any period of service with or for a Related Company after the commencement of the Employment Agreement. In that regard, while the parties might well have agreed that Mr Farrell should be given recognition for the years of work he had earlier carried out for Laing & Simmons (then to become, but not at the time of his service, a subsidiary of C&W/NSW), that is not the only rational reason there could be for including the words "Related Company" in cl 6(a) (cf his Honour's conclusion at [27]).
The argument that Mr Farrell would not be able to enforce cl 6(a) of the Employment Agreement against a Related Company (absent its agreement) is not to the point. That is not a reason for concluding that the reference to Related Company in cl 6(a) would have no work to do unless it applied retrospectively to the service he had performed for Laing & Simmons. Nor is the argument that, if Mr Farrell were to perform services for a Related Company, this would involve a termination of his Employment Agreement (and again, that there would be no work for the reference to Related Company in cl 6(a) to do), for the simple reason that "service with … a Related Company" even over a full year might not necessarily give rise to a termination event.
Therefore, the reason put forward by the primary judge for the conclusion that Mr Farrell was entitled to a redundancy payment backdated to 19 December 1991 does, not in my opinion, hold good.
There are two matters that point to the opposite conclusion to that which the primary judge reached. First, there is the commercial incongruity of a result pursuant to which entitlement to a substantial additional payment (calculated by reference to years of service from 1991 through to 2008) would arise the day after expiry of the Initial Period but not the day before. That, would not of itself have led me to conclude that C&W/NSW's construction should be preferred. However, the second, and more significant, matter is the commercial disincentive to continued employment that Mr Farrell's construction would pose from the point of view of C&W/NSW. There is also an obvious inconsistency between this disincentive and the stated intention that Mr Farrell's employment would continue indefinitely after the conclusion of the Initial Period, though there may be a question as to how much weight should be placed on such a general statement of intention in circumstances where there was no restriction on termination of the employment relationship (by either party) at any time, subject of course to any applicable notice requirements.
The fact that one construction of a contract may produce an outcome that appears to be commercially unsound does not, of course, justify the adoption of an interpretation which would, in effect, re-write that contract. As Macfarlan JA noted in Jireh International Pty Ltd t/as Gloria Jeans Coffee v Western Exports Services Inc [2011] NSWCA 137 at [55], a court cannot disregard unambiguous language "simply because the contract would have a more commercial and businesslike operation if an interpretation different to that dictated by the language were adopted". But in a case where, as here, there is an ambiguity as to the operation of a clause and the court is presented with a number of alternative constructions, that construction which accords with the parties' intentions, objectively ascertained from the text, context and purpose of the contract and which takes appropriate account of the proposed commercial operation of the contract, is to be preferred.
In the present case, the commercial disincentive to which the construction contended for by Mr Farrell poses, coupled with the absence of anything in the text of the Employment Agreement to suggest that the termination payment was intended to be calculated retrospectively by reference to service before the commencement of the contract and the fact that it was only at the instant of the Employment Agreement that Laing & Simmons became a Related Company of C&W/NSW, leads me to the conclusion that the primary judge erred and that the proper construction of the Employment Agreement is that only years of service with C&W/NSW or a Related Company after the commencement of the Employment Agreement are to be taken into account when calculating the termination payment under cl 6(a).
Grounds 1(a), 2(a), 3(a) and 3(b) of the grounds of appeal are therefore made good. Ground 1(b) is considered in the context of ground 4 below. Ground 2(b) is not necessary to consider in light of the conclusion as to the proper construction of cl 6(a).

Ground 4 - cross-claim for restitution

This ground is predicated on an acceptance of C&W/NSW's argument that the additional payment to which Mr Farrell was entitled on termination of his employment without cause was to be calculated by reference to years of service after the expiry of the Initial Period (not including the period from the commencement of his employment with C&W/NSW up to the end of the Initial Period).
C&W/NSW argues that it was mistaken as to the calculation of the amount due under the Employment Agreement in this regard and points to the fact that Mr Farrell accepted that he was told by C&W/NSW, prior to its payment to him of the amount of $476,948.98 in about July or August 2015, that that was the amount which it had calculated was due under the Employment Agreement (referring to the transcript at 12.26-36 and 13.31-34).
It cites David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 376; [1992] HCA 48 at [40] for the (now uncontentious) proposition that there is no relevant distinction between mistakes of fact and mistakes of law for the purposes of the law of restitution in Australia.

Determination of ground 4

In effect the same reasoning that has led me to conclude that the primary judge erred in reaching the conclusion that the termination payment should be calculated by reference to the years of service between 1991 and 2008 leads to the conclusion that Mr Farrell is entitled to the termination payment (which he received) by reference to his service with C&W/NSW from the time of the commencement of his employment in January 2008.
There is no textual basis for postponing the commencement of the calculation of years of service to the expiry of the Initial Period. Had that been intended the contract could easily have so provided. Whether or not Mr Farrell has been adequately or handsomely compensated for his interest in the business which was sold or for his employment going forward from the time of commencement of the Employment Agreement is beside the point. The construction put forward by C&W/NSW in this regard does nothing to further the commercial objective of encouraging a valuable employee to remain in employment with the company. Thus I reach the same conclusion as his Honour, though not for the same reasons, in relation to the cross-claim.
The challenge to his Honour's finding on the cross-claim should be dismissed.

Costs

C&W/NSW indicated in its written submissions that if the appeal were to succeed it would wish to be heard on the issue of costs and also adverted to the possibility that it might seek to put before the Court short evidence as to amounts paid to Mr Farrell or his solicitors following upon the judgment and orders of the primary judge.
As the appeal has succeeded only in part, I am inclined to think that the appropriate course would be to allow C&W/NSW 80% of its costs of the appeal but the parties should have the opportunity to file short written submissions on the question of costs and to make any application in relation to any other orders that should be made in accordance with this Court's judgment.

Conclusion

The orders I propose are as follows: 1. Appeal allowed in part. 2. Order 1 of the orders made on 26 August 2016 be set aside as well as orders 1, 3 and 4 made on 8 September 2016 to the extent that those orders relate to the proceedings in the District Court other than costs of the defendant's cross-claim. 3. The Amended Statement of Claim and the Amended Cross-Claim each be dismissed. 4. Parties to file written submissions (no longer than three pages in length) within seven days on the question of costs of the appeal and in relation to any other orders sought consequent upon this Court's decision.
EMMETT AJA: This appeal is concerned with the entitlement of the respondent, Mr Robert Farrell, to a redundancy payment under an employment contract (the Employment Contract) made between Mr Farrell and the appellant, Cushman & Wakefield (NSW) Pty Limited (the Company) following the termination of Mr Farrell's employment by the Company. The question in the appeal concerns the proper interpretation to be given to the language of the Employment Contract.
It is common ground that the Company terminated Mr Farrell's employment without cause on 30 June 2015. Mr Farrell claimed to be entitled, as a consequence, to a payment of $422,673.28 but the Company disputed his entitlement to such a payment.
Mr Farrell commenced proceedings in the District Court. By his amended statement of claim filed on 14 June 2016, he claimed the sum of $422,673.28 as being one month's remuneration of $26,417.08 for each of 16 full years of service that he had had with a predecessor in the Company's business. He also claimed interest and costs. The Company filed a cross-claim which sought reimbursement of amounts said to have been overpaid to Mr Farrell in connection with the termination of his employment.
On 26 August 2016, for reasons published on that day, a judge of the District Court (the primary judge) directed the entry of judgment for Mr Farrell against the Company in the sum of $450,459.14, which included interest in the sum of $27,785.28. The primary judge directed judgment for Mr Farrell on the Company's cross-claim and ordered the Company to pay Mr Farrell's costs of the proceedings, including the cross-claim.
By notice of appeal filed on 20 September 2016, the Company appeals from the orders made by the primary judge. By notice of contention filed on 12 October 2016, Mr Farrell seeks to affirm the orders made by the District Court on grounds other than those relied on by the District Court.
The Employment Contract consisted of a letter written by the Company to Mr Farrell bearing the date 2 January 2007. It is common ground that the letter should be dated 2 January 2008 (the 2008 Letter). The terms of the 2008 Letter were varied by a letter written on 4 October 2011 by Mr Farrell to the Company (the 2011 Letter) and a further letter written on 6 August 2014 by the Company to Mr Farrell (the 2014 Letter). The 2008 Letter was part of a suite of instruments entered into on 2 January 2008 in connection with the sale of a real estate agency business in which Mr Farrell had an interest. In order to put the Employment Contract in context, it is necessary to say something about the arrangements concerning that sale.

Sale of Laing & Simmons

On 19 December 1991, Mr Farrell commenced employment in the position of chief executive with Laing & Simmons Commercial Pty Ltd (Laing & Simmons Commercial), which operated a commercial real estate business. The share capital of Laing & Simmons Commercial was owned in equal shares by Mr Farrell and Mr Tony Anderson, who was managing director. The business of Laing & Simmons Commercial grew significantly over the years following 1991. Mr Farrell said that its success was very much linked to his personal exertions and those of Mr Anderson.
In late 2006, Messrs Farrell and Anderson were approached by Cushman & Wakefield (Australia) Pty Ltd (Cushman Australia) about selling the business of Laing & Simmons Commercial. It appears that a bargain was struck between Messrs Farrell and Anderson, on the one hand, and Cushman Australia, on the other, concerning the sale of the business. The sale was evidenced by several instruments.
First, Messrs Farrell and Anderson formed the Company, which was originally called L&S NewVic Pty Limited. It was common ground that all of the shares in the capital of Laing & Simmons Commercial were transferred by Messrs Farrell and Anderson to the Company, although the transfer was not in evidence. On 2 January 2008, Laing & Simmons Commercial, as Seller, entered into a sale of business agreement with the Company, as Buyer (the sale of business agreement). By the recitals in the sale of business agreement, the Seller and Buyer acknowledged that the Company had acquired all of the shares in Laing & Simmons Commercial from Messrs Farrell and Anderson, so that the Company was the beneficial owner of all of the shares in Laing & Simmons Commercial.
By the sale of business agreement, Laing & Simmons Commercial agreed to sell to the Company and the Company agreed to buy all of the assets used in or forming part of the business carried on by Laing & Simmons Commercial in the ordinary course, subject to the exclusion of certain assets not presently relevant. The sale and purchase was to occur on the date of the agreement or such later date as the parties might agree in writing. The consideration to be paid by the Company was the sum of $1, together with the assumption by the Company of what were described as "Assumed Liabilities". Assumed Liabilities included trade debt owed by Laing & Simmons Commercial incurred in the ordinary course of business, entitlements of employees to annual leave, long service leave and the like, loans of $1 million owed by Laing & Simmons Commercial to each Messrs Anderson and Farrell and other specified liabilities. The effect of the sale of business agreement appears to have been intended to be the transfer of the assets and liabilities of the business of Laing & Simmons Commercial without any sum being attributed to goodwill.
Clause 3 of the sale of business agreement provided certain conditions precedent to completion. One of those conditions was the receipt by the Company of duly executed employment agreements between each of Messrs Farrell and Anderson, on the one hand, and the Company, on the other, in the form acceptable to the Company. Another condition was that Cushman Australia agree to the terms of each of the employment agreements between Mr Anderson and the Company and Mr Farrell and the Company. A further condition precedent was that Cushman Australia agree to the terms of a proposed share sale agreement between Cushman Australia, as purchaser, and Messrs Farrell and Anderson as vendors, for the sale of the shares in the Company.
On 2 January 2008 Messrs Farrell and Anderson, as vendors, entered into a share sale agreement (the share sale agreement) with Cushman Australia, as purchaser, whereby each of Messrs Farrell and Anderson agreed to sell to Cushman Australia and Cushman Australia agreed to purchase all of the shares in the capital of the Company. The purchase price for the sale of shares consisted of several elements as follows, subject to adjustments in accordance with the terms of the share sale agreement:

the sum of $1,990,000;
Net Adjustment, being the sum of $237,000;
Deferred Consideration, being the sum of $1,501,000;
First Earn Out Consideration, as defined in Part 1 of Schedule 1;
Retained Sum, as defined, and
Second Earn Out Consideration, as defined in Part 2 of Schedule 1.

Under Part 1 of Schedule 1, the First Earn Out Consideration was calculated by reference to the earnings before interest, taxes, appreciation and amortisation of the business for the period 1 July 2007 to 30 June 2008. Under Part 2 of Schedule 1, the Second Earn Out Consideration was calculated by reference to the aggregate earnings before interest and taxes of the business over the period 1 June 2007 to 30 June 2010. Part 2 also provided that if, prior to 30 June 2010, the employment of either Mr Farrell or Mr Anderson was terminated by the Company without cause or if either of them terminated his employment because of default on the part of the Company, an adjustment was to be made to the Second Earn Out Consideration by reference to the date of termination of employment. Part 2 also provided that if, prior to 30 June 2010, the employment of either Mr Farrell or Mr Anderson was terminated by the Company with cause or if either of them resigned from the Company where there was no fault by the Company, he was no longer to be entitled to payment of a proportionate share of the Second Earn Out Consideration.
The Retained Sum was defined as that amount of the First Earn Out Consideration, if any, that was not required to be paid under the terms of the share sale agreement if to do so would have the effect that the aggregation of that amount with the initial payment of $3,990,000 exceeded 70% of the Notional Amount. The Notional Amount was defined as the amount equal to six times the average of the earnings of the business before income tax, depreciation and amortisation for the two financial years ending 30 June 2007 and 30 June 2008, subject to a cap of $7,350,000 and a floor of $5,200,000.
Thus, the consideration to be received by Messrs Farrell and Anderson for the sale of their interest in the business of Laing & Simmons, through their shareholding in Laing & Simmons Commercial, was to be received as consideration for the sale of their shares in the Company. The rationale for the structure adopted, as briefly described above, does not appear to be relevant to the question of interpretation of the Employment Contract.
By the January letter, the Company confirmed Mr Farrell's position of executive managing director of the Company. Under its terms, he was to report to and follow instructions of the board of directors of the Company, a wholly owned subsidiary of Cushman Australia. He was also required to report from time to time to the chief executive officer of Cushman & Wakefield Asia Limited, the holding company of Cushman Australia.
The commencement date of Mr Farrell's employment was to be the date upon which the 2008 Letter was accepted by him. His employment was to be for the period until 30 June 2010 (the Initial Period), subject to termination rights set out in the January Letter. Following the Initial Period, Mr Farrell's employment was to continue indefinitely until terminated by either the Company or upon Mr Farrell's resignation. Under cl 4 of the 2008 Letter, the Company was required to give three months' written notice or pay three months of the cash salary component of his remuneration in lieu of notice, with the proviso that Mr Farrell's employment could be terminated by the Company at any time without prior notice, including during the Initial Period, in the circumstances set out in the 2008 letter.

Resignation by Mr Farrell;
Termination of employment by the Company with cause; and
Termination of employment by the Company, without cause. Only one of the six scenarios is in issue, although the other scenarios may have a bearing on the proper interpretation of the relevant scenario. As I have said, it is common ground that Mr Farrell's employment was terminated without cause on 30 June 2015. Clearly, that was after the end of the Initial Period. Thus, the relevant scenario was termination without cause after the Initial Period.

Attachment C refers to the payments in question as "redundancy payments". The effect of scenarios 1 and 4 was that, if Mr Farrell resigned from the employment of the Company, either during or following the end of the Initial Period, he was not to receive any redundancy payment. The effect of scenarios 2 and 5 was that, if the Company terminated Mr Farrell's employment for cause, either during the Initial Period or after the end of the Initial Period, Mr Farrell was not to receive any redundancy payment. Thus, the only circumstance in which a redundancy payment was to be made by the Company to Mr Farrell was if his employment was terminated by the Company without cause. The payment varied according to whether the termination was during the Initial Period or after the end of the Initial Period.
Relevantly, scenario 3 in attachment C provided that, if the Company terminated Mr Farrell's employment without cause during the Initial Period, he was to receive a redundancy payment equivalent to the remuneration that would have been payable if his employment had continued during the remainder of the Initial Period, with a minimum payment equal to six times the remuneration payable by the Company during the month prior to the termination of the employment.
Under scenario 6 in attachment C, if the Company terminated the employment of Mr Farrell without cause after the end of the Initial Period, Mr Farrell was to receive a minimum redundancy payment equal to six times the remuneration payable by the Company during the month prior to the termination of employment, together with one further month for each full year of service "with the Company or a Related Company". By the 2011 Letter, the terms of scenario 6 were varied such that Mr Farrell was to receive a minimum redundancy payment equal to $158,502.50 plus one further month's pay at the rate of $26,417.08 per month for each full year of service "with the Company or a Related Company". Although the terms of the Employment Contract were varied by the 2014 Letter, the 2014 Letter expressly provided that the obligations with regard to the termination of employment as set out in cll 4 and 5 of the 2008 Letter would remain in place and were not amended by the 2014 variation.
The rationale for the variation made by the 2011 Letter is not presently relevant. The critical question concerns the meaning to be attributed to the phrase "service with the Company or a Related Company" as used in the original wording of scenario 6 as well as in the amended version following the 2011 Letter.

The Question

The question is whether, for the purposes of the Employment Contract, Mr Farrell was to be entitled to a payment of $26,417.08 for each full year of his service with Laing & Simmons Commercial. He contends that, on a clear reading of the language of the Employment Contract, since Laing & Simmons Commercial was a Related Company of the Company at the time when the Employment Contract was made, his service with Laing & Simmons Commercial from 1991 to 2008 should be taken into account in calculating his entitlement to a redundancy payment. The Company, on the other hand, contends that, on a fair reading of the Employment Contract in its commercial context, the reference to service with a Related Company should be construed as meaning service with a Related Company after the commencement of the Employment Contract.
It is common ground that, on completion of the share sale agreement, Laing & Simmons Commercial became a "Related Company" of the Company. That is to say, prior to 2 January 2008, the Company had acquired all of the issue share capital of Laing & Simmons Commercial from Messrs Anderson and Farrell, such that, prior to the sale of its share capital under the share sale agreement, the Company was the beneficial owner of all of the shares in Laing & Simmons Commercial. That is to say, it became awholly owned subsidiary of the Company as from that moment. However, it was not a Related Company of the Company prior to that time.

Reasoning of the primary judge

In his reasons, the primary judge held that the phrase "following the Initial Period" in scenario 6 in attachment C operated only as the date from which the redundancy payment was to be calculated. His Honour considered that the period of service in relation to the date from which the payment was to be calculated was 30 June 2010, the last day of the Initial Period.
However, the primary judge then went on to say that the only "Related Company" at the time of the termination of Mr Farrell's employment was Laing & Simmons Commercial, by whom Mr Farrell had been employed from 1991 until 2 January 2008. His Honour observed that there were no other Related Companies, or employers of Mr Farrell, in existence at the time of the termination of his employment. His Honour considered that the rational reason for including the words "Related Company" was to recognise the years of work that Mr Farrell had carried out for Laing & Simmons Commercial, a subsidiary of the Company.
The reasoning of the primary judge is flawed. It is irrelevant to consider whether there was a "Related Company" in existence at the time of the termination of Mr Farrell's employment. The phrase must be construed as at the time when the Employment Contract was made, namely 2 January 2008. Further, his Honour misapprehended the facts in so far as he observed that there were no other Related Companies of the Company. Clearly, there were other Related Companies, including Cushman Australia, which was the holding company of the Company.
The object of the sale of business agreement and the share sale agreement was for Messrs Anderson and Farrell to divest themselves of their interest in the business of Laing & Simmons Commercial and for Cushman Australia to acquire their interest in that business. Messrs Farrell and Anderson were to be paid substantial consideration for the disposal of their respective interests in that business, as provided for in the share sale agreement. The consideration to be paid, quite apart from the "Earn Out" consideration was substantial. The "Earn Out" consideration was additional to the significant sums that were to be paid, irrespective of the success of the business following the sale.
The redundancy payment in question was as a result of the termination of Mr Farrell's employment some seven years after the sale of the business. There was no rationale for such a redundancy payment to be made to Mr Farrell by reference to the 16 years of his employment by Laing & Simmons Commercial, during which he built up the business that he and Mr Anderson sold to Cushman Australia. The primary judge erred in concluding that employment with Laing & Simmons Commercial was to be brought into account in calculating the redundancy payment upon the termination of Mr Farrell's employment without cause on 30 June 2015.
The Company seeks reimbursement of the two amounts of $26,417.08 paid in relation to the period from 2 January 2008 to 30 June 2010. There is no basis for limiting the entitlement to a redundancy payment in the way contended for by the Company. The language of the provision, as amended, is clear. There is no reason why service with the Company prior to the expiration of the Initial Period should not be brought into account. That is the payment that was in fact made by the Company.

Conclusion

I have read in draft form the proposed reasons of Ward JA for concluding that the appeal should be allowed in part. For the reasons proposed by her Honour, I agree with her Honour's conclusions and the orders proposed by her.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 24 February 2017

Corporations Act 2001(NSW)

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