De Haas v Chloer Pty Ltd, in liq.

CATCHWORDS: Unfair contracts - s 106 of the Industrial Relations Act 1996 - applicant employed as executive manager by first respondent - applicant later purchased units in the BCI Employee Participation Trust (the Scheme) to value of $25,000 - Scheme in turn purchased shares in first respondent which were held in trust for applicant - applicant's salary reduced by 30 per cent for period of three months due to impact of economic downturn on first respondent - termination of employment - whether Scheme a related condition or collateral arrangement to contract of employment - whether contract of employment was unfair - allegation of poor work performance considered - allegation of breach of duty of confidence considered - whether reasonable notice on termination - whether Scheme unfair in its terms - whether Scheme became unfair at termination - whether alleged representations made Scheme unfair - whether unfairness in salary reduction - relief - whether second respondent liable to pay monetary orders - orders

Corporations Act 2001(Cth) LEGISLATION CITED: Industrial Arbitration Act 1940 Industrial Relations Act 1996

Ace Business Brokers Pty Ltd v Phillips-Treby (2000) 100 IR 420 Barataud v Chipperfield (No 3) [2006] NSWIRComm 249 Beahan v Bush Boake Allen Australia Limited (1999) 47 NSWLR 648; (1999) 93 IR 1 Brown and Others v Rezitis and Others (1970) 127 CLR 157 Cadwallader v Bajco Pty Ltd & Ors [2002] NSWCA 328 CASES CITED: Custom Credit Corporation Ltd v Goldsmith [1976] AR (NSW) 98 GIO Australia Limited and Another v O'Donnell (1996) 70 IR 1 Grygiel v Baine & Ors [2005] NSWCA 218 Jones v Dunkel and Another (1959) 101 CLR 298 Silbermann v One.Tel Limited (In liquidation) and anor [2005] NSWIRComm 477 Wheatley v Armstrong [1995] NSWIRComm 235 Wirraway (NSW) Pty Ltd v Ultra Tune Australia Pty Ltd (2006) 156 IR 367

HEARING DATES: 23 April 2007, 24 April 2007, 26 April 2007, 28 May 2007, 29 May 2007, 1 June 2007, 5 September 2007, 6 September 2007, 21 November 2007 and 1 February 2008.

APPLICANT: Mr A Metcalfe of counsel Barwick Legal LEGAL REPRESENTATIVES: (Mr A Barwick)

SECOND RESPONDENT: Mr F Austin of counsel

ERIC DE HAAS v Chloer Pty Ltd, in liq. (formerly Business Catalyst International Pty Ltd) and Zia Qureshi

Application under section 106 of the Industrial Relations Act 1996

1 The present proceedings are brought by the applicant under s 106 of the Industrial Relations Act 1996. In the amended summons for relief the applicant seeks declarations and orders that his contract of employment was unfair, harsh, unconscionable or against the public interest. The principle grounds relied upon in support of the claim are the failure of the first respondent to provide for reasonable notice or payment in lieu of notice upon termination, and the respondents' failure to afford the applicant procedural fairness, natural justice and substantive fairness in relation to the circumstances of the applicant's termination of employment. Declarations are also sought that the contract between the applicant and the first respondent contained a related condition or collateral arrangement, namely the BCI Employee Participation Trust Scheme (the Scheme) and that in relation to this Scheme it was unfair because the applicant was unfairly induced by representations made by the respondents to participate in the Scheme. The Scheme was also alleged to be unfair in relation to its operative terms at the time of the applicant's termination of employment. Declarations are also sought by the applicant that his contract of employment "became unfair" because of a variation said to have occurred between the period 9 December 2002 and 28 February 2003 whereby the applicant's salary was reduced by 30 per cent. Monetary orders are sought in relation to each head of unfairness. In addition the applicant seeks interest and costs. 2 After the commencement of these proceedings, the first respondent changed its name to Chloer Pty Ltd and went into liquidation. On 26 May 2006 the applicant was granted leave to continue the proceedings against the first respondent under s 500(2) of the Corporations Act 2001 (Cth). The grant of leave was subject to a condition that the first respondent would not be represented or take part in the present proceedings. 3 The second respondent was, up to the time the first respondent went into liquidation, its chief executive, director and majority shareholder.

4 The applicant is a chartered accountant, a certified internal auditor, a member of the Australian Institute of Company Directors and a member of the Institute of Internal Auditors. According to the applicant, sometime during 1997 he met the second respondent at a series of internal audit seminars which were held in Singapore, Kuala Lumpur and Jakarta. At that stage he had lived and worked in Indonesia for almost 18 years. After mentioning to the second respondent that he wanted to move back to Australia the applicant said that the second respondent suggested to him that he work for the first respondent. In April 1998, during a business trip to Sydney, the applicant met with the second respondent at his business premises and an arrangement was made that the applicant commence work for the first respondent on 1 June 1998. At that time, according to the applicant, the Asian financial crisis was impacting on Indonesia and there were serious riots sometime in May 1998 resulting in the downfall of the Indonesian President. 5 The applicant signed a contract of employment on 1 June 1998. The first respondent was at that time known as Stanton Consulting Services Pty Ltd, trading as "Stanton Consulting". In his evidence the applicant said that the second respondent informed him that the focus of his employment would be on developing markets in Sydney. He said that there was no discussion about the applicant having a role in South East Asia for at least the first two to three years. According to the second respondent however, the applicant was recruited on the basis that he would work in Sydney and at the same time generate work using his contacts in Indonesia. The second respondent said that he informed the applicant that he would be responsible for developing business in Indonesia and Malaysia while being based in Sydney and that he would need to produce revenue from these sources in the short term. The applicant's response, according to the second respondent was that it would not be difficult to achieve those goals given his broad range of contacts in the private sector and in the Indonesian Government. The second respondent said that the applicant was given an opportunity to visit Indonesia for specific business development opportunities. At the time the negotiations were underway in relation to the applicant's employment with the first respondent (some time in April 1998), the second respondent said that the applicant informed him that he had extensive experience and a broad relationship network in Indonesia and that he was confident in obtaining significant work there and would be able to gain a range of assignments in Indonesia. 6 The applicant's offer of employment was made by way of letter signed by the second respondent on 30 March 1998. In that letter the applicant was offered the position of executive manager. The applicant was informed that the offer would provide him with an outstanding opportunity to join a niche firm that was rapidly growing in the blue chip market. He was also informed that he would have flexibility in his future career path, that his future salary would be based on performance, and that he would have an involvement in the practice and the development of the first respondent's service lines. The broad terms and conditions of the applicant's employment were attached to the letter in a schedule. The schedule contained provision for termination of the agreement by four weeks written notice, with the first respondent reserving the option of requiring the applicant either to work out the period of notice or to pay out the term. The applicant's duties were broadly described as involvement in activities related to client services, project management, business development and the enhancement of the first respondent as a provider of quality services. The activities moreover were said to involve travel within Australia and Overseas. There was no specific mention either in the contract, the offer of employment or in the schedule, of a requirement that the applicant have a role in generating business and business contacts in Indonesia or elsewhere in Asia. 7 The applicant's contract of employment contained a number of standard conditions in relation to leave entitlements, remuneration, and termination, being the provision of four weeks notice. In addition, the contract contained various terms dealing with confidentiality. Under clause 6.2 of the contract headed "Confidentiality Promises" the following appeared: The employee will neither during their employment by Stanton Consulting nor after the termination of their employment without prior written consent of Stanton Consulting (a) publish, disclose or otherwise communicate to any person, company, business entity or other organisation, any confidential information belonging or relating to Stanton Consulting: or

(b) make use of any confidential information belonging or relating to Stanton Consulting whether for the employees own purposes or benefit or for the benefit of another person, company, business entity or other organisation. More specifically and without prejudice to the generality of the above clauses, the employee acknowledges that the following information forms part of the confidential information, which if disclosed or used as described in clause 6.3, would cause Stanton Consulting substantial damage or loss and thus is information which needs to be protected: (a) names of clients or customers of Stanton Consulting;

(b) discounts, special prices or special contract terms offered to or agreed with clients or customers of Stanton Consulting;

(c) marketing or sales strategies/plans of Stanton Consulting;

(d) planned new services or products of Stanton Consulting;

(e) existing or proposed research activities of Stanton Consulting (including but not limited to sales/marketing research);

(f) existing or proposed marketing and sales expenditure of Stanton Consulting;

(g) existing or proposed sales of marketing practices or policies of Stanton Consulting;

(h) any invention and drawings, plans, designs, processes, formulae specifications, techniques, know-how, software or other technical data relating to any existing or anticipated product or service of Stanton Consulting or the business or affairs of Stanton Consulting; 8 "Confidential information", was described in the contract as including but not limited to, the information referred to in clause 6.3 and any other information of or within the possession or control of or relating to either Stanton Consulting or customers of Stanton Consulting or customers of Stanton Consulting including marketing and sales plans and information, business plans, information concerning employees or officers, financial information and plans, trade secrets, software, systems documentation, methodologies, inventions, designs, formulae, intellectual property, product lines, information relating to financial and business dealings, research activities, any document marked "Confidential" or a document which the employee's told is confidential or which it is reasonably apparent form its nature and content that it is regarded as confidential. 9 Clause 6.3 of the contract concerned intellectual property, with a requirement on the part of the employee to fully disclose to the first respondent all inventions made or discovered as a result of employment by the first respondent. 10 The first two years of the applicant's employment with the first respondent appeared to progress smoothly. He initially performed internal audit reviews and became involved in Y2K reviews which involved travel around Queensland visiting various mine sites. With the implementation of GST in 2000 he managed the project for the implementation of GST for Fairfax Regional and Community Newspapers, a task he performed for approximately nine months. 11 In late 1998 the first respondent paid for him to travel to Indonesia to do a presentation at a business conference on behalf of the first respondent. According to the applicant, part of the reason for the trip was to raise the first respondent's profile in the South East Asian market. He said that during 2001 he was asked to work on a business plan with another employee, Don McFeat, for the purpose of expanding the first respondent's business into South East Asia. Some time in 2002 however, the applicant said that the second respondent specifically instructed him to put the project on hold and after that he worked no further on it. The business plan that he was working on at that time was contained in two documents entitled "Fast Track July 2000 to 30 June 2001", and "Fast Track July 2001 to June 2002". About two years later the applicant said he made another trip to Indonesia. This trip was not paid for by the first respondent but was taken by the applicant as annual leave. According to the applicant the second respondent told him that he was not prepared to pay for the applicant's trip to Indonesia and that he would prefer the applicant to focus on the Australian market. The applicant says he went to Jakarta and made a presentation at a seminar and had several appointments with business people. In February 2003, when the applicant was President of the Australia Indonesia Business Council, he said he was invited by the Indonesian Government to participate in a seminar in Bali. He took annual leave to make that trip and his fares and accommodation were paid by the Indonesian Government. 12 The second respondent's position, earlier outlined, was that the primary basis of the applicant's employment with the first respondent was to develop business relations in South East Asia and that his remuneration and reward would ultimately be based on business development in that region. The second respondent said that the first respondent paid for the applicant to travel to Indonesia in late 1998 in order to generate work from the South East Asian market. No results however were achieved from the applicant's visit to Indonesia, and the applicant did not come back with any marketing leads or any invitations for other discussions. The second respondent said that upon the applicant's return from Indonesia he asked him to put together a list of target clients but no list was ever presented to him, or to the first respondent. He said that following the applicant's failure to deliver business development opportunities in South East Asia he decided to place the applicant on various different projects in order to generate revenue and recover the costs associated with the applicant's employment with the first respondent. He said that on 30 June 2000 the applicant was promoted on the basis of his continuing claim that he had established himself in Indonesia and was ready to bring in revenue from his Indonesian contacts. He said that he had initially asked the applicant to prepare a business plan (the Fast Track documents) for the purpose of ascertaining the potential for generating business in South East Asia. He said that in the early stages of the formulation of the plan it became clear that the applicant's capacity to develop business in the region for the first respondent was simply not there. The applicant said that he had never been informed that he was promoted because of his continuing claim that he had established business contacts in Indonesia. Rather, it was because of his successful management of the Y2K and GST projects. 13 The applicant said that he was never counselled or warned about his performance in relation to the business plan or any plans involving the expansion of the first respondent's business to South East Asia. The second respondent on the other hand, said that during the second half of 1999 until 2001 he repeatedly counselled the applicant and warned him about his lack of success in generating work in the South East Asian region. He said that the first respondent would not have employed the applicant had he not made strong claims in relation to his ability to develop business in South East Asia, particularly in Indonesia. He said that because the applicant failed to generate any work in South East Asia he was asked sometime in 2002 to cease all activities relating to the region. Instead he was told that he had to generate sufficient chargeable work from Australian clients in order to justify his salary structure.

14 On 29 June 1999 the applicant received a letter on the first respondent's letter head, signed by the second respondent informing him that he would receive a gross bonus in the amount of $5,000 and that his gross salary had been increased by $10,000. A hand written comment on the bottom of the letter, made by the second respondent stated, "excellent achievement Eric. Look forward to your further development and progression in the firm". On 30 June 2000 the applicant received a further letter on the first respondent's letter head, signed by the second respondent as managing director, in which the applicant was informed that he had been awarded a bonus of $10,000, a salary increase of a further $10,000 and that he had been promoted to the position of consulting director. In the letter the applicant was told: Over the last year you have continued to make a strong contribution to the success of our firm. I would like you to know that your contribution is highly valued by myself and the rest of the senior management team . . . I would like to congratulate you on your outstanding efforts to achieve the promotion to consulting director and positioning yourself as a key member of Business Catalyst International. You have established yourself as a key member of a firm that is well positioned to deliver very significant rewards to all its key team members. 15 Sometime in June 2001 the second respondent wrote a letter to the applicant which was expressed as follows: Eric Just a short note to acknowledge your excellent efforts in relation to client work in Canberra and assistance to stabilise Canberra operations Zia. 16 On 23 May 2002 the second respondent forwarded a memorandum to the applicant which said:

What a solid performance you have shown in maintaining chargeability at PPI. It is in difficult times that consistent revenue like this really makes the difference

17 According to the applicant, sometime in late 2001 the second respondent advised him that the first respondent intended to introduce a share scheme to be called the BCI Employee Participation Trust. The applicant said that the second respondent made a number of representations to him at that time concerning the Scheme. These representations have been set out in the applicant's affidavit as follows: "Eric, you'll be allocated $50,000 worth of shares in a discretionary trust, 50% of which will be funded by a loan agreement and the balance by BCI"; and "The shares will be redeemable for their issue price during the first two or three years of the share scheme. After that, they can be redeemed at market value"; and "BCI will guarantee the loan agreement and indemnify you either with respect to the principal, so there is no downside for you. You will not be out of pocket. Any interest payments will be funded by dividends declared by the Trust"; and "It's a good deal. This is an opportunity to participate in the profits of the business." 18 The second respondent recalled a different discussion in connection with the introduction of the Scheme to the applicant. According to the second respondent he advised the applicant along with other "team members" that the Scheme was: . . . totally optional. However just like any investment in the business, there are always risks associated with investments. You should seek you own financial and legal advice. 19 In cross-examination the second respondent confirmed that he discussed the Scheme with "key team members" and that he sent a pro-forma memorandum to those members, which included the applicant, which set out the terms of the offer to participate in the Scheme. A copy of the memorandum was received into evidence during the proceedings. It is addressed to Linda Grey (an employee of the respondent at the time) and dated 6 December 2001. The terms of the memorandum are instructive in that they suggest that participants could expect to benefit from an anticipated growth in the value of the first respondent in the short term, and they imply that Scheme participants could expect to benefit financially from this increasing value. The full text of the memorandum is extracted below:

It is with great pleasure that I extend this offer to you.

As a key team member of Business Catalyst team, this is an excellent opportunity for you to have a share in the increasing value of the firm.

I have specifically discussed with you the value of your units/offer and believe it is real and deliverable.

If we continue to work as a team I have no doubt that the value of the firm will substantially grow further over the next couple of years.

The attached documents provide the details of the overview of the equity participation scheme, legal structure and brief information on the firm. Also included is the final draft of the proposed trust deed. You should carefully review these documents and obtain advice from your own legal and accounting advisors. The offer will close on 14 December 2001.

Should you decide not to proceed with the offer, I would appreciate your advice at the earliest possible opportunity. If you are unable to accept the offer at this time, you may be offered equity in the firm in the future, however the terms and conditions are expected to be significantly different from the current offer. That is the initial price and funding package will not be as favourable as the current offer.

As indicated earlier this offer is made only to the team members who have already made a significant contribution to the success of the firm.

Please complete the offer application contained in the trust deed and return to me as soon as possible.

I take this opportunity to congratulate you on your achievements to date and look forward to working closely with you to further grow and develop our firm.

Zia 20 An affidavit of Amer Qureshi, sworn 18 February 2005, sheds some light on the purposes of the Scheme. At the time of swearing his affidavit Mr Amer Qureshi was managing director of QCO International, a firm of chartered accountants which was retained by the first respondent to develop the details of the Scheme as well as other matters. In the affidavit, Mr Amer Qureshi recalled a discussion with the second respondent in the preliminary stages of the Scheme's creation, during which the second respondent said: The revenue and profitability of the firm is growing. It's important that our employees have the opportunity to participate in the growth of the firm. 21 Mr Amer Qureshi set out the proposed terms and structure of the Scheme in his affidavit. It was envisaged that employees would have an opportunity to acquire units in the Scheme at $1.00 each and that the Scheme would in turn obtain shares in the first respondent. He said the first respondent negotiated with Westpac to make available to prospective Scheme participants the necessary finance to be able to invest in the first respondent. He also said that under the terms of the Trust deed, the first respondent did not guarantee payment of the loan to Westpac on behalf of those participating employees. Prospective participants were given a draft copy of the trust deed. 22 According to Mr Amer Qureshi, QCO dealt directly with Mike Corrigan, a business banking manager for Westpac, who looked after the first respondent's account at the bank. At the time of establishing the loan facility for Scheme participants, Westpac required, according to Mr Amer Qureshi, that the facility would need to be paid back over a five year term with annual reductions of the principal. He said that the first respondent had intended to pay the capital reductions as part of the normal profit distribution to Scheme participants. 23 With regard to one of the intended purposes of the Scheme, Mr Amer Qureshi said that he understood that the Scheme was set up to motivate employees. He recalled, for example, the second respondent saying to him: The scheme will allow employees to contribute to the firm and increase their motivation to perform to the utmost level. 24 A memorandum dated 28 August 2001, sent to the second respondent by Mr Amer Qureshi, set out the proposed structure of the Scheme. It was proposed that employees who were offered an opportunity to invest in the Scheme would be issued with units to the value of $1.00 each, and that a total of $1.8 million would be raised through the issuing of the units. The Scheme, upon raising the capital, would then acquire shares by allotment from the first respondent. These shares would be issued to the Trust and would have a number of features which included the following: · No voting rights. · Ability to receive income and capital distributions. · The shares could be redeemed by the first respondent at a specified value. · Scheme participants would be entitled to a dividend based on the "Dividend Pool" to be determined by the second respondent at the end of each financial year. The Pool was to amount to a minimum of 11 percent of the first respondent's Declared Dividend. · The Dividend Pool could be increased at the second respondent's discretion. · In the event of the sale/merger of the first respondent, the shares would be redeemed based on the Sale Price of the business. This could result in the capital gains flowing through to the Trust, which could then be distributed to the Scheme participants. 25 Based on these features it is clear that it was envisaged at a preliminary stage that a purpose of the Scheme was to reward Scheme participants, by offering them financial benefits. 26 In December 2001 the applicant was given a draft trust deed and a document entitled "Business Catalyst International Equity Participation Scheme for Key Members December 2001" (the Prospectus). The Prospectus echoed to a significant extent the intended purposes of the Scheme set out in the earlier documentation referred to by Mr Amer Qureshi. In its introductory remarks it stated: Business Catalyst International is providing its key team members with an opportunity to acquire equity in the Firm. At this stage the offer is restricted to team members who have contributed significantly to the Firm's growth and development in the past few years. At this stage of the Firm the share/equity scheme is being offered to the key team members with the objective of retaining them for the longer term by enabling them to share in the increasing value of the Firm. The Bank will facilitate the above arrangement through a financing package. Key features of this scheme include: · Instant significant equity as reward for efforts and contribution to date and huge potential for further increase in value. · Enables team members to share the growing value of the Firm. · Provides a sense of ownership. · Significant opportunity for capital accumulation. · Should the Firm be sold/merged the value of equity can be realised. · Profit sharing through dividend as well as bonus scheme. · A tax effective distribution of income. · Additional units can be issued to existing unit holders based on contributions made/value generated in future. 27 Later in the Prospectus under the heading, "Trust Deed", the main aspects of the Scheme were summarised as follows: · The units to be issued will be at initial price of $1 each, with minimum parcel of 25,000 units. Further allocation of units will be based on the prevailing market value at the time. It is anticipated that this market value will be substantially in excess of the initial price.

· The Unit Trust will be managed by a corporate manager; to be controlled by Zia Qureshi.

· The Trust will subscribe to shares in Business Catalyst International Pty Ltd.

· The unit holding of the Trust in the Firm will amount to 11 percent of the total shareholding at this stage, excluding any options.

· Employees may hold units in joint names or through a corporate or Trust structure.

· The unit-holding will be restricted to employees of the Firm.

· The unit-holders will receive dividends from the company. It is expected that these will be fully franked.

· In the event of an employee leaving, the units will be redeemed at the lesser of market value or issue price of $1 each. However, the minimum amount to be paid on redemption will not be less than the remaining amount of the loan taken out to acquire the units. This minimises down side risk for staff.

· Should the firm list/sell/merge its business, the units will be redeemed at the appropriate market value. This allows unit holders to share in the upside arising from a merger or Initial Public Offering.

· All unit holders will be required to take up Trauma Insurance. The proceeds of the insurance will be first used to clear out any loan outstanding with the balance being provided to the family. This will ensure that no liability is left with the family members and that upside is realised by them.

· The unit holders can also be issued options that could be exercised at a particular point in time to share future value of the Firm. No money will need to be exchanged for the options.

28 The applicant said he read through both documents and noticed discrepancies between the terms of the draft trust deed and the representations which had been made to him by the second respondent at an earlier stage. The applicant also sought legal advice, together with three other prospective Scheme participants, with regard to the operation of the Scheme. 29 The applicant sent a memorandum dated 14 December 2001 to the second respondent seeking clarification of a number of perceived discrepancies between the earlier representations made to him by the second respondent and the information set out in the draft trust deed and the Prospectus. A meeting was arranged between the two parties to discuss the content of the applicant's memorandum. This meeting apparently took place on the same day. According to the applicant, during the meeting the second respondent made handwritten notations in the right-hand margin of the memorandum beside each point separately raised by the applicant in the memorandum setting out the perceived discrepancies. The second respondent in his evidence recalled a different version of events. According to him he received the applicant's memorandum sometime prior to the meeting and jotted down his handwritten comments in the right-hand margin beside each point before he attended the meeting. 30 In my view nothing much turns on the differing recollections as to this sequence of events. What may assume some significance is the reasonable interpretation to be given to each of the handwritten notations (which the second respondent had admitted were made by him) in the context of the applicant's claim that the Scheme, being a related condition or an arrangement collateral to his contract of employment, was unfair by reason of a number of representations made by the second respondent designed to induce the applicant to participate in the Scheme. 31 The applicant's points of clarification are extracted below, together with the second respondent's handwritten notations which appear next to each point: · In our discussions you mentioned an amount of 50,000 units, half of which would be funded by a loan agreement. The documentation only covers the 25,000 units subject to the loan, so I am unclear as to the status of the other 25,000 units.

Second respondent's comment: The difference is initial base price equivalent market value of $50,000. · In our discussion you mentioned that the units would be redeemable at cost for a period of 2 or 3 years, after which they would be redeemable at market value. Thus after 5 or 10 years if I left the firm I would participate in the growth in the value of the firm. In the documentation however, the opportunity for capital gain only occurs if the firm is taken over, merged or listed.

Second respondent's comment: On retirement valuation will be made and dealt with - periodical valuations?

· I understand that the loan for the units is guaranteed by the company, and that interest payments would be covered by dividends from the Trust. In the unlikely event that the trust and the company are unable to meet commitments for these dividends or for the guarantees, then the bank would seek payment from me. Thus I would hold units with little value and remain liable for the loans. I'm sure this is not what was intended.

Second respondent's comment: You can always resign and hand back the units and loan balance. · The documentation contains no information on the underlying value of the shares which the trust will hold in the company. It also does not provide information on the total number of units to be issued and how the funds will be utilised. This sort of information would help in making the decision to invest.

Second respondent's comment: Tax implications - immediate capital gain tax will apply. 32 After the meeting and on the same day the applicant formally applied to the manager of the BCI Employee Participation Trust for 25,000 units. At the same time he tendered a cheque in the amount of $25,000 as his contribution to the Trust Fund. 33 The Prospectus provided information to those eligible Scheme participants with regard to the obtaining of finance from Westpac Bank to facilitate the purchase of share units. The particular loan facility with the bank was called a capital contribution loan. The applicant attended an interview with a bank representative and established a loan facility in an amount of $25,000 which he used to purchase his units. 34 On 1 March 2002 the first respondent caused to be sent an email to eligible Scheme participants, including the applicant. The email was marked "Importance High. Sensitivity Confidential". It urged eligible participants to sign their contracts with Westpac so that they could sign a letter of authority which was to accompany the signed contract upon its delivery to Westpac. 35 On 1 March 2002 the applicant sent a signed letter to the manager and trustee of the Trust setting out the following details: I have obtained a loan from Westpac Banking Corporation ("Westpac") for the purpose of investment in the Trust ("Loan"). I attach a copy of the Business Finance Agreement relating to the Loan signed by me accepting the terms offered by Westpac. It is agreed with Westpac that I provide to both of you in your capacities as trustee and manager for the Trust respectively an Irrevocable Authority in favour of Westpac. Please take this letter as my irrevocable direction to both of you in the event that I dispose, or am deemed to have disposed, or seek your consent to the disposal, of any of my units in the Trust by way of sale, redemption or otherwise, to: (i) pay to Westpac (in accordance with the provisions of the Trust Deed for the Trust) in discharge of any liability due to Westpac by me in relation to the Loan, any amounts due to me from the Trust including, but not limited to, any share of the income or capital sums; or (ii) refuse to grant your consent to, and subsequently register, a transfer of my units unless a condition of any sale is that the purchase proceeds are paid to Westpac to the extent necessary to discharge any liability due to Westpac by me in relation to the Loan. I confirm that I have read the Letter of Awareness and have confirmed my agreement and consent to that letter by signing the attached copy. 36 A letter dated 1 March 2002 sent to Westpac by the first respondent and signed by the second respondent proceeded the applicant's letter of the same date. It was addressed to the Westpac representative, Mike Corrigan and was headed "BCI Employee Participation Trust ("Trust") Letter of Awareness and Guarantee". It informed Westpac that Business Catalyst International Pty Ltd had been appointed as manager of the Trust, and that BCI Employee Participation Pty Ltd had been appointed as trustee of the Trust (the second respondent was a director of both corporations). Under the terms of the letter the first respondent undertook to do a number of things including the following: The Trustee and BCI confirm that they have received from the Employee an Irrevocable Authority (a copy of which is attached) to, and in accordance with that Irrevocable Authority will, in the event that the Employee disposes, or is deemed to have disposed, or seeks their consent to the disposal, of any of its units in the Trust by way of sale, redemption or otherwise ("Disposal Event"): (i) pay to Westpac (in accordance with the provisions of the Trust Deed for the Trust) in discharge of any liability due to Westpac by the Employee under the Agreement; or (ii) refuse to grant their consent to, and subsequently register, a transfer of the Employee's Units unless that sale requires as a condition that the purchase proceeds are paid to Westpac to the extent necessary to discharge any liability due to Westpac by the Employee under the Agreement. BCI and the Trustee agree that they will not pay any amounts due to the Employee from the Trust upon a Disposal Event to the Employee unless or until Westpac advises BCI in writing that the Employee has repaid in full (directly or indirectly by BCI or the Trustee pursuant to the Irrevocable Authority) all monies advanced to them under the Agreement or Westpac consents to such payment. BCI acknowledges that for such time as the Employee has an obligation to Westpac under the Agreement, any Annual Payment will be directed to Westpac to the extent necessary to cover the interest payable under the Agreement for the Financial Year. It is noted and confirmed that the maximum amount payable by BCI and/or the Trustee to Westpac under the Irrevocable Authority in respect of an Employee is equal to the amount of the capital contribution loan provided to the Employee or such lesser sum that may be advised by Westpac. Neither BCI or the Trustee, as the case may be, is obliged under the terms of the Trust Deed for the Trust to make a payment to the Employee. 37 According to Mr Amer Qureshi, following the acquisition of units in the Scheme by employees, the first respondent commenced payment of interest on a monthly basis on behalf of each employee. It also paid the insurance policies on behalf of employees. The insurance policies were required by Westpac to be taken out by employees utilising a loan facility for the purchase of units under the terms of the loan contract with the bank. 38 Mr Amer Qureshi said that QCO proposed that the first respondent would pay a franked dividend to the Trust each year and that the Trust would then make a distribution to all unit holders. It was also anticipated that any payments made on behalf of the employees could be offset against the Trust distributions as required. 39 At the time that the loan facility was established with Westpac, the bank indicated that the facility would have to be repaid over a five year term with annual reductions in the principal. According to Mr Amer Qureshi, the first respondent intended to pay the amount as part of normal profit distributions to staff members. 40 On 2 April 2002 the manager and trustee corporations of the Trust executed the trust document. It was signed on behalf of the manager by the second respondent as sole director, and on behalf of the trustee again by the second respondent, as sole director. The applicant said he never received a copy of the document. Mr Amer Qureshi said that Scheme participants were required to specifically request a copy of the signed document from his office. 41 On 12 June 2002 the Trust issued a trust certificate for 25,000 units in an amount of $25,000 to the applicant. The document was signed by the second respondent as a director of the trustee. The applicant said he never received a copy of this document.

42 According to Mr Amer Quereshi, in his affidavit, he said that in or about December 2001, after the introduction of the Scheme, that there was a significant downturn in the consulting industry and that the first respondent experienced a severe downturn in its revenue such that it was unable to sustain its staff structure. It took a number of measures in order to stay in business which included reducing staff numbers and the salary levels of staff by arrangement. In addition, the first respondent implemented measures to reduce overheads and discretionary expenses. Mr Amer Qureshi said that the first respondent struggled financially and was put under pressure by Westpac, which following a change of management within the bank's hierarchy, withdrew its assistance to the first respondent and, "continued to insist on principal reductions on their facilities despite cash flow issues BCI was facing". 43 According to the applicant, on Monday 9 December 2002 the second respondent informed him and other employees present at a meeting of "key team members" that due to a downturn in business it had become necessary for staff to take a 30 per cent salary reduction for an undisclosed period of time. If this was not achieved the alternative, "was to let some staff go". The applicant said that he did not want his employment (or that of other staff) terminated so he reluctantly agreed. 44 In his affidavit the second respondent said that at a meeting employees were asked to agree to a salary reduction of 30 per cent. If this did not occur then the employment of certain employees would be terminated. The second respondent sought to justify the salary reductions on that basis, he said, that it was necessary for the sustainability of the first respondent's business. He added that a combination of the applicant's inability to generate a financial return commensurate with his remuneration together with the first respondent's poor financial results made it necessary to reduce the applicant's salary. Later in his affidavit he said that the applicant's salary was reduced because of his poor performance, the first respondent's downturn and the applicant's consent to the salary reduction. With regard to this latter reason, the second respondent said that he spoke personally to the applicant to confirm his team's position that a salary reduction was to be preferred to termination of employment. 45 Other evidence, which included the unchallenged evidence of Mr Amer Qureshi, confirmed that the business of the first respondent experienced a financial downturn during the period. As a result of financial losses the first respondent's Canberra office was closed down. In oral evidence, the applicant said that the request for salary reduction was made collectively to the work team of which he was a member. The applicant said he felt obliged to agree to a salary reduction because he did not want to be retrenched. He said that because of this he was put under pressure to accept the proposed salary reduction. 46 The applicant on 12 December 2002 formally accepted, by way of letter, a reduction in his salary which was to take effect in the period 9 December 2002 until 28 February 2003. The salary reduction appears to have been short-lived. The first respondent sent a letter signed by the second respondent to the applicant informing him that his salary would be restored to his former level of remuneration from 1 March 2003. The letter is also instructive for its comments to the applicant concerning his work performance. The relevant portion of the letter is extracted below: Thank you very much for your offer to sacrifice 30% of your salary between 9 December and 28 February 2003 in recognition of the difficult market position and to assist in the Firm's efforts to keep the Team together. This outstanding demonstration of commitment to the Firm is very much appreciated. I am pleased to say that our sales pipeline is looking better and we have improved our position somewhat in February, and prosects for March are promising. Therefore I am happy to advise you that we are able to restore salaries for the strong performers from 1 March 2003 as we had hoped. You are among this group and accordingly your salary will be adjusted from that date. However, we are not in a sufficiently strong position to achieve this for all consultants, and there are several whose salary will be reduced until they are able to align their billings or sales more closesly with their targets. Their position will be reviewed regularly and adjusted in accordance with their performance. We have developed a model to underpin the Firm's profitability from now on, by ensuring that every team member's earnings will cover their salary-related costs as a minimum. This will provide security for all team members and the opportunity to share in the Firm's growth. Thank you very much for your efforts to date and I am sure that you recognise the importance of continuing your excellent service delivery while also seeking out opportunities to extend your current engagement and identifying new assignment opportunities for your colleagues.

Events leading to termination of the contract of employment 47 On 17 April 2003 the applicant received a letter from Westpac advising him that the first annual principal repayment of $5000 had fallen due. On 24 April 2003 the applicant received an email from the second respondent advising him that Westpac required a capital repayment to be made on the loan. The email which was marked, "Strictly Private and Confidential", was sent personally to the applicant. It informed the applicant that given "difficulties" experienced by the first respondent in 2003, it was not possible to pay dividends to the shareholders, and added that, "as a result, it may be difficult for you to make the principal reduction required by the bank". The email further advised of ongoing arrangements with St George Bank to refinance the above loans, "if you so wish", and that, "this will result in no capital reductions being required this year and any refinancing costs will be borne by the firm". 48 On 29 April 2003 the applicant received a further email from the second respondent concerning the proposal to refinance the Westpac loan through St George. Again the email was addressed personally to the applicant and was marked, "Strictly Private & Confidential". The contents of the email are extracted below: Following my last correspondence, I would like to assure everyone that there is no need for any concern. No one will be out of pocket in any shape. The idea to refinance was to ensure we build some cash reserves in the short term. St George's initial discussions were based on replacing the Westpac Scheme on the same terms. We are currently clarifying this. In the mean time, no need to worry, we will sort this out one way or the other. However, I must stress that each person is required to treat all discussions in strict confidence. I am appalled this morning to learn from Ian Ritchie that some of you have discussed this issue with him and indicated that the Firm is "defaulting" the Share Participation Loan. This is truly poor form. There will be no second chances for such a breach of confidentiality in this Firm. Once again it's business as usual, if the only choice is to make the capital reduction then it will be made. However in the mean time we will investigate other options. Kind regards Zia 49 On the same day the applicant received an email from Fiona Scarf (the second respondent's personal assistant) advising him that upon request Westpac would "probably" grant an extension of time for payment of the principal reduction until 30 June 2003. On 5 May 2003 the applicant received another email from the second respondent informing him that the first respondent anticipated being able to provide the applicant with the funds to repay, "the principal". The contents of that email are set out below: Dear Eric We have discussed the matter with Westpac and expect to be able to provide you with the funds to repay the principal as required shortly. In the meantime, please forward the attached letter to Westpac, to avoid any problems. Please note that despite an extremely difficult financial year, the firm has made the necessary arrangements to ensure that you are not inconvenienced in this matter. Thank you for your contribution. Best Regards Zia 50 Based on the assurances contained in the 5 May 2003 email the applicant wrote to Westpac requesting additional time which to pay the principal reduction. Westpac granted the applicant an extension of time in order to make the payment until 30 June 2003. 51 The applicant said he received no further correspondence from the respondents with regard to how and when the principal reduction of the loan in an amount of $5000 would be paid by the respondents prior to 30 June 2003. On 1 July 2003 the applicant received a letter from solicitors acting for Westpac making a demand for the repayment of the $5000 principal reduction by 4 July, 2003. In default the applicant was informed that the bank would require full repayment of the loan. On the same day as the applicant received the letter he received another email from Ms Scarf. The email advised that the first respondent was in the process of settling its affairs with Westpac and had arranged funds to enable the first respondent, "to make the agreed reduction in your loans". The email was personally addressed to the applicant but was not otherwise marked as a private or confidential communication. The second respondent said that the first respondent made "all efforts" to assist employees to make their capital reductions, and that its efforts were based on goodwill rather than on an employee's right. He said in July 2003 the first respondent "went out of its way" to arrange payments of the capital amount. 52 The applicant said he was gravely concerned when receiving the letter from Westpac's solicitors calling on him to make the payment of the principal reduction. He said after discussion with other shareholders on 2 July, 2003 he sent an email to the second respondent which set out his concerns. He copied the email to other Scheme participants. He said he did not believe that his actions constituted a breach of any confidentiality requirements. His email stated: Zia, Yesterday I received a letter from Minter Ellison the solicitors for Westpac. This was a formal demand to pay the amount by 4pm this Friday (4th July). If not paid, the whole amount of the loan will become payable and they will take action to recover it. Obviously the communications with Westpac which you mentioned in your email, have not been effective. This is most embarrassing and may affect my credit rating. The purpose of the share scheme was to provide motivation for us and a sense of participation in the organisation. however, it has not been well managed or well communicated over the last few months and is causing shareholders a great deal of concern rather than being motivating. Would you please contact Lindsay Michael Powers at Minter Ellison and David Starkey at Westpac to sort this out. I'm sorry if I have been a bit blunt, but this matter needs to be resolved so we can all get on with business. Cheers, Eric 53 On the same day he received an email from Mr Amer Qureshi sent on his behalf by Ms Scarf. The email which was sent collectively to Scheme participants advised: Dear Shareholders, I have now spoken to Michael Chaperon at Westpac. There has been some confusion with the Bank about the repayment of the Capital Contribution loans. The Bank has been advised that the Firm would make the principal reduction as required on behalf of the team members. They seem to have ignored that and decided to demand payments from the individuals concerned. We are less than impressed with the attitude of Westpac and are looking forward to terminating our relationship with them. I have been provided details of the total amount that is due for all of the employees. Unfortunately, due to the Privacy act restrictions, the Bank is not able to confirm the amount due for each individual. Can you pls [sic] forward to me by email the reduction balance required to be paid on your account, together with the account name and number details. The funds will be remitted to the Bank straight away. I am sorry about the confusion and stress, unfortunately, it all has to do with the Bank and its actions. Best Regards Amer Qureshi 54 The following day he received a second email from Mr Amer Qureshi. This email was also sent collectively to Scheme participants. It advised: Dear Shareholders, I am pleased to confirm that the Principal Reduction in your loans have [sic] been processed and Westpac advised accordingly. Please note that the confusion and anxiety was caused as a result of the Bank's actions and lack of cooperation. Zia will advise as to how these payments will be treated from [sic] the taxation purpose. 55 The applicant said that after he sent the email dated 2 July 2003, to the second respondent, the second respondent telephoned him and said: Why did you send that email to everyone? You are being disloyal to the firm and to me. I will need to reconsider your future with the firm. 56 According to the second respondent when he received the applicant's email of 2 July 2003 he noticed that it had been forwarded to a number of team members. He said he telephoned the applicant and said to him: You have caused serious damage Eric, you have created significant concerns with other participants, despite the Firm's difficult cash flow circumstances to obtain funds to pay the capital reduction. You should never have sent his [sic] email to other unit holders. This is the second time you have caused a major problem in BCI and breached confidentiality. The first time you spread rumours that BCI had developed a list of employees they will terminate [sic]. Given the serious nature of the breach, you are finished with the firm and someone will be in touch to organise termination arrangements. 57 According to the applicant, following his telephone conversation with the second respondent he told Peter Cameron, a senior consultant director employed by the first respondent, about the conversation, and that he was concerned about his position with the first respondent as a result of the conversation. He said Mr Cameron informed him that the second respondent was "very upset" and that the applicant should consider leaving the firm. The applicant said he also spoke to Peter Goldstein, another senior employee of the first respondent, who said to him that he should not have sent the email but should have trusted the second respondent. He said at no stage during his discussion with Mr Goldstein was he advised that his employment would be terminated. 58 Shortly after these events the applicant took annual leave. On 18 July 2003 he received a telephone call from Mr Goldstein who said to him: Eric, as a consequence of you sending the email last week, Zia has lost faith in you and does not want you to continue with Catalyst. I'm sorry to have to tell you while on leave, but it has been decided that you should not return to work on Monday. You will be given one month's pay in lieu of notice, and Canberra will settle your outstanding salary and entitlements. 59 Following this conversation the applicant said he rang the second respondent's personal assistant in an attempt to arrange a meeting with the second respondent. A meeting was arranged for the following Monday, however on Monday morning the second respondent's personal assistant contacted the applicant and informed him that the second respondent was busy and would make another appointment. The applicant said he telephoned several times and sent emails but no meeting eventuated. The second respondent said he was aware that the applicant had attempted to meet with him, in or around late July 2003. According to the second respondent he was not willing to waste any more time on the applicant and he was very busy with work at the time. 60 The applicant received his letter of termination which was dated 23 July 2003. It was signed by Mr Goldstein and advised: Following our discussion on Friday 18 July, we are writing to confirm that your contract of employment will end on 15 August 2003. We do not require you to work during the intervening period so you will be free to pursue opportunities. We will pay all your entitlements by bank transfer on 15 August 2003. We wish you well in the future. 61 On 18 August 2003 the applicant received a further letter which confirmed his termination payments. He received a total of $15,524.73 representing four weeks net salary and unused annual leave. 62 On 11 September 2003 Westpac sent the applicant a letter. The letter referred to the applicant's "resignation" and advised him of a requirement to repay his loan in full. The relevant portion of the letter is extracted below: We have recently been advised by Business Catalyst International Pty Ltd ('BCI') that you no longer work for them. As a result, BCI has arranged the immediate cancellation of the interest payment to your CCL which was previously met by them. We understand that in accordance with the provisions of the Deed governing the BCI Employee Participation Trust, your resignation from BCI has triggered a 'Disposal Event' which requires your above loan to be fully repaid. To that effect, kindly contact this office to obtain a payout figure to enable your indebtedness to the Bank to be cleared in full by no later than 30 September 2003. 63 According to the applicant he sent the second respondent several emails with regard to the status of his loan with Westpac. Following the letter from Westpac of 11 September, the applicant wrote to the second respondent in the following terms: I have received another letter from Westpac Bank threatening to commence recovery action for repayment of the outstanding loan in relation to the BCI Share Scheme. This will impact on my credit standing. I have sent you emails regarding this matter but have not heard back from you, hence this fax. I hope you will be able to resolve this urgent matter. 64 There was no response to the applicant's letter by the second respondent. The applicant said he did not discharge the loan. Instead he continued to make the interest payments on the loan, as well as the payments representing the capital reductions. Documentation produced by the applicant in evidence confirmed that these payments were made by him. 65 The applicant said that at no stage has he received a dividend payment from the Trust or any form of distribution under the Scheme. He did not receive a statement of account for the Trust in the financial years 2002, 2003 and 2004. Contract under which work performed by the applicant

66 In the amended summons the applicant relied on his contract of employment entered into on 1 June 1998 as the contract under which he performed work for the first respondent. It was that contract that he claimed was unfair on the grounds that it lacked terms with regard to reasonable notice or payment in lieu of notice, and with regard to a failure to afford procedural and substantive fairness and natural justice in relation to the termination of his employment. 67 There was no issue, nor could there be, during the proceedings that the threshold requirement under s 106 of the Act was met, namely, that the contract of 1 June 1998 was one whereby work was performed: see Wirraway (NSW) Pty Ltd v Ultra Tune Australia Pty Ltd (2006) 156 IR 367 at [42]. The express terms of the contract included a term that the applicant commence employment with the first respondent as an executive manager on a salary of $100,000 per annum inclusive of superannuation contributions. During the time in which the applicant was employed his remuneration package was varied with yearly increases of $10,000 per anum. In addition he was promoted to the position of consulting director on 30 June 2000. Under the contract the applicant's responsibilities were set out in an attached schedule as follows: Overall Responsibilities: As Executive Manager, you will be involved in all activities relating to client service, project management, development of business, and the further enhancement of Stanton Consulting as a provider of quality services. These activities will involve travel both within Australia and overseas. 68 The contract also provided for termination, "by either party in accordance with current legislation or by 4 (four) weeks written notice." Under the notice provision the first respondent (then known as Stanton Consulting) reserved to itself the option of requiring the applicant to either work out his period of notice or pay out the term. The contract also expressly provided for the payment of performance bonuses at the discretion of management. The applicant was paid bonuses during the period of his employment. The Scheme: Whether a related condition and/or collateral arrangement 69 The amended summons also alleged that the Scheme was a related condition or a collateral arrangement (or both) to the applicant's contract of employment within the meaning of s 105 of the Act. 70 In the amended summons the Scheme was said to consist of the following indicia: (a) BCI Employee Participation Trust Deed; (b) The representations of the second respondent;

(c) The Prospectus and the draft trust deed; (d) The conduct of the first and second respondents in promoting the scheme, including inducing the applicant to participate in the scheme and the capital contributions loan; (e) The conduct of the second respondent as the sole director of both the trustee and the manager companies of the BCI Employee Participation Scheme; and (f) Without limiting the generality of (e), the second respondent's conduct in terminating the employment of the Applicant and subsequently refusing to meet with the Applicant. 71 The facts underlying the applicant's contention that the Scheme, as described in the amended summons, was a related condition and/ or collateral arrangement were said to be that: (a) The objective of the trust was to retain key team members by "enabling them to share in the increasing value of the firm"; (b) Only employees could participate and become unit holders, subject [sic] the trust managers discretion to approve another person; (c) The trust was set up to "motivate employees" to "perform to the utmost level". 72 The terms of the draft trust deed and the executed trust deed set out the components of the Scheme. These have been referred to in some detail earlier in this judgment.

73 The second respondent conceded in oral submissions that the Scheme, insofar as it consisted of the executed trust deed, was a collateral arrangement. This was because, according to him, it involved the participation of employees (of the first respondent), and was put forward on the basis that it was, "a form of reward". It was not conceded by the second respondent that the other indicia of the Scheme set out in the amended summons (the Prospectus, draft trust deed, alleged representations and the conduct of the respondents in promoting the Scheme, and in the circumstances of the applicant's termination) also formed part of the Scheme as a collateral arrangement (or related condition).

74 I do not agree that the Scheme can be construed so narrowly. It was presented to potential participants though the provisions of the Prospectus and the draft trust deed. Both documents purported to set out the terms, objectives and underlying policies and procedures of the Scheme, that is the content of the Scheme. The applicant was advised by the respondents to read both documents and obtain legal advice before making a decision to join the Scheme. The executed trust deed did not come into existence until after the applicant had made a formal application to enter the Scheme. 75 In written submissions the second respondent contended that in order for there to be an "arrangement" within the meaning of the Act it was necessary that there be an "understanding", or a "meeting of the minds" between identifiable persons with regard to its purposes. In support of the proposition the second respondent relied on a decision of his Honour Justice Marks in Wheatley v Armstrong 1995] NSWIRComm 235. In that decision his Honour considered various authorities which had dealt with the meaning of an "arrangement". One such authority considered by his Honour (at 20) was the former Industrial Commission in Court Session judgment of Custom Credit Corporation Ltd v Goldsmith [1976] AR (NSW) 98. 76 Custom Credit concerned "dealership agreements" (work contracts) entered into between Trans Australia Tent Rentals (N.S.W) Pty Limited (the vendor) and various individuals referred to as "dealers". Under the agreements the vendor granted to a dealer (the worker) a right to handle rental equipment which it was intended workers would hire to users, and when the purchase price was paid in full, its "legal title and interest" in the equipment would pass. In return the vendor became entitled to be paid the purchase price and to receive a specified weekly sum as commission for all rental business given to the worker. The vendor had additional obligations to the worker by way of procuring customers for him or her, and, if the worker could not pay the purchase price then the vendor was obliged to arrange a personal loan for the worker. In the event such a situation arose, the worker, by arrangement, borrowed from a finance company, the Custom Credit Corporation. Goldsmith, a worker, entered into a loan agreement with Custom Credit. Goldsmith later brought an application under s 88F of the Industrial Arbitration Act 1940 seeking a declaration that the dealership arrangements which included the work contract and the loan contract with Custom Credit were void. 77 In the course of its reasons the Full Bench made a number of observations consistent with a requirement that an arrangement entailed an understanding made between the parties, or "concerted action" by the parties under which their affairs were arranged, "for a particular purpose or so as to produce a particular effect or result" (at 131). In the same passage the Full Bench also observed that where no one document specified any such arrangement, that, "resort may be had to oral evidence of discussions and conduct, and we are free to examine the actual relationship between parties and to regard them as manifestation of an arrangement: Barham's case" 78 Based on these foregoing observations it follows that the draft trust deed, the Prospectus, the executed trust deed, the alleged representations and the conduct of the respondents upon which reliance has been placed as set out in the amended summons may all form part of an "arrangement" which in turn may fall within the jurisdiction of s 106. 79 On the evidence the respondents were actively involved in promoting the Scheme. The second respondent arranged and conducted meetings setting out the proposed terms of the Scheme. The first respondent generated correspondence, signed by the second respondent as director, actively promoting the Scheme and encouraging selected employees to participate. Finance was arranged through Westpac by the respondents for those participants who wished to obtain the necessary moneys in order to buy allocated units in the Scheme. The draft trust deed and Prospectus were sent to all prospective Scheme participants by or on behalf of the respondents. The documents were held out as containing relevant information in relation to the purposes and terms of the Scheme. Prospective participants were advised by the respondents to read the documents and obtain legal advice. The applicant read the documents, sought legal advice in relation to them, attended meetings about the Scheme and had discussions with the second respondent in an attempt to clarify some of his concerns about the operation of the Scheme. He also took up the respondents' offer to obtain finance from Westpac to enable him to purchase his 25,000 units. The first respondent owned the shares which the Trust purchased with the money gained from the purchase of units by Scheme participants. 80 Based on these matters it is open to find that there was an understanding or plan or concerted action on the part of the respondents and the applicant with regard to the applicant's entry to and participation in the Scheme. Whether the representations which the applicant alleged were made by the second respondent during the meeting of 14 December 2001 formed part of this "understanding" depends upon a finding that the representations were in fact made in the terms alleged, and made to induce the applicant to enter into the Scheme: see for example Ace Business Brokers Pty Ltd v Phillips-Treby (2000) IR 420 at 432 for a discussion of representations which may form part of an arrangement or collateral arrangement under s 106 of the Act. This is an issue which will be considered in detail later in this judgment. For present purposes I find that there was an arrangement between the respondents and the applicant constituted by the draft trust deed, the Prospectus, the executed trust deed (conceded by the respondents to be an arrangement collateral to the applicant's employment contract) and the conduct of the respondents in promoting the Scheme. 81 With regard to the second respondent's conduct as sole director of both the trustee and manager of the Trust, the second respondent submitted that it was "of significance" that neither the trustee company nor the second respondent in his capacity as a director of the trustee company were joined as parties to the amended summonses. Only the trustee had obligations under the Trust and therefore neither the first respondent nor the second respondent in his capacity as chief executive officer and director of the first respondent had any power under the Trust deed. These submissions were not addressed by the applicant. In my view the second respondent's submissions on the matter may be disposed of in the following way. First the Scheme as it has sought to be characterised by the applicant was wider than the Trust itself, comprising not only the signed Trust deed but the other documentation to which reference has been made as well as the conduct of the respondents in promoting the Scheme to eligible employees. Secondly, while it is true that no relief is sought against the trustee company or the second respondent in his capacity as trustee of the Trust, this would not preclude any findings of unfairness which might be made and consequent monetary orders which might be made against the respondent parties to the arrangement so characterised. Thirdly although the second respondent was not nominated as a party to the proceedings in his capacity as director of the trustee company he was, as a matter of practical reality, the sole director of the trustee and manager companies, and therefore (in his capacity as sole director of the trustee company) was the real decision maker in relation to the Trust's operations. 82 The next issue which falls for consideration is whether the Scheme was a related condition or arrangement collateral to the applicant's contract of employment. The second respondent said that it was not, because participation in the Scheme was not envisaged by the applicant's contract of employment. It did not make up part of his remuneration and it did not envisage the nature and content of his employment duties. Nor was there anything in the terms of the Scheme that had a recognisable or direct impact on the working conditions and remuneration of the applicant. According to the applicant it was clear that the purposes of the Scheme included the provision of incentives for key employees with a view to increasing their motivation and work performance. Other purposes were to "lock in senior consulting directors for the longer term in the firm" and raise capital for the first respondent. These purposes, according to the applicant related to the applicant's contract of employment (which was a contract under which work was performed). In addition, the applicant contended that those purposes were understood by those promoting the Scheme as well as the Scheme participants. It was a pre-requisite to entry into the Scheme that only eligible employees could invest. Participation in the Scheme depended upon the existence of a contract whereby work was performed in an industry. The Scheme was therefore related to and collateral to that contract. 83 In Silbermann v One. Tel Limited (In liquidation) and anor [2005] NSWIRComm 477 Marks J adopted the analysis of Basten JA in Grygiel v Baine & Ors [2005] NSWCA 218 at [66] to [68] of the term "collateral contract". In the passages from Grygiel v Baine, Basten JA observed that a collateral contract cannot be formed after the main contract has come into existence because it would otherwise constitute an "inadequate (past) consideration for the new contract" (the consideration being the promise or representation by one party the result of which being that the representee enters into a separate contract with a third party or enters into a contract with the representor). The circumstances with regard to a collateral arrangement under s 106 are different. A valid arrangement under the unfair contract provisions of the Act does not have to constitute a contract or agreement enforceable at law. The parties to the present proceedings have not in any event raised this particular matter as an issue. 84 Under s 106(2A) of the Act a related condition or collateral arrangement does not need to "relate" to the performance of work but the contract to which it is related must be one whereby work is performed (in an industry) and the performance of work must be a "significant purpose" of the collateral arrangements made by the person working. The sub section was referred to by the Full Bench in Barataud v Chipperfield (No 3) [2006] NSWIRComm 249 where it was observed (at [36]):

Section 106(2A) empowers the Commission to declare void or vary any "related condition" or "collateral arrangement" to a contract whereby a person performs work in an industry, even if the related condition or collateral arrangement does not relate to the performance of work, so long as the performance of work is a significant purpose of the contractual arrangements made by the person. In our view, this latter condition requires a factual assessment of the contractual arrangements, viewed as a whole, to determine whether the performance of work could be described as a significant purpose. 85 Section 106(2A) is expressed in the following terms: 106 Power of Commission to declare contracts void or varied . . .

(2A) A contract that is a related condition or collateral arrangement may be declared void or varied even though it does not relate to the performance by a person of work in an industry, so long as: (a) the contract to which it is related or collateral is a contract whereby the person performs work in an industry, and

(b) the performance of work is a significant purpose of the contractual arrangements made by the person. 86 Two criteria which must be satisfied in order to fall within the sub section are first whether the Scheme was related to or collateral to the applicant's contract of employment, and secondly whether the performance of work was a significant purpose of the "contractual arrangements" (comprising the applicant's contract of employment and the Scheme). 87 In relation to the first matter Marks J in Silbermann v One-Tel Limited (at [22]) thought that in order for there to be a "collateral arrangement" within the meaning s 106(2A) there needed to be an "appropriate connection" between the contracts said to form part of the arrangement. Adopting this formulation there would need to be an "appropriate connection" between the applicant's contract of employment and the Scheme. In my view the "appropriate connection" or relationship has been established on the evidence. The applicant's eligibility to join the Scheme derived from his status as an employee of the first respondent under the terms of his employment contract. Only employees of the first respondent could enter and participate in the Scheme. In addition the first respondent, a party to the contract of employment, owned the shares which it was anticipated the Trust would purchase once the employees purchased their allotted units in the Trust. 88 In relation to the second matter a number of indicia provide support for a construction that a "significant purpose" of the "contractual arrangements" was the performance of work. These indicia include: (i) one of the primary purposes of the Scheme was to motivate employees to perform work for the first respondent by giving them an equity stake in the first respondent; (ii) another purpose was to deliver to those key employees selected to enter the Scheme, financial rewards; (iii) another purpose was to retain key employees in the employ of the first respondent. 89 These various purposes in combination facilitate the conclusion that a "significant purpose" of the contract of employment and the Scheme was the performance of work. Whether the contract of employment was unfair 90 I turn now to consider first whether the contract of employment was unfair. The applicant in his amended summons alleged that the contract of employment became unfair at the time of the applicant's termination of employment because of the failure of the first respondent to provide for reasonable notice or payment in lieu of notice upon termination, and the failure of the respondents to afford the applicant procedural and substantive fairness and natural justice. Further particularisation in the amended summons of the alleged unfairness claimed: (a) The Contract was unfair, harsh or unconscionable because it permitted the Respondents to terminate the employment of the Applicant without affording the Applicant procedural fairness, natural justice an [sic] substantive fairness in relation to the termination of the Contract;

(b) The Contract became relevantly unfair because of the conduct of the Respondents in termination the employment of the Applicant without affording the Applicant procedural fairness, natural justice an [sic] substantive fairness in relation to the termination of the Contract;

(c) The Contract became relevantly unfair because of the conduct of the Respondents in terminating the employment of the Applicant without sufficient cause. Further the decision to terminate the employment of the Applicant was disproportionate to the alleged conduct of the Applicant and was an unfair exercise of the discretionary power to terminate the Contract;

(d) The Notice provisions in the Contract were unfair, harsh or unconscionable because of the age of the Applicant,

(e) The Notice provisions in the Contract were unfair, harsh or unconscionable because it made no allowance for the length of service of the Applicant with the Second Respondent at the time of termination and took no account of the loss of the non-transferable credits associated with the period of service upon termination;

(f) The Notice provision in the Contract were unfair, harsh or unconscionable because of the post employment restraints contained in the Contract; 91 In support of these particulars of alleged unfairness the applicant sought to emphasise what he said was the second respondent's case for his termination, "for sufficient cause", namely poor work performance and a breach of confidentially by reason of the applicant's dissemination of the 2 July 2003 email addressed to the second respondent and sent at the same time to other Scheme participants.

92 With regard to the allegation of poor work performance the applicant submitted that there was no substance in the respondents' contention that the applicant's employment was terminated for poor work performance. A number of reasons were advanced in support of the submission:

(a) even if the applicant had initially been employed to generate business in South East Asia, his failure to do so did not preclude his employer from paying his bonuses over a five and one half year period;

(b) as to the reason for the applicant's employment, the applicant's evidence should be preferred, namely that he was employed to "learn the ropes" in Australia for a couple of years and that during this period South East Asia was not to be his primary focus;

(c) during the period of his employment the applicant was fully engaged in local Australian work and his failure to win any new work became of concern only when there was a general downturn in the first respondent's revenue;

(d) the applicant had no power or input as to his charge-out rate at Pacific Power. It is therefore unfair to hold his charge-out rate against him, particularly when the evidence indicated that he was assigned the role by others within the first respondent's management team, and the charge-out rate was, in any event, determined by the client irrespective of the consultant assigned to the project;

(e) arguments that the applicant performed poorly at Pacific Power were internally inconsistent, for example the allegation that the client complained about the applicant making non work-related telephone calls while working at Pacific Power was different from the evidence of Mr Eade on the issue, who was the apparent source of the information;

(f) allegations of poor work performance are also inconsistent with a plain reading of the applicant's performance appraisals;

(g) the assertion that the applicant was counselled for his "extremely poor performance" is not consistent with Mr Eade's account who rated his performance as "average";

(h) the assertion that the second respondent underlined the comment, "performance is well below targets set out for a number of key areas", in the "comment box" of the applicant's performance appraisal dated 18 March 2002 is self-serving since the handwriting on that document was only identified as the second respondent's handwriting in re-examination, and the second respondent had given evidence earlier in the proceedings that documents adverse to the applicant were probably with the liquidator and therefore could not be produced;

(i) in any event the words in the comment box on the document dated 18 March 2002 were in fact crossed out and not underlined, when a comparison is done between the notation which is a "squiggled line" and the more definitive underlining which appears in another part of the document;

(j) the second respondent's assertion that the applicant went behind his back and prepared a revised more favourable performance appraisal document was never tested during the second respondent's cross-examination. It is, in any event, unlikely that the applicant went behind the second respondent's back and it is more likely that the revised amendment reflected the applicant's understanding of the outcome of a meeting held with the second respondent who directed him at that meeting to draft a revised amendment. This latter construction is supported by the applicant's email to Ms Scarf on 24 April 2002 in which the applicant attached the revised amendment and said to Ms Scarf, "attached is my revised version based on the discussion with Zia. Would you please put it on file";

(k) reliance on the "cryptic email" sent to staff on 16 April 2002 to support an assertion that the applicant was on notice (of poor work performance) is at odds with a subsequent email dated 23 May 2002 sent by the second respondent to the applicant and praising him for, "maintaining chargeability at PPT";

(l) there was no indication that his alleged poor performance was going to lead to his replacement as the project accountant, as Ms Grey, the resource manager, would have been involved in this. 93 Poor work performance played no role in the decision to terminate his employment, according to the applicant, but if it did the applicant was not properly put on notice that his job was in jeopardy. Instead, he was terminated because of the email he sent to the second respondent and other Scheme participants on 2 July, 2003. Nor, according to the applicant, was the decision to terminate his employment a collegiate decision of senior management as the second respondent had maintained in his evidence. Rather it was the second respondent's decision alone as director and chief executive officer of the first respondent. This latter contention receives support, said the applicant from persons who gave evidence in the proceedings who were held out as responsible for reviewing his employment and responsible for making the decision to terminate him. These persons included Mr Goldstein, Ms Grey and Mr Cameron. Mr Goldstein denied being involved in the decision. He said that Mr Cameron told him that the reason for the applicant's termination was that, "Zia had lost confidence (in the applicant". Ms Grey's evidence was that she did not participate in any deliberations and didn't know that the applicant's employment had been terminated until after the event. Mr Cameron's affidavit was not relied upon by the respondents in the proceedings. Any suggestion on the part of the second respondent that he was the voice of restraint in the decision to terminate the applicant's services is at odds with his own affidavit and what Mr Goldstein said he was told by Mr Cameron as to the reason for the applicant's termination. 94 In response, the second respondent labelled the applicant's claim of unfairness with regard to the circumstances of his termination as an "unfair dismissal claim in disguise". The second respondent also asserted that the applicant had read and understood the terms of his employment contract and had not sought at any time to vary the notice provisions. Nor was there any evidence of an imbalance of bargaining power since the applicant did not at any stage seek to renegotiate the contract when he was offered salary increases. It was also contended that it was part of the applicant's role to market the firm and generate new business. In addition he was hired with the express commitment to generate business in Asia in the short term. The applicant was described by the second respondent as an, "average performer", who failed to generate new clients and new business. Finally, it was contended that the applicant changed his 24 April 2002 performance appraisal without permission. 95 I propose to deal first with the second respondent's contentions. First, the contention that the applicant's claim of unfairness was really an "unfair dismissal claim in disguise" was not further developed in submissions. Without the benefit of further argument on this issue I am unable to deal with it. I would observe however that in my view the contention has little substance. The amended summons does not allege that the applicant's dismissal per se was unfair. Instead the applicant expressly relied on the terms or operation of his contract of employment in support of his claim that the contract was unfair. This brings the claim properly within s 106 of the Act: Beahan v Bush Boake Allen Australia Limited (1999) 47 NSWLR 648; (1999) 93 IR 1 at 38 and 42. 96 Secondly, the applicant contended that his contract of employment operated unfairly at the point of termination of employment, in relation to the circumstances prevailing at that time. It was not contended by the applicant, as I apprehended the claim, that the contract of employment was unfair at its inception or that there was an imbalance of bargaining power with regard to a failure on the part of the applicant to negotiate a longer notice period. 97 Thirdly if an accurate representation of the applicant's job, as understood between the parties, was that he market the firm and generate new business in Asia in the short term then any rights the respondents may have had for terminating his employment on these grounds may well have lapsed or been waived long before his dismissal. This contention will be addressed in more detail shortly. It is sufficient to observe at this stage that the documentary evidence does not tend to support the contention that the applicant's termination of employment was in any way influenced by any failure on his part to generate business locally or in Asia in the short term, or to market the firm. 98 Fourthly, even if the applicant's work performance could be characterised as "average" it would not constitute grounds for summary termination, without regard being had to matters pertaining to procedural fairness. 99 Finally, I do not accept that the applicant changed his 24 April 2002 performance appraisal without permission. Such a conclusion is inconsistent with the tenor and content of his email to Ms Scarf on the same date when he attached the revised performance appraisal and requested her to place it on the file. There was no attempt by the applicant to conceal the fact that he had revised the performance appraisal. Ms Scarf was the second respondent's personal assistant. The revisions were clearly meant to come to the notice of the second respondent. In addition, as the applicant has pointed out, neither he nor the second respondent was cross-examined on the document. It was first produced during the second respondent's re-examination. In these circumstances the applicant was effectively denied the opportunity to give an explanation for the revisions. This latter set of circumstances would preclude any adverse findings being made against him, on the issue. 100 The underlying reasons for the applicant's engagement by the first respondent were in issue during the proceedings. The applicant said there was no discussion about him having a role in South East Asia at least for the first two to three years. This statement seems difficult to reconcile with other evidence. In late 1998 for example the first respondent paid for the applicant to travel to Indonesia to do a presentation on its behalf. The applicant said that part of the reason for the trip was to train the first respondent's people in the region. In 2001 the second respondent asked him to devise a business plan in collaboration with Mr McFeat for the purpose of expanding its business in the region. The fast track documents of 2001 and 2002 outlined the business plan. According to the second respondent the applicant was recruited on the basis that he would work in Sydney and at the same time generate work in Indonesia. The second respondent also said that it was necessary for the applicant to generate revenue from his business contacts in Indonesia and Malaysia in the short term. He said the applicant assured him that this would not pose a problem given his broad range of contacts in both the private and public sectors in the region. With regard to the fast track documents, the second respondent said that in the early stages of formulating the business plan it became apparent that the applicant lacked the capacity to follow through and develop any business. 101 On the other hand the evidence revealed that after the applicant commenced work for the first respondent he was engaged full-time at least for the first two years on the Y2K and GST projects. Thereafter he was engaged full-time working as a senior consultant for Pacific Power. This work load would have left him little time or opportunity perhaps to actively pursue business leads in South East Asia for the first respondent. In addition his contract of employment made no specific mention, nor did his offer of employment, of a requirement that he generate business in Indonesia and elsewhere in Asia. 102 Given the state of the evidence on the issue I am unable to reach a firm conclusion as to the precise reasons for the applicant's employment. What may be concluded however is that if the second respondent's version contained the more accurate account, then this matter did not assume any great significance on the part of the respondents. The applicant's full-time work continued on Australian-based projects without further complaint as to any failure on his part to generate business on behalf of the first respondent in South East Asia. 103 It is also significant that throughout the period of his employment the applicant was consistently commended for his work-performance. In the financial year ending June 1999 the applicant received a bonus payment and a salary increase. The following year he received another bonus payment and salary increase and was promoted to the position of consulting director. On both occasions he was commended for his "excellent achievement" (June 1999) and his "outstanding efforts" and "strong contribution to the firm" (June 2000). He was also told that he had established himself as a "key member of the firm". In June 2001 the second respondent wrote to the applicant acknowledging his "excellent" efforts in relation to client work in Canberra. On 23 May 2002 the applicant was informed in a memorandum from the second respondent that he had delivered a, "solid performance . . . in maintaining chargeability at PPI". He was considered a key member of the first respondent and therefore eligible to purchase units in the Scheme. Following the restoration of his salary to its former level or remuneration on 1 March 2003 the applicant was told that only the "strong performers" had had their salaries restored as at 1 March 2003, but that others had to continue on reduced salaries, "until they are able to align their billings or sales more closely with their targets". 104 The second respondent sought to rely on various performance appraisal documents in support of the allegation that the applicant's work performance was poor. In my view none of the documents provided sufficient support for such a finding. The performance appraisal document date 18 May 2002 (which the applicant later revised and sent to Ms Scarf for placement on the file) did not suggest that, overall, the applicant's performance was poor. Rather it showed that his actual achievements with regard to matters such as revenue generation and chargeability fell below the nominated targets. With regard to the comment in the "comment box", the applicant alleged that it had a "squiggled line" through it, drawn by the second respondent, and the second respondent alleged that it had been underlined. In my view not a lot turns on this. Shortly after the performance appraisal dated 18 May 2002, for example, a second appraisal of the applicant's work for the same period was generated on 17 June 2002. It was conducted by Gareth Eade, the applicant's supervisor at that time. On its face the document was favourable. It stated by way of an overall comment that the applicant was delivering "a solid performance", at Pacific Power, as project manager. 105 In submissions the respondents described the applicant's work performance as "average". This assessment would not, without more, as I have already stated, have justified the summary termination of the applicant's employment. It is also of significance that the applicant's letter of termination of the contract was silent as to the reasons for his dismissal. Evidence adduced orally during the course of the proceedings on the issue did not suggest, apart from the evidence of the second respondent, that the applicant's contract of employment was terminated because of poor work performance. Ms Grey, who was the resource manager at that time, said that she did not participate in a decision to terminate the applicant's contract and she would have expected to have been involved in any such decision. Mr Goldstein also said that he had had no involvement in the decision. He said Mr Cameron, who did not give evidence, told him that the second respondent had lost confidence in the applicant. Mr Goldstein rang the applicant at the behest of the second respondent and told the applicant that his contract was terminated. He said he said to the applicant: I apologise for calling you while you are on leave. I am calling to advise you that Zia has lost confidence in you and does not want you to return to work. Unfortunately you will be terminated as of today with four weeks notice. 106 The evidence on this issue in my view is insufficient to sustain findings that the applicant was a poor work performer and that his contract of employment was terminated for cause, that is, because of his poor work performance. In submissions the second respondent's assessment of the applicant's work performance extended only to describing it as "average". Even that assessment should be viewed with some caution for the reasons expressed above. Breach of Confidentiality 107 Another issue said to arise out of the circumstances of the termination of the applicant's contract, was whether the applicant's email to the second respondent of 2 July 2003 was in breach of a duty of confidence because of his actions in copying and sending it to other Scheme participants. 108 The second respondent contended in this regard that the contract of employment contained confidentiality provisions as well as implied duties to act in good faith, mutual trust, confidence and fidelity. The email of 29 April, 2003 was relied upon by the second respondent to emphasise the importance placed by him in the confidentiality of the Scheme. The context in which that email was sent concerned the first respondent's attempt to refinance Scheme participant's capital contribution loans with Westpac. It followed the earlier email of 24 April 2003, sent by the second respondent, in which participants were advised that no dividends would be issued to shareholders. It was intended under the terms of Scheme that such dividends would be issued as a form of profit sharing and that there would be a tax effective distribution of income to Scheme participants though the Trust. The email of 29 April 2003 expressly assured the applicant that there was no need for concern and that "no one will be out of pocket in any shape". The email emphasised the importance of keeping discussions on the matter in strict confidence. It cautioned that: [E]ach person is required to treat all discussions in strict confidence. I am appalled this morning to learn from Ian Ritchie that some of you have discussed this issue with him and indicated that the Firm is "defaulting" the Share Participation Loan. This is truly poor form. There will be no second chances for such a breach of confidentiality in this Firm. 109 According to the second respondent the applicant deliberately set out to pressure and embarrass him by sending the email of 2 July 2003 to other Scheme participants. By copying this email, the applicant's actions, according to the second respondent, warranted his summary dismissal. 110 The applicant's email of 2 July, 2003 proceeded an earlier email sent the day before by the second respondent. This earlier email was not marked, private or confidential, and was addressed to all shareholders. It stated: Dear Shareholders The Firm is in the process of settlement with Westpac of its Facilitites. This should occur in the next week or so. Part of the settlement with Westpac includes the promised reduction in the Capital Contribution Loans for the Team. The funds have been arranged to clear out the Firm's facilities with Westpac in total and to enable us to make the agreed reduction on your loans. We have been communicating with Westpac personnel on a regular basis and are looking forward to the finalisation of this matter. Further information and documentation regarding this matter will be provided in due course. Regards Zia 111 On the same day the applicant received the letter of demand from Westpac's solicitors. That letter required payment of $5,000 principal reduction by 4 July 2003. In default, the applicant was informed, Westpac would require full repayment of the loan. 112 The applicant submitted that his email of 2 July 2003 did not breach his duty of confidence by the action of copying its contents to other Scheme participants. This was because the email of 1 July 2003 sent by the second respondent was not marked as a confidential communication, and the identity of the other Scheme participants were well known to each other. In addition the applicant was of the belief that confidentiality requirements with regard to the Scheme only extended to a prohibition on discussion with third parties (excluding taxation and legal advisors). It was also contended that, given the promises made by the second respondent both prior to and upon entering into the Scheme, it was neither unreasonable nor in breach of the applicant's obligations to act as he did, nor did his conduct warrant dismissal. 113 I am satisfied on the evidence that the applicant's actions in copying the contents of the 2 July 2003 email to eight other Scheme participants did not breach any duty of confidence. There was nothing in the terms of the Trust deed, the draft deed, the Prospectus or any other promotional material which referred to a requirement to keep matters pertaining to the Scheme confidential as between Scheme participants. This is hardly surprising given that the Scheme was discussed in detail in open forums among prospective participants in the presence of the second respondent on several occasions prior to its inception. The only requirement as to confidentiality in the Trust deed concerned the Trust Register the contents of which the manager and trustee were prohibited from disclosing under the terms of the Trust deed. The correspondence generated by the respondents following the commencement of the Scheme was sometimes marked as confidential and sometimes not. This inconsistent approach to the issue would not have fostered an understanding among Scheme participants that all discussions and written communications with regard to the Scheme were to be private and confidential as between themselves as well as third parties. A primary concern expressed by the second respondent for the need for confidentiality appeared to involve a perception on his part that if Scheme participants became aware of the number of units each had been offered in the Scheme (some were offered more than others) that may have an adverse effect on motivation. If this were so, the applicant's email did not touch on this issue. Correspondence with regard to the Scheme was usually marked to the attention of Scheme participants generally. Each participant therefore would have been well aware that the subject matter of the particular item of correspondence had been communicated to all participants. 114 The second respondent was clearly of the view that the applicant, by copying the contents of the email he sent on 2 July 2003, had breached a duty of confidence. His evidence was that when he received the email he noticed that it had been copied to other Scheme participants. He rang the applicant and accused him of breaching his duty of confidence for the second time. In the course of the conversation he said to the applicant: given the serious nature of the breach you are finished with the firm and someone will be in touch to organise termination arrangements. 115 Although the applicant's standard of work performance was a significant issue during the proceedings, ultimately in my view, it formed no part of the second respondent's decision to terminate his employment. The second respondent's evidence of the telephone conversation following receipt of the 2 July 2003 email from the applicant indicated, quite clearly, that the applicant's employment contract was terminated because the second respondent had formed the view that the applicant had breached his duty of confidence. On the evidence there was no proper basis for this view. Nor was there sufficient evidence upon which an inference may be found that the applicant's work performance was of such a standard that it might justify or warrant the termination of his contract. The applicant was advised of the termination while on leave, by telephone. The termination of his contract occurred in circumstances where the applicant received no warning or counselling and where he was denied the benefit of any procedure under which he could have availed himself of the opportunity to discuss legitimate concerns that his employer may have had with regard to his standard of work, or defend himself against any allegations of misconduct, before termination was effected. His contract contained no express provisions which could operate to protect the applicant from summary termination, that is to say the contract failed to provide for fair procedures on termination (or permitted the respondents to adopt unfair procedures in terminating the applicant's employment). No other basis apart from allegations of poor work performance and allegations of a breach of confidence were advanced by the second respondent as warranting the applicant's summary termination. Given all these circumstances I conclude that the applicant's contract of employment was or became unfair because it permitted the respondents to act unfairly when terminating the applicant's employment without affording him procedural fairness, and in terminating his employment on grounds that were not made out.

Reasonable notice 116 With regard to the Notice provisions the applicant alleged that those provisions in the contract were also unfair or became relevantly unfair at termination because of the applicant's age, his length of service and the loss of non-transferable credits associated with that period of service upon termination, and the post-employment restraints contained in the contract. 117 The notice provisions in the contract of employment provided for termination by either party upon the giving of four weeks notice, with an option on the part of the first respondent to either require the applicant to work the period of notice or to pay out the term. The contract also contained a "restraint against competition" clause which operated to prohibit the applicant from enticing customers away from the first respondent for a period of 12 months following termination and prohibiting the provision of services by the applicant competitive with those supplied while employed by the first respondent, for a period of six months following termination. 118 Shortly after being notified of the termination of his services the applicant received a total sum of $15,524.75 which represented four weeks net salary and unused annual leave. 119 The applicant submitted that the contract of employment was unfair because it permitted the respondents to terminate his employment without proper cause and without adequate payment. The second respondent relied on the applicant's concession that he had read the contract and understood its contents. The applicant also conceded, according to the second respondent that he was not pressured into signing it and he did not act under duress. Further, he was a qualified consultant and, "a highly experienced person", and there was therefore no imbalance in bargaining power. Nor was there any impediment that might have affected his ability to conserve his own interests, nor any evidence that the respondents took advantage of the opportunity, "placed in its/his hands". The respondents also relied upon the applicant's concession that he never sought to re-negotiate the notice provisions. The second respondent also placed reliance, in relation to this issue, on the applicant's work performance which was described by him as "average", and the fact that the applicant changed his performance appraisal of 24 July 2002 without permission. In summary the second respondent contended that no finding of unfairness could be maintained in circumstances where the respondents are not guilty of any misconduct, and in the circumstances of the applicant's age, experience, and his failure to "re-bargain". 120 Neither party made any submissions with regard to the allegation of unfairness concerning the post-employment restraints in the contract. The evidence, insofar as I am aware, did not suggest that the applicant breached any such restraints or that he was unfairly affected by them in his search for employment following his termination. I am therefore unable to find unfairness arising from the restraint provision in the contract.

121 Given the way the applicant has framed his amended summons, the allegation of unfairness with regard to the notice provisions falls for assessment together with the other allegations that the contract was or became unfair at the time of termination because the applicant was denied procedural fairness and because his employment was terminated without cause. My findings with regard to the failure to afford the applicant procedural fairness at termination, as well as my findings with regard to the applicant's work performance and the allegation of breach of confidentiality, which were not substantiated on the evidence, leaves it open to vary the contract in the manner sought in the amended summons and to make compensatory orders. In addition I also find that the payment in lieu of notice was unfair, given the circumstances of the applicant's termination of employment. At the time of his termination of employment the applicant had served a lengthy period of employment in excess of five years and his work performance had received consistent praise from the respondents. The real reason for the applicant's summary dismissal was his alleged breach of confidentiality. The consequences for an employee of some seniority and experience such as the appellant, and given his age, could have potentially serious consequences. In all of the circumstances, in my view, a payment of four weeks salary was inadequate.

Whether Scheme Unfair 122 The applicant also claimed that the Scheme was an unfair contract. Three reasons were advanced in support of the claim. First it was said that the terms of the Trust deed were unfair. Secondly that the conduct of the respondents, in particular the second respondent, was unfair with regard to the unfair discretionary powers contained in the Trust deed and the inability of the applicant to redeem his shares upon termination. Thirdly, the Scheme was said to be unfair because of the representations made to the applicant which were designed to induce him into entering the Scheme. Whether terms of Trust deed unfair, or became unfair at termination 123 According to the applicant, under the Trust deed he was only able to make a capital gain on his investment in limited circumstances, namely a liquidity event or upon retirement. This was said to be unfair because the ultimate risk posed by the Scheme was borne by Scheme participants. The first respondent, on the other hand, gained the benefit of the capital raised and the labour of participants during the Scheme's operation. This state of affairs remained in existence until the second respondent, in his capacity as sole director of both the trustee and manager companies, might choose to exercise his discretion to create a liquidity event. There were other very limited circumstances in which a unit holder could redeem his or her units but these circumstances were dependent upon a favourable exercise of discretion by the second respondent, and, if favourably exercised, could result at best in a unit holder getting back his original stake or getting out of his or her loan obligations. 124 In response to these submissions, the second respondent contended that the applicant had read and understood the documentation prior to his entry into the Scheme. He was therefore bound by its terms unless he could establish some vitiating element such as misrepresentation, duress or mistake. He also obtained legal advice with regard to the operation of the Scheme. As a highly qualified accountant with vocational experience in the financial workings of corporations and as a senior and experienced employee, the applicant knew that his investment depended upon the first respondent generating profits. In these circumstances, the Trust, in its operation, was not unfair. 125 According to the second respondent there was nothing unfair about the purpose of the Scheme, being the realisation of a capital gain upon the happening of a liquidity event, that is, the sale of the first respondent. The liquidity event, "was the whole of the Trust, if you think about it, it couldn't work any other way". Nor was the redemption clause unfair, according to the second respondent. Its aim was to ensure a degree of investment stability. In the event of a redemption request, where units could only be redeemed at the discretion of the trustee, the discretion was neither unfettered, nor uncommon, with regard to the operation of a Trust. The discretion was not unfettered because a trustee must always act in the interests of beneficiaries. The trustee could not redeem a unit holder's units and hand out money if there were insufficient funds to do so. Allegations on the part of the applicant that the Scheme was unfair because the applicant assumed liabilities, both for interest payments on the loan and repayment of the loan in full following his dismissal, were "nonsensical" in the context of the applicant's evidence that he understood that he was liable to repay the loan. Allegations on the part of the applicant that the respondents used their dominant bargaining position to promote the Scheme and induce him to enter the Scheme, "stretches any sense of credulity" when consideration is given to the applicant's high level of education and his qualifications as a financial controller, auditor and consultant. It was also significant, according to the second respondent, that the applicant failed to mitigate his loss, that is, he made no attempt to redeem his units under the terms of the Trust. 126 I propose to first address the submissions of the second respondent. First, the "whole purpose" of the Scheme was not the realisation of a capital gain upon the happening of a liquidity event. There were a number of purposes actively promoted by the respondents which included the motivation and retention of key employees, and the opportunity of financial rewards for Scheme participants. Under the Scheme, the only possibility of a capital gain was through the redemption of units upon the happening of a liquidity event. But this was only one aspect of the Scheme. Other aspects of the Scheme included the issuing of dividends through the medium of the Trust to participants as part of profit-sharing arrangements with the first respondent and payment of the interest component on capital contribution loans. 127 Secondly, while it is true that a trustee has legal obligations to act in the interests of beneficiaries and cannot, for example, redeem an individual unit holder's unit in the exercise of discretion if there are insufficient funds, this was not the case at the time of the applicant's termination. 128 Thirdly, documentation relevant to the Trust disclosed that the applicant was liable to make the principal repayments on his loan. The applicant appeared to have understood this in his evidence. In the event however, that an application was made to redeem units, and was accepted, there was an expectation under the Trust that if monies remained outstanding on the principal loan at the time a redemption request was made, then the trustee and manager would pay those amounts outstanding to Westpac in discharge of a participant's liability. This expectation was set out in the letter of 1 March 2002 sent to Westpac by the trustee and manager of the Scheme. In that letter, the trustee and manager undertook, in the event of their consent to a redemption request, "to pay to Westpac (in accordance with the provisions of the Deed) any amounts due to the Employee from the Trust in discharge of any liability due to Westpac by the Employee under the (loan) agreement". The relevant provision in the draft Trust Deed was clause 10.6 which provided: Minimum Redemption Amount (a) Subject to clause 10.4(b) , the minimum amount payable to a Unitholder on redemption of Units pursuant to clause 10.2 or 10.3 shall not be less than that amount (if any) owing by the Unitholder to a financier in respect of the Unit at the Redemption Date. Further, the redemption amount payable to a Unitholder must be first paid to any financier to the extent necessary to satisfy any debt and the remainder will then be paid to the Unitholder.

(b) The Manager and the Trustee shall have the discretion to pay such amount on redemption of a Unit in excess of the minimum redemption amount referred to in paragraph (a) above as they consider appropriate, provided this does not exceed the amount referred to in clause 10.4(b) . 129 Fourthly, with regard to the applicant's allegation that the respondents used their dominant bargaining position to promote the Scheme and induce the applicant to enter it, there was no evidence, of which the Court is aware, or which was brought to the Court's attention in support of the allegation. I therefore reject it. 130 Fifthly, I do not agree with the second respondent's contention that the applicant made no attempt to redeem his units following the termination of his employment. The applicant gave oral evidence that he made attempts to contact the second respondent following his dismissal but he received no response. This evidence was confirmed by other evidence. In his affidavit the applicant said that after the telephone conversation with Mr Goldstein, who informed him that his employment was terminated, the applicant rang the second respondent's personal assistant to arrange a meeting. A meeting was arranged for the following morning but shortly before the meeting was to occur, the second respondent's personal assistant contacted the applicant and informed him that the second respondent was busy and would make another appointment. The applicant said he rang several more times and sent emails but no meeting eventuated. The second respondent, in his affidavit, said he was aware that the applicant had wanted to meet him in around late July 2003 but he said he, "was not willing to waste any time on the applicant. I was very busy with work at that time". On 3 October 2003, the applicant sent a letter to the second respondent which was expressed in the following terms: Share Scheme and Westpac Loan I have received another letter from the Westpac Bank threatening to commence recovery action for repayment of the outstanding loan in relation to the BCI Share Scheme. This will impact on my credit standing. I have sent you emails regarding this matter but have not heard back from you, hence this fax. I hope you will be able to resolve this urgent matter. 131 This evidence demonstrates that the applicant attempted, without success, to contact the second respondent specifically with regard to his participation in the Scheme. It is clear that the second respondent was aware of this but refused to have any contact with the applicant. Given these facts, the applicant in my view should not be penalised for not making a formal redemption request.

132 The issue for determination is whether the Scheme as it was presented to the applicant as an eligible unit holder and as it emerged in its final form in the executed Trust deed was unfair. In my view, the Scheme in its terms manifested unfairness because it contained no express provisions for the redemption of units in the event of a participant's termination of employment except in the event of retirement. The only option open to a participant whose employment was terminated was to formally apply for a redemption of units to the trustee. In these circumstances, the participant was utterly dependent upon a favourable exercise of discretion by the trustee. In circumstances such as those encountered by the applicant, where his employment was terminated without cause, the Scheme offered inadequate protection to him as a participant relying on a favourable exercise of discretion for the redemption of his units. It cannot be ignored, given the facts, that the same person who engineered the applicant's termination, that is, the second respondent, was also the sole director of both the trustee and manager of the Trust. The second respondent was of the firm belief that the actions of the applicant in copying his email of 29 April 2003 to other Scheme participants constituted a breach of his duty of confidence which warranted summary dismissal. The second respondent's evidence was that upon receipt of the email he telephoned the applicant and informed him, "you are finished with the firm and someone will be in touch to organise the termination arrangements". Allegations of poor work performance advanced by the second respondent as a justification for the applicant's termination were without substance. Nor, as I have found, was the allegation that the applicant breached a duty of confidence, sustainable on the evidence. Given these facts, it may be reasonably inferred that had the applicant formally applied for a redemption of his units, his application would have been rejected in the exercise of discretion. These facts serve to illustrate that the Scheme lacked reasonable and proper, protective provisions to allow unit holders to redeem their units. The absence of such protective provisions, manifested unfairness in the Scheme's operation: see for example GIO Australia Limited and Another v O'Donnell (1996) 70 IR 1 at 24. 133 The same facts, in my view, reveal also that the Scheme became unfair by reason of the second respondent's conduct in terminating the applicant's employment without proper cause. The applicant's only opportunity to redeem his units, and recoup his loss was to formally apply to the second respondent as sole director, of both the trustee and manager. It was then up to the second respondent in his capacity as trustee or manager, to decide whether to exercise a discretion under the Trust and grant the request. Given the circumstances of the applicant's termination, and the dissatisfaction expressed by the second respondent towards the applicant, coupled with his refusal to see him because he "was not willing to waste any more time" on any objective view, the applicant was in a difficult position with regard to the success of an application to redeem his units. These circumstances combine in my view to facilitate the finding that the Trust operated unfairly against the applicant at the time of his termination. The consequence for the applicant was that he assumed liability for outstanding payments on the loan, as well as the interest payments, and lost any entitlements to the value of his units in the Scheme. Whether alleged representations made the Scheme unfair 134 The appellant also alleged that misrepresentations which he said were made by the second respondent and designed to induce him to enter into the Scheme, rendered the Scheme unfair. In submissions the applicant placed reliance, with regard to this aspect of his claim, on the alleged representations made by way of handwritten notations by the second respondent in the margin of the appellant's memorandum of 14 December 2001. 135 I propose to separately address each of those alleged representations. 136 In relation to the first alleged representation, the applicant said that the second respondent had first told him that he was being allocated 50,000 units but later he was informed that he was only being allocated 25,000. He said he asked the second respondent why he was only being allocated the lesser amount. He was told, he said, that the $50,000 related to the value of the share units, not the number or volume of shares. It is not clear whether this discussion, assuming it occurred in the terms recounted, meant that the $50,000 related to the value of 50,000 shares or 25,000 shares. If the former case the value of each share would be $1.00 per share, if the latter case, $2.00 per share. According to the applicant, the clear meaning behind the words written in the margin was that the 25,000 units on offer to him had an equivalent market value of $50,000, at the time the offer was made. An alternative explanation, proffered on behalf of the second respondent as to the meaning of the hand-written notation beside the first point, was that it expressed the second respondent's opinion that the units had a theoretical market value of $2.00 per unit. 137 According to the draft Trust deed the units only had a realisable market value upon a liquidity event. A liquidity event was defined in the draft Trust deed to mean: the sale of the ordinary shares in the Company or the business conducted by the Company to a Non Affiliate, or the merger of the Company's business with that of a Non Affiliate, or the listing of the Company (or Related Body Corporate of the Company to whom the business is sold) on the Australian Stock Exchange or any other stock exchange. 138 Clause 10 of the draft Trust deed dealt with the redemption of units. Under that clause, a Scheme participant was required to submit a written request to the manager or trustee of the Trust to redeem his or her units. Following receipt of the request the units could be redeemed by the manager or trustee, "in their absolute discretion". If both the manager and trustee exercised their discretion to redeem the units following a redemption request, the maximum amount per unit that a Scheme participant could be paid could not exceed $1.00 per unit (Clause 10.4). Upon the happening of a liquidity event however, it was possible for a Scheme participant, who was a unit holder, to receive the market value of the units at the time they were redeemed less certain costs and fees which became payable at the redemption date (Clause 10.5).

139 Clause 5.3 of the draft trust deed also made reference to a minimum subscription for units in the Trust of $25,000 per eligible unit holder. 140 It seems reasonably clear from the contents of the Prospectus and the draft trust deed that the units to be issued at the commencement of the Scheme would have a base value of $1.00 each. The applicant was aware at the time of his meeting with the second respondent on 14 December 2007 that he was to be issued with 25,000 units. He had also, prior to the meeting, received both documents, read them both and obtained legal advice in relation to them. In these circumstances I am unable to find that the second respondent, by deception or by misleading conduct, induced the applicant to enter into the Scheme. 141 As regards the second alleged representation, the draft trust deed was clear in its terms that the opportunity for capital gain on the shares would only occur upon the happening of a liquidity event. According to the applicant the second respondent's purpose behind the notation ("on retirement valuation will be made and dealt with - periodical valuations") was to induce him into believing that there would be one circumstance, at least, other than a liquidity event in which a capital gain could be made, namely, in the event of the applicant's retirement. According to the second respondent the notation simply restates relevant provisions in the trust deed. 142 The third representation, according to the applicant sought to perpetuate the applicant's understanding that any liability he might incur from entering into the Scheme would be confined to an eventuality where the first respondent became unable to meet its financial committments, and it represented to the applicant that he was at liberty to discharge his liability to the bank by resigning from the Trust and handing back his unit holdings and loan balance. With regards to the latter aspect, it was contended, on behalf of the applicant that it was consistent with information contained in the Prospectus. This information was: In the event of an employee leaving, the units will be redeemed at the lesser of market value or issue price of $1 each. However, the minimum amount to be paid on redemption will not be less than the remaining amount of the loan taken out to acquire the units. This minimises any down side risk for staff. 143 This information also appears to be consistent with the terms of the draft trust deed. The combined operation of clauses 10.6 and 10.4(b) meant that the minimum amount payable to a unit holder upon redemption of units, other than upon the happening of a liquidity event, would be, after taking into account any amounts owing to Westpac on the loan payment, not less than $1.00 per unit. The draft trust deed made no mention of specific instances or circumstances as to when a Scheme participant would cease to be a unit holder, for example, if the unit holder resigned. The terminology, although expressed broadly, would not on its face have precluded the applicant from requesting a redemption of his units in the event he were to resign. In that event however he could not, under the terms of the draft trust deed, redeem his units in the Trust for an amount in excess of $1.00 per unit. If this construction of the relevant clauses be correct then there is no apparent inconsistency in my view between those clauses and the second respondent's notation. 144 The same reasoning applies to the second alleged representation, that is, in the event that the applicant retired. As in the circumstance of resignation, clauses 10.4 and 10.6 would operate according to the draft trust deed and the applicant could redeem his units for a price not greater than $1.00 per unit, with the qualification that the minimum amount payable would not be less than the outstanding amount payable on the loan. Again, the combined effect of the clauses together with the information set out in the Prospectus does not appear to be inconsistent with the second respondent's alleged representation as set out in the handwritten notation beside the applicant's second point in the memorandum. Moreover with regard to the second and third representations the applicant was aware at the time of the meeting and understood that there was a risk that if the first respondent became, for some reason, unable to meet its financial commitments then he could become liable to repay any amount outstanding on the loan. This understanding emerged in his re-examination when the applicant conceded: [The] risk to me was if Catalyst or BCI were to go into liquidation or cease to operate that they would then be unable to repay these loans, so that was the ultimate risk, yes. 145 It follows from this that the applicant was aware that any purported guarantee on the part of the first respondent with regard to the applicant's loan with Westpac was necessarily contingent upon and qualified by the first respondent's continuing financial capacity to meet any outstanding loan repayments, in the event of a redemption request. 146 Given these matters it cannot be concluded that the alleged second and third representations, induced the applicant to enter the Scheme. 147 The other aspect of the alleged third representation upon which the applicant placed reliance concerned the events which transpired at the time of his termination of employment. The draft trust deed (as well as the executed trust deed) did not make specific provision for the redemption of units upon the termination of employment. In the case of the applicant, he did not make a formal redemption request. He was, according to him, by reason of his termination, precluded from resigning and handing in his units and his loan balance. In addition, following termination he remained exposed to ongoing principal reductions of the loan balance and interest repayments. 148 These events have already been considered in the context of the applicant's allegation that the circumstances of his termination rendered the terms of the trust deed (and his contract of employment) unfair. They do not in my view advance the applicant's case that the second respondent made a representation at the meeting of 14 December 2001 which was designed to induce him into entering into the Scheme. The applicant's case was that following the meeting, on the same day, in reliance upon the second respondent's representations, made both verbally and in writing, he completed an application for the units on offer to him. At the time the second respondent made the third representation by way of handwritten notation on the memorandum dated 14 December 2001, there was little substance, if any, to sustain a suggestion that the second respondent unfairly induced the applicant to enter into the Scheme. This is because the terms of the Prospectus and the draft trust deed contemplated, in the event of resignation, that the applicant could redeem his units at cost price (subject to the exercise of discretion). There is nothing inconsistent between these facts and the second respondent's alleged third representation. There was no suggestion on the evidence, nor could there be, that as at December 2001, the second respondent was contemplating the applicant's summary termination and the forfeiture of his $25,000 worth of units in the scheme. The basis upon which the applicant was considered eligible to enter into the Scheme was that he was perceived to be a key member of the first respondent, in other words a valued employee whom the respondents wished to retain. 149 The fourth alleged representation said to have been made by the second respondent on the applicant's memorandum of 14 December 2001 was, according to the applicant, an attempt to deflect the applicant's questions with regard to the value of the shares. According to the applicant the second respondent had informed him that his 25,000 units had an equivalent market value of $50,000. No documentation was produced which might have confirmed this. 150 As I have earlier observed, the applicant knew at the meeting of 14 December 2001 that he was to be offered 25,000 units. Both the Prospectus and the draft trust deed, contained information to the effect that the units on issue had a value of $1.00 per unit. The applicant had these documents in his possession prior to the meeting and had read them. He had also prior to the meeting obtained legal advice with regard to the operation of the Scheme. He can therefore have been under no illusions at the time of the meeting of 14 December 2001 that the 25,000 units on offer to him had a value of $25,000 not $50,000. 151 Given these facts I am unable to find that the second respondent's words written beside the applicant's fourth point on the 14 December 2001 memorandum constituted a representation designed to induce the applicant to enter into the Scheme. It is, in any event, unnecessary for me to decide this particular matter as the applicant did not allege in his amended summons that the representation had been made. Whether unfairness in salary reduction

152 A further head of unfairness relied upon by the applicant in the amended summons concerned the salary reduction imposed by the respondents for the period 9 December 2002 until 28 February 2003. With regard to the salary reduction it was alleged in the amended summons that the respondents used their bargaining position over the applicant to impose the reduction and that this conduct rendered the contract of employment unfair. 153 In written submissions the applicant referred to the factual context in which the salary reduction was imposed upon him. He said the second respondent addressed a group meeting at which he was present and told everyone that the 30 per cent salary reduction was necessary and that the alternative would be, "letting some staff go." Which staff might be "let go" was not specified. The applicant said he did not feel secure in his position because a number of consultants had already had their contracts terminated as a result of the impact the financial downturn had had on the first respondent's business. Nor did he want to see any of his colleagues dismissed. He therefore reluctantly agreed to opt for the salary reduction. According to the applicant the relevant unfairness was in the choice offered to employees in a group, that is, a choice between having a secure job over the Christmas period and the distinct possibility of facing a redundancy. Without knowing who might be facing termination in these circumstances the applicant said the choice he was offered created a "climate of fear". It was also unfair to individual employees because their individual work was not taken into consideration. In the applicant's case it was particularly unfair because he was earning fees in excess of twice his salary as a project manager at Pacific Power. The reality was, according to the applicant, that there was no choice at all. 154 The respondent contended on the issue that the applicant was not unfairly pressured into agreeing to the short-term cut in salary. The decision was not unilateral. The applicant agreed to the reduction after consultation with his colleagues. At the time the first respondent was experiencing serious liquidity problems. The option was put to employees on a group basis which was a fairer and more transparent approach than engaging individuals in private. Further, there was evidence that employees could make a request that their salary not be reduced if they faced financial hardship. The applicant did not avail himself of that option. The first respondent was facing legitimate financial hardship at the time and it would be unfair to order the first respondent, through the second respondent to recompense the applicant for lost salary in those circumstances. 155 In my view there were sound reasons which emerged in the evidence why the respondents thought it necessary to invoke salary reductions. Those reasons concerned the impact on the first respondent of a severe financial downturn. Although the options available to employees could be considered harsh, they were, arguably, necessary in the circumstances. The employees were able to retain their jobs although at reduced salaries. During his evidence the second respondent sought to introduce the element of poor work performance by the applicant as a justification for his salary reduction. As I have found there was insufficient evidence which could sustain a finding of poor work performance. Nevertheless the evidence, which was unchallenged, does sustain a finding of an economic downturn which impacted adversely on the first respondent's business and provided a justification for the salary reductions. The applicant had his full salary entitlements restored after a relatively short period, an act which seemed to contradict any assertion of poor performance. At the same time it suggested a genuine resolve on the part of the respondents to minimise any hardship to employees as a result of the reduction, at least insofar as those employees considered "key team members" were concerned. I am satisfied, on this evidence, that there was no suggestion of an imbalance of bargaining power between the applicant and the respondents which might otherwise have led to a conclusion that the respondents' conduct on this issue was unfair.

156 Before leaving this issue two further matters require comment. First, the second respondent during the course of the hearing sought access to the legal advice obtained by the applicant with regard to the terms and purposes of the Scheme after he obtained the promotional material and before his meeting with the second respondent on 14 December 2001. Access to that advice was objected to on the ground of client legal privilege and the objection was upheld by the Court. According to the second respondent the Court should draw an adverse inference against the applicant for his failure to tender the legal advice. A number of authorities dealing with the principle in Jones v Dunkel and Another (1959) 101 CLR 298 were relied upon in support of the submission. The adverse inference which the Court was asked to draw against the applicant concerned the applicant's reliance in the proceedings on the alleged representations made by the second respondent which the applicant contended induced him into participating in the Scheme. The second respondent contended that because of the applicant's failure to tender the legal advice, an inference must be drawn that his mind was not overborne by the alleged representations made on 14 December 2001 and he did not act in reliance on them. In view of my findings as to the alleged representations, this issue loses much of its significance, but in any event no inference adverse to the applicant may be drawn from the failure to tender legal advice which is the subject of client legal privilege and which has not been waived: Cadwallader v Bajco Pty Ltd & Ors [2002] NSWCA 328 at [95]. There was no suggestion that the advice had been waived.

Applicant's Credibility 157 The second matter concerns the credibility of the applicant. During written submissions the applicant's evidence was variously declared as "wantonly tailored", exhibiting deception, reckless disregard, "loose regard for the veracity of his own evidence", "self-serving"" and misleading the Court. Many of these descriptions were reserved for the applicant's evidence concerning his understanding of the loan documents with Westpac and the respondent's obligations, if any, with regard to the Westpac loan. According to the second respondent the applicant sought to imply that the loan was guaranteed by the first respondent when in fact he knew he was responsible for the loan repayments. 158 The applicant in reply submitted that his evidence extended over four days of cross-examination and that he was honest and candid. Where he lacked recollection as to precise words said, for example in the meeting of 14 December 2001, he did not attempt to tailor his evidence but rather conceded that his recollection was not perfect. With regard to his cross examination concerning whether the respondents had guaranteed to make the repayments on the loan principal the applicant sought to emphasise the second respondent's representations that "you will not be out of pocket" and "its a good deal", which he said he relied upon and accordingly placed his trust in the second respondent that when he entered into the loan agreement the first respondent could meet the loan repayments. 159 The applicant also conceded in his evidence that he knew there was a risk to him that if the first respondent failed to generate a profit and ceased to operate then he would become liable for the loan repayments. This concession in my view tends to contradict the contention that the applicant deliberately tailored his evidence. In oral submissions the second respondent contended that the applicant had lied about several matters in his oral evidence. This was a serious allegation and I am not satisfied that it was sustainable on the evidence. With regard to the applicant's understanding of who was liable for the loan repayments, the evidence revealed that it was anticipated that the first respondent would pay dividends annually to the Trust from profits generated. Following the acquisition of units in the Scheme by employees the first respondent commenced payment of interest on the loans on behalf of employees. According to Mr Amer Qureshi at the time of establishing the loan facility for employees with Westpac, the first respondent had endeavoured to pay the annual reductions in principal as part of its profit distributions to employees, although it had no legal liability to repay the amounts. He said that it was verbally agreed with Westpac, "that in the event BCI could not pay back the facility, the principal reductions could be deferred". This evidence was unchallenged. The first respondent in fact made the first capital reduction payment to Westpac on behalf of employees, including the applicant, although the second respondent emphasised in his evidence that the repayments were made as a gesture of goodwill and not because of a legal right on the part of employees. 160 It is against the background of this evidence that the applicant's evidence on the issue falls for assessment. His understanding that his loan payments on the principal were "guaranteed" by the first respondent was in my view misplaced. There was no such guarantee. But there was clearly an intention on the part of the first respondent to make the payments on behalf of employees and an anticipation that it would perform well and generate profits and that unit holders would benefit financially from the first respondent's success. 161 None of this evidence provides any firm foundation that the applicant deceived, mislead or tailored his evidence concerning his understanding of a "guarantee" on the part of the first respondent to make the loan repayments. The first respondent intended to pay the annual reductions in principal although it had no legal obligation to do so. This intention was no doubt communicated to those Scheme participants including the applicant who had utilised the Westpac loan facility to pay for their units. 162 In oral submissions the second respondent contended that the applicant sought to deceive the Court when giving evidence concerning the reason or reasons for his employment with the first respondent. The applicant's position as set out in his affidavit was that the focus of his employment was on local Australian markets. The second respondent's position was that he was employed to develop business relationships in South East Asia in the short term, and that remuneration would be based on business development in that region. In his affidavit in reply the applicant disagreed with the second respondent's statement that he needed to generate revenue from Indonesia and Malaysia in the short term. When the applicant was challenged on the issue he gave, according to the second respondent, inconsistent evidence and "changed his tune". These latter assertions were based it was said on the applicant's evidence that he was responsible for developing business in Asia and his later concession that it was not correct to represent his role with the first respondent as "solely" responsible for developing business in Australia. In other evidence given by the applicant he maintained, according to the second respondent, that no discussion took place with regard to obtaining work in Indonesia in his first two years of employment. 163 With regard to this last-mentioned evidence the transcript records that in answer to a question put to him, "[was] there any discussion (with the second respondent) about what you would be doing in South East Asia in the initial period when you were working in Sydney?", the applicant responded: "[n]ot during the initial two to three years no." This response followed closely upon earlier questions on the topic. The applicant's response to earlier questions, which was prefaced with the comment, "it is several years after the event", was that the second respondent had said to him: . . . The focus would be on developing markets in Sydney I would need to work with the team, understand how the firm operated before looking at work overseas which included Southeast Asia. 164 It is of little assistance to the Court to extract a number of responses to various questions and point to some perceived inconsistencies in those responses which were then said to demonstrate that the witness gave misleading or deceptive evidence. These are serious allegations which, in order for them to have any foundation, require more than merely pointing to internal inconsistencies in particular parts of his evidence. The evidence with regard to the issue has been canvassed in some detail earlier in this judgment. There was evidence which tended to indicate that the respondents anticipated, at least in the early stages of the applicant's employment, that he would actively pursue his business contacts in South East Asia with a view to the first respondent expanding its business interests there. Other evidence tended ­­­­independently to indicate that for the first two years of the applicant's employment he was engaged full-time on locally based projects such as the Y2K and GST projects. Thereafter he was engaged as a consultant for Pacific Power. His contract of employment and his offer of employment made no specific mention of a requirement to generate business in South East Asia on behalf of the first respondent. Based on the state of this evidence I was unable to reach a firm conclusion as to the precise reasons for the applicant's employment. Returning to the issue of the applicant's credibility, I am unable to find without the factual foundation having been established, that he deliberately set out to mislead or deceive the Court by giving inconsistent evidence as to the reason or reasons for his employment with the first respondent. Inconsistent evidence given by a witness may also be capable of an alternative rational explanation. The applicant was asked to recall the content of conversations which took place some seven years before. Given the amount of time which had lapsed between the dates of those conversations and when he was asked to recall them in evidence the applicant could not have been expected to have a precise recollection of the details. At other times in his evidence, for example during questions concerning his recollection of the discussion with the second respondent on 14 December 2001 (during which it was alleged a number of representations were made to him) the applicant conceded, against his own interests, that he could not recall the precise content of the conversation. 165 On the issue of credibility the second respondent also submitted that Ms Grey and Mr William Broockmann (formerly employed by the first respondent) both had "an axe to grind" and that accordingly their evidence should be treated with great caution and only accepted where it was corroborated. It was not said why both witnesses had, "an axe to grind". As I understand the submission it was made in the context of the applicant's evidence that he understood that the first respondent had guaranteed to repay the principal reductions on his Westpac loan. If this is correct then neither Ms Grey's nor Mr Broockmann's evidence provided conclusive support for this evidence. When Ms Grey was cross-examined about the documents said by the applicant to support his understanding that the first respondent had "guaranteed" to repay the loan principal she said that at the time the documentation was generated (1 March 2002) she understood that they represented a guarantee on the part of the first respondent to repay the loan principal but she later became aware that this was not the case. Mr Broockmann said that an accountant advised him prior to his entry into the Scheme that there was no guarantee accompanying the loan and that he was responsible for the repayments of the principal. Relief 166 It is appropriate for the reasons earlier expressed, which ground the basis of my finding that the applicant's contract of employment became unfair, to make compensatory orders based on an assessment of what in the circumstances might constitute a reasonable period of notice. In the amended summons the applicant claimed $60,000 representing six months gross salary as constituting reasonable notice or payment in lieu of notice to terminate the contract. In my view, given the applicant's length of employment, his age (52 years at the time of termination), his solid work performance demonstrated during the period of his employment, and the circumstances in which his employment was terminated, a payment of five months notice is reasonable. The applicant as part of his termination payment received the equivalent of one months net salary which should be deducted from any compensation ordered by the Court. In addition the applicant, following the termination of his contract, commenced employment with another corporation as a principal consultant on 15 September 2003 on the same level of remuneration he was paid immediately prior to termination of his employment with the first respondent. The fact that the applicant was able to achieve alternative employment two months after termination on a commensurate salary level will be taken into account in mitigation and the compensation payable will be reduced accordingly to three months payment in lieu of notice, after also deducting one month's net salary which was paid to the applicant as part of his termination payment. 167 It is also appropriate, given my reasons and findings on whether the Scheme was or became unfair at termination, to make compensatory orders in favour of the applicant. In the amended summons the applicant claimed a sum of $50,000 representing the market value of 25,000 units as alleged by the second respondent on 14 December 2001. As I have found the second respondent did not represent that the units had a value of $50,000, and thereby induce the applicant to enter the Scheme. The applicant knew at the meeting of 14 December 2001 that he was to be issued with 25,000 units. The promotional material which the applicant read and about which he obtained legal advice indicated that the units had a base value of $1.00 each. 168 In the alternative the applicant claimed a sum of $30,177.23 representing an amount equivalent to the stated value of the applicant's unit holdings in the Scheme as at 30 June 2003. This amount appeared to derive from a document headed "BCI Employee participation Trust. Balance Sheet as at 30th June 2003". Under the heading "Beneficiaries' current account" appear the applicant's name and the amount $30,177.23. In written submissions the applicant said that the amount represented what his shares were worth at the time of termination. The Court was not directed to any evidence which was adduced in relation to the derivation of this amount. A second alternative advanced by the applicant was that a monetary order should be made in the amount of $25,739.00 plus ongoing interest from 21 September 2006. This amount was explained in one of the applicant's affidavits. In that affidavit it was stated that at the time of the applicant's termination of employment there was an outstanding loan balance of $20,000 with Westpac in relation to the Scheme. Following his termination of employment the affidavit indicated that the applicant repaid the loan and outstanding interest payments as follows: · Payment of monthly interest and loan facility fees to Westpac Bank; · 26 March 2004 - Repayment of annual capital reduction of $5,000 from my home mortgage account with Homeside Bank; · 22 March 2005 - Repayment $10,000 through refinancing with Citibank. This loan is being repaid at the rate of $300 per month. Interest on this account is fixed at 4.9%pa. · 21 February 2006 - Repayment of balance of Westpac loan of $5,000 from my home mortgage account with Homeside Bank. 169 Interest and loan facility fees up to 31 August 2006 amounted to $4,454 and interest calculated on the amounts paid from the applicant's mortgage account were calculated at $1,285. Documentation attached to the applicant's affidavit confirmed these figures. 170 Given this evidence I propose to order that compensation be payable arising from my findings of unfairness with regard to the Scheme in the amount of $25,739.00. Culpability of the second respondent 171 The next issue which arises for consideration is whether the second respondent should be liable to pay monetary orders. It may be appropriate at this point to briefly visit the principles applicable to circumstances where a non-party to a contract found to be unfair (or to have become unfair) may be held liable to pay monetary orders. The authority most closely associated with the expression of those principles is the High Court judgment of Brown and Others v Rezitis and Others (1970) 127 CLR 157. In that judgment the High Court considered the terms of s 88F (a predecessor section to s 106(5)). Section 106(5) provides that money orders may be made "in connection with any contract declared wholly or partly void, or varied . . ." Barwick CJ (at 164 to 165) made a number of observations on the ambit of the section, in particular, the meaning of the expression "in connection with": In some cases, as I have said, there will be persons who are not the parties to the contract but who have in fact participated in its making and there may be persons who have received money indirectly from one of the parties to the contract or who may be holding money derived there from for one of the parties. Consequently, I am of opinion that the power to order the payment of money is not limited to the making of an order for the payment of money by one of the parties to the contract or arrangement varied or avoided. But though there is a generality in the language employed in the sub-section the power to make an order for the payment of money is not, in my opinion, unlimited particularly as to the persons against whom such an order may be made. The problem is to ascertain the limitation by construction of the section. It seems to me that the expression "in connection with" the contract or arrangement varied or avoided provides the necessary limitation as to the nature of the orders for payment of money which can be made and as to the person against whom they may be made. The draftsmanship of the section is inadequate: but I think the expressed intention as to this limitation can be derived from the sub-section read as a whole. Whilst it can be said that the expression "in connection with" is of wide import, it does emphasize the need for a close connexion between the order made and the contract or arrangement varied or avoided. In my opinion, the power to make an order for the payment of money is at best no more than a power to make such an order as can reasonably be thought to have a real connexion with the making, variation or avoidance of the contract or arrangement which has been varied or avoided. It may in truth be limited to a power to make an order for payment of money which has in fact a real connexion with the making, variation or avoidance of the contract or arrangement. However, in either case it will, of course, include power to make an order for payment of money which has been paid or which was payable under the contract arrangements themselves. But, in my opinion, the power will not be limited to the making of such orders. It will extend to ordering the payment of money where the order on the larger view of the jurisdiction given by the sub-section could be considered to be appropriate to effect wholly or partially the restitution of the parties to their former position upon the variation or avoidance of the contract or arrangement. In my opinion, the limitation of the power to order the payment of money to such orders either as are or as may be considered in the circumstances to be connected with the making, performance, variation or avoidance of the contract or arrangement sufficiently limits the power and leaves room for supervision of the Commission by a Court having power to issue prerogative writs so as to confine the Commission within the granted power. Consequently I am unable to accept the submission made by the appellants that an order made by the Commission for the payment of money by any person other than a party to the contract or arrangement varied or avoided is necessarily beyond the power of the Commission. Whether or not it is so depends upon all the circumstances and the terms of the order itself.

172 In the same judgment Menzies J also considered the meaning of the expression "in connection with". At 170 his Honour said: It seems to me, without exhausting the meaning of the phrase, that a payment of money in respect of (1) work done, or (2) money spent, or (3) obligations incurred, under the avoided contract or arrangement, is properly to be regarded as a payment in connexion therewith so long as the person who is ordered to make the payment is a person who was connected in some way with the making of the contract, or the work done, or the expenditure made, or the obligation incurred thereunder. 173 In written submissions the applicant advanced a proposition that persons against whom orders can be made include persons who receive the proceeds of the contract or arrangement or were in some way culpably associated with its operation. According to the applicant the second respondent was culpably associated in the operation of the contracts because:

(a) he was the owner, chief executive officer and controlling mind of the first respondent

(b) he was the sole director of both the trustee and manager of the Scheme and vested with great discretionary powers

(c) he was the promoter of the Scheme and used his dominant bargaining position to induce the applicant to participate in the Scheme

(d) as the owner of the first respondent he stood to gain by the availability of capital for his company once the Scheme was operational. 174 In the amended summons the applicant alleged that the second respondent set out the terms of the contract of employment between the applicant and the first respondent and determined the conduct of the first respondent, including its dealings with the applicant. With regard to the Scheme the amended summons alleged that the second respondent set the terms of the Scheme, determined the conduct of the Trust, including the Trust's dealings with the applicant, and as a director and majority shareholder of the first respondent, gained an unfair pecuniary benefit, both directly and indirectly, "as a consequence of the unfair terms of the contract between the applicant and the first respondent including the related condition and/or collateral arrangement." 175 The second respondent contended that there was no evidence of any direct benefit to him, nor was there any evidence of fraud, misrepresentation, sharp business practice or lack of bona fides or conduct, in the absence of equal bargaining positions. It was contended that the respondents did their best to assist Scheme participants, and was no evidence that the second respondent acted in breach of any statutory or equitable duties. The simple fact, according to the second respondent, was that the first respondent was profitable in 2001 but following that it struggled during 2003 due to the vagaries of the industry. The Scheme was described by the second respondent as an "unfortunate investment". All Scheme participants lost money. Absent the allegations of misrepresentation the Scheme was open and transparent. Employees were invited, not pressured to participate and advised to obtain legal advice. These objective facts do not reasonably excite a sense of corrective justice so as to make the second respondent liable. 176 In retrospect it may be concluded that the Scheme was an "unfortunate investment", to adopt the second respondent's description. But what is significant is that at the time of the applicant's termination of employment, which I have found was unfair in the circumstances, the Scheme was operational and the applicant's units were worth something. It was at this point in time that if the applicant had applied to redeem his units, and if the second respondent in his capacity as trustee or manager, or both, had exercised his discretion in the applicant's favour, then the units would have been redeemed, and the applicant's loan paid out. In my view the applicant was effectively denied the opportunity to redeem his units. He attempted on several occasions to contact the second respondent, and his letter of 11 September 2003 was not responded to. The second respondent admitted that he was aware of the applicant's attempt to contact him in July 2003 soon before his employment was terminated in order to arrange a meeting, but the second respondent said he had no intention of meeting with the applicant. In his words he was, "not willing to waste any more time on the applicant. I was very busy with work at that time". 177 It was also the second respondent who directed that the applicant's contract of employment be terminated. He admitted contacting the applicant after receiving the email of 2 July 2003. He telephoned the applicant and accused him of causing serious damage, and breaching his duty of confidence. He told the applicant: "Given the serious nature of the breach, you are finished with the firm and someone will be in touch to organise termination arrangements". It was on the second respondent's instructions that Mr Goldstein telephoned the applicant while he was on leave and informed him that he should not return to work, that effectively, he had been summarily dismissed. 178 These actions on the part of the second respondent tend to confirm that as director and chief executive officer of the first respondent, and in his role as sole director of both the trustee and manager companies of the Trust, the second respondent had authority over the applicant's terms and conditions of employment, and was, in practical terms, the decision-maker with respect to the terms and operation of the Trust. This state of affairs existed from the beginning of the applicant's employment and from the Scheme's inception. The second respondent also recruited the applicant to work for the first respondent. He actively promoted the Scheme. He attended the meeting with the applicant on 14 December 2001 to clarify the applicant's concerns with regard to some aspects of the Scheme's operations. Given these facts I find that any monetary orders made against the second respondent have the necessary association with or close or real connection to the impugned transactions, being the contract of employment and the Scheme: see Ace Business Brokers at [47] and [48]. Orders 179 Consequent upon the findings of unfairness which I have made I have assessed a reasonable payment in lieu of notice to the applicant upon termination of his contract of employment at an amount equivalent to five months salary. The period of five months takes into account the payment of four weeks salary made to the applicant as part of his termination payment and the fact that the applicant was successful in obtaining employment on 1 September 2003 at a salary level commensurate to the salary he was earning while employed by the first respondent at the date of the termination of the contract of employment. The orders that will be made with regard to this claim, therefore, will be for a payment to the applicant representing three months gross salary at the rate paid to him at the time of termination of the contract of employment. With regard to the Scheme I have assessed compensation payable to the applicant at $25,739.00. This amount takes into account the applicant's payment of the loan principal following termination of the contract of employment in an amount of $20,000.00 and interest payments made on the loan following the termination of his contract of employment in an amount of $5,739.00. The second respondent therefore is to pay the applicant an amount equivalent to three months gross salary to be calculated on the applicant's gross salary payable as at the date of the termination of the contract of employment. In addition the second respondent is to pay the applicant an amount of $25,739.00. Interest should also be paid by the second respondent on both amounts in accordance with Schedule 5 of the Uniform Civil Procedure Rules 2005. Interest shall be payable from the date of the filing in Court of the amended summons for relief which was 23 August 2007. The second respondent shall pay the applicant's costs of the proceedings in an amount as agreed or assessed. 180 The parties are directed to file agreed minutes of the orders reflecting this judgment and the declarations sought in the amended summons within 14 days of today's date.

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