Witnesses
37Mr Gillies called three witnesses in his case. They were himself, the Chief Financial Officer, Geoffrey Bruce, and Tom Ko Yuen Lau. Each swore at least one affidavit and gave oral evidence. Further affidavit evidence was adduced from Michael Helin and Peter Boyle in relation to the discovery of a note, not originally discovered, of the meeting of 1 August 2007, and the value of a motor vehicle, respectively, and were not subject to cross-examination.
38Both the plaintiff and defendant adduced expert evidence. Paul Lyon, accountant, was qualified by Mr Gillies and Jenny Wheatley, accountant, was qualified by Downer.
39There are seven volumes of documents, representing a tender bundle of material relied upon by either or both Mr Gillies and Downer. The seven volumes were marked Exhibits 1 - 7 respectively, as a matter of convenience. The first volume of that bundle includes documents that are not adduced for the purpose of the truth contained in the documents and includes pleadings and particulars.
40As a result of the operation of Schedule 7(6) of the Uniform Civil Procedure Rules 2005, and the standard directions and practice notes, the two accountants conferred and compiled a joint report (Exhibit 2, page 300a-300dd). As a result of that process, there was no substantial disagreement between the experts.
41Mr Lau is a Director of Downer and was the only Director called to give evidence. He was Chairman of the Board up until 2003 and was, at all relevant times, a member of the Remuneration Committee, once established. The cross-examination of Mr Lau was confined and the submission of each party is that the Court should consider him an honest witness. Mr Lau gave evidence to the best of his recollection and as completely and honestly as he could, and I so find.
42The submission of Downer was that the Court should reject (except to the extent otherwise corroborated by independent evidence) the evidence of Mr Gillies and Mr Bruce. That evidence is not rejected. The demeanour of each of them, the style of their answers, some of which were, in their view, inconsistent with their interests, was, in my view, plainly an honest recollection of the facts as they occurred and their state of mind (to the extent that was an issue) when the events occurred. I consider that Mr Gillies was an honest, forthright witness, whose recollection of events, while not perfect, was fundamentally accurate. I have the same view of Mr Bruce.
43To the extent that the rejection of the evidence of Mr Gillies and Mr Bruce involves the acceptance of a conspiracy between the two to assist Mr Gillies' case before the Court, I reject that conspiracy. Mr Gillies and Mr Bruce are close professional acquaintances, and probably friends, who, notwithstanding the departure of Mr Gillies from Downer, have continued a professional relationship. Nevertheless, I do not consider that either one of them lied on oath, exaggerated or reconstructed in a way that deliberately or unintentionally improved the case that was sought to be put before the Court. I will deal, more fully, with their evidence later in these reasons.
44The attack on Mr Gillies' conduct and the attack on Mr Gillies' claim in these proceedings does not depend on the lack of veracity or accuracy of his evidence, or the evidence of Mr Bruce. Further, except in the broadest sense, Mr Gillies' case does not depend upon the accuracy or reliability of his or Mr Bruce's evidence.
45Downer's submission as to the credibility of Mr Bruce's evidence is based upon a submission that his evidence is "glaringly improbable". Further, Downer submits that Mr Bruce, as the Chief Financial Officer of Downer, must have been aware that the arrangements he oversaw with Mr Gillies as to his accrued bonus were inconsistent with the tax laws. Yet, Mr Bruce permitted those arrangements to be effected. Associated with this submission, Downer maintains that the lack of disclosure of these arrangements to the Board should be taken as evidence of conduct concealing Mr Bruce's involvement in wrongdoing and/or dishonesty.
46Downer submits, in relation to Mr Gillies' credibility, that, given Mr Gillies' background as an accountant, his alleged failure to appreciate the breach of Australian tax law and the balance in his accrued bonus pool were, again, glaringly improbable and the Court should draw the inference that Mr Gillies was a person not to be believed.
47I will deal later, as earlier stated, with the details of the operation of the accrued bonus pool and the balance at any particular time. That part of the reasons for judgment will deal with, albeit not on a final basis, the tax implications of the bonus pool arrangement, and the degree to which Mr Bruce and Mr Gillies were entitled to act in that way. It is sufficient, for present purposes, to note that I do not consider the conduct of either Mr Gillies or Mr Bruce to be, in any of the foregoing respects, dishonest, improper or inappropriate.
48Further, to the extent that Downer relies upon Mr Gillies' background as an accountant to submit that the failure to appreciate Australian tax law and the balance in his accrued bonus pool was glaringly improbable, the submission fails to appreciate a number of factors.
49First, Mr Gillies had worked as a CEO for over 20 years. Prior to that, Mr Gillies had worked as the Senior Executive Officer in a number of smaller operations associated with Downer. He had not worked as a chartered accountant for many decades.
50Secondly, when he did work as a chartered accountant, or learnt accountancy, he did so in the context of the laws of New Zealand. Without further evidence, I could not and do not draw the inference that as a consequence of his background as an accountant in New Zealand, Mr Gillies would be familiar with the intricacies of Australian tax law, particularly in the period of his employment.
51This proposition is not qualified by the fact that Mr Gillies completed his own tax returns. Those tax returns were relatively simple and embodied a reflection of the group certificate provided by Downer and, presumably, other independent income, for example, interest. The completion of a tax return of that simplicity does not involve the drawing of an inference that Mr Gillies was aware of the complexities of Australian tax law, such as would apply to the accrued bonus pool.
52Thirdly, in relation to his own employment situation, Mr Gillies was entitled to treat Downer as an employer that complied with its tax obligations and act accordingly. Mr Gillies, in his capacity as an employee of Downer, was not directly responsible for Downer's compliance with the tax law. The Court notes that Mr Gillies, in his capacity as CEO, was required to take responsibility for Downer's financial reports, as recently discussed by the Federal Court in Australian Securities and Investments Commission v Healey [2011] FCA 717 (Middleton J), but that does not involve the proposition that Mr Gillies was not entitled to rely on the advice of the Chief Financial Officer for internal purposes.
53Fourthly, Mr Gillies asked the Chief Financial Officer, Mr Bruce, what was the amount of money to his credit in the accrued bonus pool, was told an amount and acted upon that advice. He was entitled to do that.
54Fifthly, Downer increased Mr Gillies' base salary by amounts upon which Mr Gillies never drew. Mr Gillies disclosed an attitude that showed he was not significantly interested in some minor aspects of his personal financial affairs, although he was a person who enjoyed a lifestyle consistent with high earnings and high expenditure.
55Sixthly, as to the utilisation of Downer's credit facilities, I do not consider this arrangement inappropriate or improper. Mr Gillies was a person at the very top of Downer's staff. Others, for a variety of reasons, utilised the credit facility. They did so in circumstances where there were transfers from a variety of countries.
56By the arrangements that Downer made with Mr Gillies, Mr Gillies was initially employed in New Zealand, maintained a financial existence and interest in New Zealand by virtue of his continued membership of the New Zealand superannuation funds, and was transferred to Hong Kong and ultimately to Australia. In those circumstances it is to be expected that there would be a continuing need to transfer earnings from Australia for purchases overseas. There is no evidence before the Court, or upon which the Court could draw an inference or come to a finding, that the arrangement was effected at an actual cost to Downer, as distinct from a theoretical opportunity cost. On the contrary, the evidence before the Court is that Mr Gillies transferred such amounts as were required to cover the cost of the treasury facility, and if additional costs were incurred by Downer in the transaction or from the loss of interest, there is nothing to suggest that such costs would not have been, and/or were not, included in the reimbursement. Certainly, Downer has adduced no evidence of any such cost.
57In relation to the one major issue associated with Mr Bruce's credibility, namely, the lack of disclosure to the Board of the details of advances (or the process) from the accrued bonus pool, I do not accept that there was either a deliberate or unintentional failure to disclose the arrangements. The arrangements between Downer and Mr Gillies, as to Mr Gillies' accrued bonus pool, were known to the relevant staff members in the accounting section of Downer, were disclosed to the auditors and, it seems, to the audit committee of the Board of Downer. The submission, in effect, is suggesting some kind of dishonesty associated with a failure to disclose expressly and separately a credit arrangement relating to a maximum of $600,000 in any one year in a budget of $5.4 billion.
58Given the level of disclosure to the auditors and the audit committee, no criticism can be made of Mr Bruce in that regard. Further, the amounts in question were bonuses granted by the Remuneration Committee and the Board and the delayed payment of the bonus was expressly notified to the Board. The submission as to "non-disclosure" relates only to the arrangement for the utilisation of those amounts, by way of short-term advance.
59Lastly, in relation to the immediately foregoing issue, there is no suggestion that the delay in receipt of bonus by Mr Gillies would have had the effect of reducing the tax paid on the bonus. Given Mr Gillies' income, and consequent marginal tax rate, the tax payable on the bonus in any one year, or when accumulated, would be identical.