Gregory Scott Bates v Finance Australia Pty Limited & Others Finance Australia Pty Limited & Others v Gregory Scott Bates

Industrial Relations Commission (NSW)|2002-03-13|Before: Peterson J, Mr J

Industrial Relations Commission of New South Wales in Court Session

CITATION : Gregory Scott Bates v Finance Australia Pty Limited & Others Finance Australia Pty Limited & Others v Gregory Scott Bates [2002] NSWIRComm 42 PARTIES : Gregory Scott Bates v Finance Australia Pty Limited & Others Finance Australia Pty Limited & Others v Gregory Scott Bates FILE NUMBER: 1577 of 2000 and 4743 of 2001 CORAM: Peterson J CATCHWORDS : Unfair Contract - managerial employee - appointment to UK subsidiary as "Managing Director"- Intended joint venture with supplier of substantial funds - withdrawal from joint venture - serious impact on operations - job much reduced - employer failing to meet contractual obligations - repudiation by employer of contract - employee electing to treat employment as ended thereby - notice and performance bonus issues - declarations and orders made LEGISLATION CITED : Industrial Relations Act 1996 Industrial Arbitration Act 1940 Brookton Holdings v Kara Kar Holdings (1994) 57 IR 288 CASES CITED : Codelfa Construction Pty Limited v State Rail Authority of N.S.W. (1981 - 1982) 149 CLR 337 D. F. Mitchell and A. Cunningham (1971) AR 613 Reich v Client Server Professionals of Australia (2000) 49 NSWLR 551 HEARING DATES: 08/27/2001; 08/28/2001; 08/29/2001; 08/30/2001 DATE OF JUDGMENT: 03/13/2002

APPLICANT Mr D Robinson of Counsel

SOLICITORS: The Seidler Law Firm SYDNEY LEGAL REPRESENTATIVES: RESPONDENT Mr J Murphy of Counsel

SOLICITORS: Henry Davis York, Lawyers SYDNEY

JUDGMENT: - 48 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES

GREGORY SCOTT BATES v FINANCE AUSTRALIA PTY LIMITED & ORS

Application under s106 of the Industrial Relations Act 1996

FINANCE AUSTRALIA PTY LIMITED AND ORS v GREGORY SCOTT BATES

Application under s106 of the Industrial Relations Act 1996. JUDGMENT

1 This judgment concerns an application brought pursuant to s106 of the Industrial Relations Act 1996 ('the Act') by Gregory Scott Bates ('the applicant') and also an application brought by the respondents against the applicant also under that section, in effect, by way of counter claim.

2 The first and second respondents (Finance Australia Pty Limited and Mortgage Choice Australia Limited) are corporations in respect of which the third and fourth respondents (Peter Higgins and Rodney Higgins) are the founders and during the period of the parties' relationship, the controlling shareholders.

3 The business of the respondents (which will be referred to as Mortgage Choice) is to arrange mortgage finance for members of the public who wish to borrow funds on security. Mortgage Choice has a panel of lenders, each of which provides to Mortgage Choice the terms upon which the lender is prepared to lend money. The actual lending process is undertaken by franchisees to Mortgage Choice. Once a loan is arranged, Mortgage Choice recovers a fee from the lender. No fee is paid by the borrower.

4 Expressed in the briefest way, the applicant's case concerns his appointment, from the position of National Lending Manager of Mortgage Choice, as 'Managing Director' of Mortgage Choice International (UK) Limited, a vehicle to launch the business in the U.K., the circumstances of his removal to the U.K. and the consequences whereby the applicant's employment came to an end, he alleges by repudiation by the respondents, not accepted by him, whereas the respondents allege repudiation by him when they wished to continue the relationship.

5 The respondents' summons seeks declarations to the effect that the contract or arrangement between the parties in relation to the applicant's U.K. role was unfair, unjust, harsh, unconscionable and against the public interest. It seeks to vary that contract or arrangement by inserting provisions which would call for the applicant to acknowledge his failure to give notice of termination would cause lawful damage to the respondent (here); to forfeit or repay the balance of ungiven notice or in the alternative be liable to the applicants for all loss occasioned by his breach. The applicant would also be obliged to undertake particular tasks "to the best of his ability with all due care and diligence" and in compliance with the directions of the UK company and the respondents. In particular the variation would provide the applicant be liable in the event of repudiatory breach by him for liquidated damages for failure to give three months notice or damages in the alternative post relation and costs incurring claiming for those damages on a solicitor/client basis. The application particularised the money orders which it sought as being three months salary ($50,750), 75% of the relocation costs ($16,929.20), the return airfare for the applicant and his wife ($4,391.50), salary cost which was said to be ultimately lost as a result of the response conduct ($507,660.65), operational expenses lost on the UK business ($792,172.19), loss of profit based on profit forecast contained in the strategic business plan ($3.5 million) and interest on those amounts. What follows is a lengthy summary of the relevant facts.

6 The applicant had prior substantial experience in the banking and finance industry. He commenced as a graduate trainee with the Commonwealth Banking Corporation in 1970 in Sydney. He was posted to London, working in the Euro-market and returned to become an Executive Assistant to the General Manager, Commonwealth Trading Bank. In 1976 he moved to the Bank of America and worked in their merchant and commercial bank operations in Australia and the Asia Pacific area for 12 years. His positions included Company Secretary and Financial Controller (Australian Operations), Head of Banking (for the Merchant Bank and Representative Office), General Manager - Australia (BA Australia and the Representative Office) and Senior Credit Administrator, Asia for Bank of America NT & SA.

7 In 1988 he was appointed General Manager, Credit Administration of the Colonial State Bank. He worked then in Asia as Chief Representative, Hong Kong for Colonial. He was asked to sell the stand-alone operation of Colonial offshore, which he completed, receiving a bonus of $540,000 net. He then became a consultant to the National Australia Bank in Hong Kong. His remuneration package for each of these offshore roles exceeded AUD$500,000 per annum. In 1996 he travelled extensively with his wife and in July 1997 was contracted by the Board of Finance Australia Limited (a wholly owned subsidiary of the Bank of Scotland) to lift its expertise in credit management. As General Manager, Risk Management, for that company he was required to design, select and install automated credit and behavioural scoring into Capital Finance's retail operations (motor vehicle and personal loans) using sophisticated software programs, including software decision engine capabilities. This assignment concluded with the installation of Transact (an applied decision engine of international standing built by Scorex of Monarco) and a successful credit audit by the Bank of England.

8 In September 1998 he decided to pursue a project at his own financial risk. He was involved in software development with an Australian subsidiary of Scorex called ScoreTech Pty Limited. The project was to fully utilise the capabilities of Transact to design a point of sale technology for use in delivering personal loans, mortgages and leasing for suppliers, motor dealers and affinity groups using automated links for credit scoring and products from all lenders. He continued this project until February 1999.

9 During this period he was approached by a management consultant to consider the role as Head Operations & Credit, Asia/Pacific for Compaq Capital Inc. The applicant was interviewed by management consultants and further interviewed in Singapore by three members of the Board of Compaq Capital Inc. He attested to having been offered the position on a package which included a salary of AUD$225,000 plus bonuses and immediate participation in their established management equities scheme. Subsequent independent evidence suggests that he had been selected and it was intended to make an offer to him in accord broadly with those terms but it was not formally made.

10 After reading two newspaper articles in the financial press in January 1999 concerning Mortgage Choice the applicant saw a newspaper advertisement for the position of National Lending Manager with the Mortgage Choice Group. He applied for the position, was successful and was appointed to it. He was interviewed by Peter Higgins, the Joint Managing Director of Mortgage Choice. As to compensation, the applicant alleged the conversation with Mr Higgins was as follows: Mr Higgins said: "What would you be looking for?"

Mr Higgins said: "That would be way out of line with other executives and we would be hoping you could start on $120,000".

Mr Bates said: "I cannot accept $120,000. Perhaps an arrangement could be considered that subject to performance the salary could be increased to $150,000 in say three to six months and I could obtain equity in the company at that time."

Mr Higgins said: "How much equity are you seeking?"

Mr Bates said: "5%" Mr Higgins said: "I will have to take that up with my brother and equal shareholder. I am sure we can reach some agreement."

11 On 17 February 1999 Mortgage Choice wrote to the applicant confirming an offer which included: "Your salary will be reviewed to $150,000 and discussions on equity in the company will transpire on or near 20 August, 1999."

12 This offer was said by the applicant to be disappointing. He sought to discuss it with Mr Peter Higgins but, he being absent, the discussion was undertaken with the other Joint Managing Director, Rodney Higgins. He said Mr Higgins explained to him (as had Mr Peter Higgins at the interview) that the previous management team had been dismissed on Christmas Eve 1998. He said Mr Rod Higgins said: "As a result, Peter and I prefer to settle on the amount of the equity after we have finalised the buy-out of the shares owned by the previous management team. We have no senior management in the Company. We are feeling extremely "raw" about our misplaced trust. Can you trust us by deferring the matter for a maximum of six months?"

13 The applicant accepted that as seeming reasonable to him at the time. It was his expectation that he would receive an equity participation of the same amount as the previous IT Manager and the Company Secretary at the end of the six month period.

14 There is no basis in the evidence for that expectation save the newspaper articles which the applicant had read in January 1999, reporting upon the seemingly dramatic departure of senior executives and other staff from Mortgage Choice at Christmas 1998. One of those persons referred to had been the IT Manager. The article suggested that person, together with a number of others, held between them about 20% of the equity in Mortgage Choice, the balance being held by the Higgins brothers. The applicant's evidence in cross-examination was that he put a value on Mortgage Choice such that 5%, the amount of equity he would seek, was of a value in the range $1-1.075m. He also indicated that his expectation was that he would receive equity of that value in return for his joining the Company.

15 Given the gap in the management structure of Mortgage Choice, the applicant commenced work, as early as possible, on 19 February 1999. The applicant's role quickly developed to involve the rectification of problems existing in financial control, the extension of the training program (a core element in the delivery of Mortgage Choice products) and IT development. In early June 1999 he was promoted to the position of General Manager, Operations.

16 During 1999 Mortgage Choice was developing a proposal to set up a joint venture with a company known as Future Mortgages, a wholly owned subsidiary of Friedman, Billings Ramsay Inc., one of the top 5 underwriters and fund managers in the United States of America. On 23 August 1999 Peter Higgins, in company with Rod Higgins and the applicant, invited the applicant to run the UK joint venture with Future Mortgages as "Managing Director". It was explained that Mortgage Choice would supply the intellectual capital in the way of software and franchising, while Future Mortgages would buy in by providing the needed start up capital. He said that the applicant would have an: "expat package and enjoy performance bonuses and equity participation in the U.K. operation. We are still firming up the agreement with Future but we have reached agreement on all substantive issues. ... it may take some weeks to complete all documentation . . . We know we can trust you to put this important part of our international expansion into place without direction. The involvement of Future will provide the financial underwriting, as well as needed contacts and market intelligence on the U.K. market. Future's initial funding to kick off the venture would be around £700,000 . This support will enable us to quickly adapt our systems to the U.K. market and give us a unique ability to deliver an entirely new concept to the U.K. market which has been under fire for corruption and inefficiency from the U.K. authorities. We will ensure you are supported by Harry Hollander and the entire IT team. This will be your opportunity to blaze new trails. Rod and I know there is a lot to be accomplished but you will be well rewarded for your efforts by a generous expat package and performance bonuses that have been built into costings in the financial plan. Equity in the new venture will also be available as this is part and parcel of American salary packages and for starters Mike Culhane of Future will be demanding it. Once the U.K. is up and running after say 2 years, perhaps less, our expectation is that you will be transferred to Canada to ensure it has the discipline and control we know you would bring to the U.K. We understand your reluctance to move to Durban (South Africa) because of your concerns over personal safety for yourself and Virginia, but we would want you to keep a watching brief on the South African joint venture by spending perhaps one in eight weeks in Durban."

17 This conversation occurred within days of the date at which the applicant's original offer of employment had postulated discussions on equity in Mortgage Choice. The issue was not raised at the meeting of 23 August 1999. Within a day or so the applicant confirmed his interest in the position in London and then commenced to work in planning for the establishment of the U.K. venture. On about 14 September 1999, Jason Hine, the Manager, International Acquisitions of Mortgage Choice, gave him the Strategic Business Plan for the U.K. operation.

18 On 2 October 1999, Mr Hine informed the applicant that "The agreement with Future will be finalised when Mike arrives here next week" (Mike being Mike Culhane, the CEO of Future Mortgage).

19 Mr. Hine in evidence agreed that he had said that, and with the following: Before leaving Australia for London, I was told by Peter Higgins in words to the following effect that "the Joint Venture Agreement with Futures had been finalised and I am extremely happy with the outcome." Jason Hine said to me on the same day in words to the following effect "The final negotiations with Futures have been taking place by email and telephone over the previous week. Only two minor procedural details need to be formally confirmed with Future Mortgages. There is absolutely no impediment to the signing of the Agreement and hence the progressive funding of the U.K. operation by Future Mortgages over the next five months."

20 The applicant deposed that he had thought that there was any doubt as to whether the joint venture and funding would commence, he would not have left his position in Sydney.

21 On or about 19 October 1999 the applicant attended an office party to mark the launch of the UK venture at which he said Peter Higgins remarked to him "your decision to build the UK venture will make you a very rich man". Prior to this the applicant had discussed with Messrs Hine and Mather (the Head of the Human Resources) that his remuneration package would include a performance based bonus. These conversations culminated with Mr Mather saying to him "I cannot get Peter Higgins to presently concentrate on the amount of your bonus" to which the applicant responded "it must be sorted out".

22 He expected a bonus in the order of a minimum of £20,000 per annum in the light of his tasks and relativity of his remuneration package to other UK staff two of whom, George Khan the National Sales Manager and Marketing Manager and Bryn Hancock the Regional Sales Manager and General Manager, had bonuses of £10,000. These were negotiated by Mr Hine and Mr Mather respectively, with the involvement of the applicant in his role as General Manager, Operations.

23 Before he left for England the applicant received a letter of appointment to a position of Managing Director, Mortgage Choice International (UK) Limited. It contained a reference to a salary level of £82,000 together with a "performance based bonus". The letter also provided for increased notice of termination of employment of three months or pay in lieu thereof on either side. The letter of appointment to the Australian position had provided for one month. Annexed to the letter was a copy of the company's Relocation Policy - Overseas Assignment. The policy included the following sections: LEASED ACCOMODATION

Mortgage Choice will provide either an allowance or meet actual costs of accommodation.

The amount will depend on the seniority of the expatriate and/or the size of his family and will vary in accordance with the costs applying in the assigned country.

The intention is to ensure that the expatriate is able to live in similar surroundings to those applying in the home country. The expatriate will be asked to subsidise costs which are considered (by the Managing Director) to be outside the thrust of this arrangement.

Any taxes associated with the leased accommodation will be met by the Company. In most cases the Lease will be taken in the Company's name. Costs associated with the execution of the Lease, or Bonds for the Landlord or Utility Bonds will be met by the company. It also contained the following provision: Unsuccessful Assignments

Failed relocations can occur when an employee decides that the overseas assignment is not to their liking. In these circumstances the following conditions will apply:

· The company will endeavour to rectify or remedy the situation that is causing the employee concern. · Only once all reasonable efforts have been made in satisfying the above clause will the company consider repatriating the employee. · Should the employee resign within the period of the assignment the employee will need to share the costs of the relocation and repatriation in accordance with terms of their contract. · Should the business be sold or abandoned and no position is available in the home country the employee may be required to accept redundancy.

24 From the 25 October 1999 the applicant commenced to work at temporary offices in Swallowfield, about 64 kilometres from London. The offices were shared with Future Mortgages and were in an isolated rural setting about eight kilometres away from the nearest railway station at Reading. There was no regular bus service. Because of the location of the office and the high rate of rental costs, the applicant obtained accommodation in an apartment near Virginia Water in Surrey. He did not regard this as "similar surroundings" to his accommodation in Sydney, the equivalent of which, based on the advice of real estate agents in London and Surrey, he estimated would have cost of the order of £3,500 per month, about £1,000 more than he was authorised to spend.

25 On 16 November 1999 Bates sent to Rod and Peter Higgins a comprehensive report on the work which had been done in the initial three weeks of the UK operations. He returned to Sydney on 17 November 1999 for a number of purposes one of which was to discuss the report with Messrs Higgins. He also wished to discuss what he felt were low levels of cooperation being received from Future Mortgages. In discussions with Rod Higgins that day he was told words to the following effect, that: "Peter and I have decided to discontinue negotiations with both Future Mortgages and BoE. We have made this decision on the recommendation of Goldman Sachs who felt that the joint ventures would complicate the U.S. holding company structure which was required for the forthcoming IPO. We have not communicated our decision to Mike Culhane".

"Do not worry. The U.K. operation will be unconditionally supported by myself and Peter."

"Make arrangements with John Stevenson to put in place a lease line with NatWest via a guarantee from ANZ to support the equipment and motor vehicle purchases in the U.K."

26 On 23 November 1999 the applicant was supplied with a copy of an email from Mike Culhane of Future Mortgages to Peter and Rod Higgins in the following terms: Dear Peter and Rod,

As you can imagine I was disappointed to learn of the change in structure of the Mortgage Choice UK deal. From my personal standpoint I think the MC proposition will be very well received in the UK and you have put a great team together.

From a professional standpoint I am upset at not being able to be involved and I do have some egg on my face here as I have spent the last 9 months getting everyone fired up about the transaction. That being said I understand the reasons for you making the decision you have and am sure you will have a great IPO next year.

From the Future Australia standpoint I am still very keen to move ahead with this and want to have you motivated to help us any way you can. I will send over a heads in the next couple of days and Mark and I are still planning to arrive on December 6th and be there for a week.

Look forward to speaking to you soon and as I mentioned to Peter yesterday I am still very keen to keep an eye on MCUK and personally will help you any way I can with that endeavour.

27 The applicant became concerned at this development, because Future Mortgages was the original source of funds for the joint venture. On 26 November 1999 he met John Patterson (Manager of Mergers and Acquisitions) and John Stevenson (Financial Controller) in Sydney. One of them said: There are insufficient funds within Mortgage Choice in Australia to fund the U.K. operation and the unit will be placed on a care and maintenance basis until mezzanine funds are made available. The funds are unlikely to be in place before April 2000." John Patterson also said words to the following effect: "I have not been able to arrange the lease line with NatWest to support the equipment and motor vehicle purchases."

"I will have £ 25,000 placed on deposit with NatWest for the purpose of keeping the unit on a care and maintenance basis only. I will maintain this level of funding by topping it up on a monthly basis." 28 On 4 December 1999 the applicant met with Peter Higgins and Jason Hine at the Swallowfield office. By this date the employees of Mortgage Choice UK were using their own personal credit cards to pay for the company's expenses such as lease accommodation, car rental, mobile phones, office stationery, entertainment expenses, transport cost, petrol and food. At this meeting the applicant mentioned that John Patterson had given him an assurance that funds would be deposited. His evidence was that Mr Higgins said: "The funds will be made available in the very near term. I expect to reach agreement with one investor within two days or, at the latest, one week."

29 At this meeting the following was also said: Bates: "Before I left Australia I was supposed to get a performance bonus. It did not happen then and needs to be negotiated now." "Would you negotiate the performance bonus for myself now."

Higgins: "You will make considerably more money in bonus shares. I cannot believe you want to negotiate that now when you will make so much money out of the shares." Bates: "I need to have this resolved."

30 By 4 December the applicant believed that he was appointed as Director of Mortgage Choice U.K. in accordance with his letter of appointment of 21 October 1999. He later learned that he had never been so appointed. Also at 4 December he was still not being paid at the rate of salary specified in the letter of 21 October but on his former, lower salary and in Australian dollars. He raised this issue with Peter Higgins that day who said "we will attend to it".

31 On 24 December 1999 he received an email from Jason Hine as follows: "Attached please find a revised version of the Mortgage Choice Relocation Policy. I have to inform you that there has been changes made in relation to leasing costs for Housing and Motor Vehicles. Both Peter and Rod raised concern in relation to the ongoing expenses incurred in these two areas, they understand that the costs of these two items is higher than what is normally the case in Sydney, but feel that the increased (sic) in salary should be more then (sic) adequate to cover this increase. The reason for this change is that it has never been the policy of the company to meet these expenses on an ongoing basis for any staff.

As there is (sic) still some outstanding salaries to be paid to the UK team, it seem only fair to have the new policy come into play at the same time the salaries are brought up to date (which from my understanding will be early Jan). This means that the leases for Houses and Motor Vehicles will be the responsibility of the individual not Mortgage Choice.

I am sorry to send this to you at such a late stage in the year. If you would like to discuss please call either Phil Mather on 61 411 873 834 or myself 61 419 922 259 over the Xmas break."

32 This change in policy was understood by the applicant to have the potential impact of halving his income. His salary level of £82,000 plus housing and car gave him an after income tax net salary of £55,889 plus housing and car. If he were to become responsible for housing and car costs his net salary would reduce to something of the order of £22,289.

33 On 24 December 1999 he sent an email to Jason Hine querying the new policy's effect in relation to himself, Bryn Hancock and George Khan.

34 The first response received by the applicant was from Phil Mather on 6 January who indicated that "there was no intention to antagonise the staff and an email was on the way to resolve the issues". An email of 7 January included the following paragraph: "Whilst there was an undertaking made to meet accommodation costs it appears that the intention was that it was not indefinite. It is probably going to be justifiable in the form of a subsidy which will pay the difference between the costs in Australia and those in the UK for a similar standard and location of accommodation. Hence we accept that Mortgage Choice does not want relocated staff to be disadvantaged, but it also means that we don't end up paying for all accommodation costs, which is not the case for any other employees."

35 There then followed an exchange of lengthy emails and correspondence which it is necessary to set out. On 7 January 2000 the applicant wrote to Peter and Rod Higgins as follows: Dear Peter & Rod, There are a number of serious issues facing the UK team requiring tangible and urgent responses from you. It is necessary for us to resolve these issues quickly to enable the UK operation to move forward. Specifically, I seek confirmation that:

(i) Funding support will definitely be made available to the Company, as outlined by you in our recent meeting in the UK, so that I may confidently carry out my fiduciary responsibilities in good faith including entering into contractual obligations. It has been agreed by all parties involved that an amount of not less than the anticipated original capital injection of PDS 560,000 is required. Injection of this amount is therefore sought. It is my view that the obligations of Mortgage Choice International (UK) Limited ought to be Guaranteed by all operating subsidiaries of the Group to engender confidence and lower operational costs - so your response as to whether or not this will be provided is also sought;

(ii) I may immediately proceed with the appointment of officers for financial control, banking and sales and marketing personnel as required - and enter into contracts with lenders, insurers, solicitors, surveyors, public relations consultants and others including but not limited to the negotiation of a Lease for office premises (to achieve significant savings);

(iii) The Equipment Lease line of credit previously requested and agreed to will be made immediately available for Equipment and Motor Vehicle purchases - and thereby contain the escalating costs of these items under current "arrangements" - and foreshadowed arrangements (see later);

(iv) Financial control will make the latest full audited financials available to permit compliance with the lodgement requirements of the various UK regulatory authorities;

(v) Any changes to the ownership of Mortgage Choice International (UK) Limited will be advised to me in a timely fashion to avoid embarrassment and portrayal of a less than professional image;

(vi) Equity or profit sharing in the UK subsidiary is to be made available to existing and future senior management in specifically defined amounts - as distinct from a generally agreed principle;

(vii) A Performance Bonus will be negotiated with me in a meaningful amount, recognising the guaranteed bonus that exists for other executives;

(viii) The existing expat Relocation benefits - as outlined in the Relocation Policy attached to the Letters of Appointment - will remain unchanged in every respect during the initial two year period.

These issues need to be resolved urgently and I would be grateful if you could telephone me by the end of next week.

Please be aware that we have reached the limit of our initial objectives and that there is now a deep-seated reluctance on the part of George Khan and Bryn Hancock to enter into negotiations with outside parties (including lenders) as they believe their credibility to be at risk. This especially applies to George Khan whose future is dependent on his perceived value in the UK mortgage market. Moreover we urgently need to instruct solicitors in respect of a number of legal issues confronting us, to arrange the advertising spend for the launch (including the attraction of potential franchisees) and to enter into final negotiations with prospective employees.

I would also like to take the opportunity to respond more fully to the e-mail message dated Friday, 24 December, 1999 forwarded to me by Jason Hine. It concluded that because of your instruction to change various aspects of the Relocation Policy, Mortgage Choice would no longer accept responsibility for expatriate Housing and Motor Vehicles (although to be correct the latter is not specified under the Relocation Policy).

This change is in conflict with my Letter of Appointment dated 21 October, 1999 (and Bryn Hancock's) where it is stated that "Mortgage Choice will provide either an allowance or meet actual costs of accommodation" (among other assurances). The Lease on the apartment was taken after direction, consultation and agreement with Mortgage Choice and is in complete harmony with Policy requirements.

The change reduces my total remuneration substantially below that applying before I was promoted to Managing Director, and before any allowance is made for the substantial difference in the UK cost of living. In the case of Bryn his salary/benefits would be negative under the new Policy. Surely this was not your intention?

If you are trying to express your need to have costs closely managed I can well understand and I will do everything possible to comply. You are aware that the costs involved thus far in the UK are considerably below budget.

However, I cannot agree to the fundamental change to the terms of my appointment. I therefore seek your confirmation that this change in Policy will not apply to either myself nor Bryn Hancock during the term of our two-year Contracts.

As for Motor Vehicles I can dispose of the one Rental vehicle (at considerable break cost) and move onto a Car Mileage Allowance for private vehicles used for business purposes - but this will move costs significantly above the current arrangement and be against the best interests of Mortgage Choice UK. Again I would question the need for the change.

Please understand that staff have been asked to work from an office in a rural environment - without access to public transport - and a long way from the potential customer base. It is most inconvenient, it is entirely the wrong location and we are locked in until at least the end of February. Moreover, unless we make a move in the next few weeks to find lower cost leased premises, in a better location, the current expensive arrangement will have to continue for the foreseeable future at a time when we are desperate to conserve funds.

The current motor vehicle arrangement is essential for the smooth working of the UK operation in the short term. I would add that the running of the existing vehicle is only economic because the Insurance is against the name of the individual driver (Bates, costing PDS 1000 approx, but requiring his sole use - the other has been a Hertz rental at a cost four times the permanent rental) whereas the Company could only achieve an insurance rate of PDS 2,200 per annum. Once again the lack of a credit rating and the newness of the Company forces a compromise.

A better alternative is for a monthly Car Allowance to be made available as an additional benefit to employees (in the same way as it applies to George Khan) placing the Company in a better position in the medium to long run - and this is what was intended. Note that this has been contractually agreed with George according to his offer letter.

36 That letter was responded to on 14 January 2000 by Jason Hine at the request of Peter Higgins. However, on 12 January 2000 following discussions between Peter Higgins and the applicant, the latter emailed Mr Higgins as follows: Dear Peter, Happy Birthday! A big event and a happy one I'm sure. You have much to be pleased with from where I sit.

I didn't call you back on your birthday as it seemed inappropriate and I frankly wanted a little more time to think through the issues. I have also chosen to respond by email to make sure I got my point across as clearly as possible. We will, however, clearly need to talk again.

I was very disturbed to hear you so disappointed. It was not my intention. We have different ways of communicating and I guess I come out of a more formal corporate school. Basically, I want you to clearly understand that I would not, repeat would not, have come to the UK if I didn't have confidence in your willingness and ability to make this operation work. You said you find it "incomprehensible" that I would think otherwise - and you are right.

What I was trying to communicate was my need to have a clear idea of how I was going to practically fund the daily on-going obligations of this quite separate entity called MC International UK Ltd. This is a quite different issue and has nothing to do with my belief in the fact that the funds will come …eventually. It is well nigh impossible to make contractual commitments unless I know "how much" and "when". The Company has no credit rating. A search of the NatWest account confirms to all that we have a "nominal credit balance with little activity". The Company is not guaranteed by the parent (or main operating entity) - a real obstacle. We have no Line of Credit (again evidence to outsiders that the parent has not backed the new Company) if only for a small amount of say PDS 100,000 (which I could only access amounts over say PDS 20,000 under strict instructions and/or with joint signature of Culhane). We have no Financial Accounts to show the doubters (why not Peter?).

Despite the undeniable fact that the funds eventually come I do not agree that the Australian end is strongly supporting us. What you are saying is that it is very important to the Australian parent that we succeed, in particular the need to have us up and running as you move to the IPO. I know that. The entire team knows it. But, that is an "objective" Peter and not the "how". The daily reality is that I just don't know if I will have the funds necessary - when I want them - to meet obligations. So far it has been a total shit fight to get small amounts paid. More often than not this has been a need to reimburse staff for monies personally expensed. UK staff salaries are paid late; I cannot get a pay statement which outlines for them the gross salary and deductions including tax; is the tax being paid? National Insurance? I sent a full accounting of our expenses in December with a request (Dec 30) for top-up - as agreed with Stevenson and Patterson - but no funds have come in. Based on past experience it will be another long exchange of emails and telephone calls. The expats are picking up the exchange rate risk because we are not paid in Pounds.

Remember also that it was Financial Control who told me that funds would not be available until April and to place the unit on a Care and Maintenance Basis. I didn't make it up.

Because of the above I am reluctant, considering my obligations as a Director, to enter into commitments unless I am reasonably confident I will have the necessary funds available (not a belief that one day they might). Accordingly I am reluctant to encourage new and necessary recruits to leave their current jobs; I am reluctant to enter into any obligations for Advertising/PR; I am unable (repeat unable) to enter into commitments to negotiate for premises (with a possible 2/3 month lead process) because I cannot show the Agents how I will pay for the premises. In our recent discussion you commented that I was only seeing obstacles - and therefore lost sight of the goal - because I had painted myself into a lonely corner … Far from it mate.

Now, during our discussion you used the example of how I didn't really need the Accounts for the regulatory authorities (and I agreed it was not absolutely essential), so "what's the problem". The problem is we have committed to become a member of the CML, and on this basis they have been most helpful with information and introductions, that it is inconceivable that we - as the biggest mortgage broker in the world - would not join (we have to walk the talk Peter). Same goes for the Brit Franchise Assoc - not essential - but even the smallest of brokers belongs, raising the issue again "can't they pay their way". We need the credibility that membership of these organisations brings. More importantly to me is that you are indirectly saying that Mortgage Choice will not support these relatively small expenditures committed by me as part of a very clearly communicated strategy (this cost was even discussed with you when you were here) - Once again I am left doubting the willingness and/or ability of Mortgage Choice to pay its way or just change its mind on the run. This does not leave me confident to go forward with an aggressive strategy to commit to Advertising and an external PR company (as requested verbally by you).

Peter, I do not have one communiqué from you (in response to all my memos) which indicates that you agree with and embrace the strategy and gives me the clear go-ahead. Please understand where this leaves me.

These problems are met on a daily basis by the entire team. It is not a question of what you see as my negative attitude infecting the staff. We are making real inroads, we are very pleased with our progress and are firing as a team despite some problems before Xmas. These funding issues however - complicated by the Hine/Harvey rumours - have made life challenging, but not detracted from progress - except, to be frank, for the latest issue on staff housing.

This one really took us by surprise. As Queen Liz says over here "we were not amused". Jason's statement was direct, uncompromising and damaging - particularly in its timing. It got the entire staff offside and there was nothing I could do about it (other than return email which was not responded to). It was not "just detail" as you expressed it in the recent conversation. It was a fundamental change to our terms of employment leaving Bryn in a negative income position and almost halving my income. There was no suggestion at any time that the housing benefit was going to be other than a continuing benefit for the two year term. More particularly there is plenty of hard evidence to suggest that this was clearly understood. I have lived a long period of my working life as an expat and there was no mis-understanding on my part - or anyone else's.

If you had said that you wanted to discuss the situation and negotiate a different package we would have been quite prepared to listen. Instead I had to sit on the Jason instruction for two weeks during which time everyone reassessed their personal commitment to the UK start-up. Understand that it came on top of the previous uncertainties. The statement that MC had never paid this benefit before did not wash; MC has never been an international group before. Never had expats before. And as I said before, I cannot agree to this fundamental change.

Peter, given the opportunity we have here in the UK these issues should not have arisen. They are distracting. The decision by you to drop Future Mortgages as a joint venture partner has had a substantial impact on this start-up. As I have said and written before, it may have been the right strategic decision but in the absence of replacement funds (or guarantees, etc) the entire thrust of the UK start-up has been compromised. Despite this we are going damn well. Please be reassured on this point. However, I need some answers. If we need to conserve funds and delay the launch, we can do it. We need to know the full situation and we will adjust and we will cope. While you maximise the investor buy-in and keep your eyes on the big picture I want you to understand that actions taken at your end are undermining my ability to deliver. Hence the terseness of the delivery I guess.

I want this venture to succeed. I need your support. I don't need to be told to "get a couple of lenders on board, start hiring franchises and get some loans written", this is totally against the strategy I have very clearly enunciated in my Reports, and is totally against the strategy agreed to by the UK team. Your stated approach will not work in the UK market Peter. This is not mid 1990's Australia. If you do not embrace that view I have not got very far at all.

37 Mr Hine's later response to the earlier letter was as follows: Dear Greg Thank you for your letter of the 7th January 2000. Peter has asked me to address the issues of concern you have raised. Please be assured that your concerns are important and it is our intention to resolve them as quickly as possible to allow the UK operations to move forward.

Funding Support As discussed, during the meeting at our offices in the UK at the end of November 1999, Mortgage Choice is currently raising capital through a number of sources. These sources include local investors in Australia and International Investors in the US and South Africa. As indicated at that time, if funding was needed urgently by the UK operation for a specific purpose, it would be supplied by the Australian Operation for an interim period.

You brought to our attention that it was your intention to secure new offices and employ staff and that funding was needed to achieve these objectives. Peter addressed this issue and pointed out to you that it premature to source larger office space and employ more staff, as the business was not yet able to support an enormous increase in expenses, as it had to date, not achieved the basic objectives of signing lenders and franchises

Peter sought agreement from you that your first objective was to bring lenders on board to form the lender panel and at that point commence the recruitment of franchisees/loan writers. This requirement was to be fulfilled prior to any major increase in spending being justified. To which you agreed.

During our discussions there was no agreement given by Peter that an amount of PDS 560,000 would be injected into the U.K. operation in the immediate future. Although Peter gave you the assurance that once lenders were on board and franchises/loan writers were recruited funding could then be justified.

As mentioned previously, Peter sought your agreement, which you gave, that the employment of new staff and the leasing of new office space was premature at this time and that these issues would be put off until certain milestones had been achieved.

Lease Line During our meeting you requested that a line of credit be made available for the purpose of leasing equipment. This was agreed to and you were directed to contact John Patterson and John Stevenson to arrange this facility. To date neither John Stevenson nor John Patterson had been contacted. Funding can be made available for this facility on or around the 15th February when the first round of capital raising should be completed. If needed prior to this date arrangements can be made to supply interim funding until full funding is available. If this is the case please contact John Stevenson.

Financial Control The audited accounts as yet have not been signed off from Grant Thornton. As and when these are done they will be made available to the necessary authorities on a needs basis. A Prospectus/Corporate memorandum is being developed for the MCIL IPO. This document will incorporate all the necessary information needed and will be made available to you once completed. However we question the need to supply information to any industry association, as membership with that association is not necessary to sign on lenders.

MCI (UK) L ownership Any change of ownership to MCIL or any of its subsidiaries will be detailed to you as soon as a change takes place.

Profit Share Profit sharing, share options and/or equity are issued subject to the circumstances that relate to each business separately. Whilst it is understandable that you desire to participate in these schemes, as you can understand, it would be imprudent of us to specify details of a scheme that has not yet been approved nor developed.

Once an appropriate profit sharing, options or equity scheme is developed you will be entitled to participate as per the guidelines that apply at the time. Given that Mortgage Choice may decide to use different types of schemes within the different countries to ensure that the business outcomes are best served then the guidelines that determine issues of eligibility etc could also vary between countries.

Performance Bonus As has been the custom within Mortgage Choice performance bonuses have features strongly with all staff. It has also been the custom for the executive team to negotiate any performance bonuses directly with their superiors or the Managing Directors. This is still the case.

Relocation policy The purpose of the relocation policy as clearly stated up-front within the policy is to ensure that expatriates are not disadvantaged financially by their move.

Subsequent to the change in policy advised recently we have attempted to negotiate a system to ensure that the no disadvantage test applies and have suggested that the accommodation differential between Australia and the UK is what should be subsidised, provided that the standard and area of the accommodation are consistent with that occupied in Australia. No one could argue that this is intrinsically unfair as it serves to ensure that the company and the employee get a fair and reasonable outcome.

Your subsequent point about the change in the contract needs also to be referred to the above point that we have made and is in no way inconsistent with either the intention of the wording of the extracts that you quote. That is, we still intend to pay an allowance in form for the accommodation and this will be designed so as not to disadvantage you or Bryn.

As to the arrangement with motor vehicles I believe we are not in disagreement, since we have subsequently advised, we wish to bring it in line with the practices of other countries. This means that we aim to provide staff with an allowance that is used at their discretion to cover transport costs.

Greg, please understand that these changes are intended to ensure that Mortgage Choice receives a fair return for its investment in the UK, whilst concurrently not financially disadvantaging relocated staff. We believe that this outcome is best achieved by the new terms as outlined in the new policy and above and we hope that you can appreciate this point.

38 On 17 January 2000 before receiving an answer to that communication, the applicant sought by email from Jason Hine the following information: Could you:

· Advise the date I was appointed a Director of MCI, UK Ltd; · forward the appropriate Form for Consent and Director's Declaration (must be late for Notification to Corporate Affairs); · forward the Letter of Appointment from the Company Secretary with an Extract of the Minutes; · forward full details of the Directors and Officers Indemnity Coverage and whether or not I need to make a payment. Co-incidentally I am wanting to join the UK Director's Association and some of these details are required for that purpose

39 On 21 January 2000 Mr Hine responded Sorry for the delay in replying but both Rod and Peter have been away this week. PWC are revising the structure for the MCIL in readiness for the float. Appropriate directors will be appointed, under advice of PWC, for each of the companies in the MC structure once their final recommendation has been received.

40 On 26 January 2000 the applicant then emailed Mr Hine as follows: Jason,

Ref yr letter dtd 14 Jan fwd 18 Jan, 2000. For good orders sake I would like to respond as follows:

Funding Support: 1. I have no doubt that MC is endeavouring to maximise its position by negotiating with interested parties. The position here is that we need cash for daily needs. The request for top-up funds made on 28 December has been met with stoney silence. No funds have come in to date. No communication as to when funds might come in.

New offices will give us greater space at less cost. Please read correspondence. All we want to do is to negotiate for new premises to lower costs and to prepare for the time (less than two months) when we will need to take on staff and build a machine room. Without the staff we cannot move as fast as we would like; there are always lead times in appointments. They will not appear the day we decide we need them. Numbers are substantially less than your Budget yet we have still made significant progress across a wide number of fronts to build for a successful Launch.

No one seriously thought that PDS 560,000 or similar amounts were to be left in the bank awaiting draw-down. However, there is such a thing as shareholder loans, or paid-up capital, or overdraft arrangements, or lines of credit to assist funding/credibility. Instead not even the Corporate Credit cards you promised have arrived. No Financials either. Moreover, potential recruits ask to see the financials; how can you attract the right calibre staff if we ask them to accept hype and promises of equity (see later).

As to the comment that no funds will be available until the lenders have been signed up, please refer my latest email to Peter. This is very simplistic thinking on your part. I have never agreed to receiving funds on condition of establishing the Panel.

Lease Line: I asked John Stevenson, in writing, to set up a Lease Line. He said he couldn't - by email. My extensive Diary Notes on our conversation here in the UK clearly say you were to break the log-jam.

Financial control: If you will not share the Financials with the former G/M Operations and now M/D UKI, UK - and they are not audited - I am entitled to think that there may be a problem. I do know that John Stevenson has resisted installation of a modern accounting system. I do know that John Patterson Acting CFO and Hd Capital Raising Programme resigned (not "failed to pass Probation" as the broadcast email said). Funds are clearly not available for the UK operation. The Company is reducing staff benefits without consultation. I am unable to comprehend your unwillingness to share the Financials AND yet not make other arrangements. I believe in the possible success of Mortgage Choice across the globe, but I need support.

MCI (UK) Ltd: Thanks your reassurances. Of course the latest revelation that I am not a Director was disappointing - yet you have been prepared to let me represent myself as one all this time - and without I might add any Directors & Officers Liability cover (in a new venture!). In fact you had not even notified the bank that I was an authorised signatory leaving me to scramble earlier this month. I presume I am not an Officer of the Company either.

PROFIT SHARE/PERFORMANCE BONUS: This is as illusive as the funds. I have been promised equity since joining. It was written into my original Letter of Offer that Equity would be negotiated after 6 months. Still only promises. When I asked Peter in December '99 to negotiate a Performance Bonus (the same as George & Bryn) he said I would be better off with equity. We have a classic Catch-22 here Jason. A start-up without establishing equity/shares/profit sharing is unusual, to say the least.

RELOCATION: I have written to Rod & Peter on this issue. For your information though please be aware that I own my apartment in North Sydney, it is superior in every respect to the Virginia Water apartment, and all I have to pay is Body Corporate/Rates. Why would I move overseas if I had to pay expensive UK rent out of my post tax salary and/or subsidise Mortgage Choice from pre-tax rental earnings in Australia? I have been an expatriate for 9 years with major banks and there is no mistaking the basis for my decision to move

41 Very shortly thereafter, on 26 January 2000, the applicant also sent an email to Rod and Peter Higgins as follows Dear Rod and Peter,

It was agreed before I left Australia that my housing benefit as an expatriate was to be full payment of actual costs of accommodation - within agreed limits. The Group Human Resources Manager advised me that this benefit was to be approximately PDS 2,500 on advice from Cullen Egan Dell, Personnel consultants. Prior to entering into the actual Lease at Virginia Waters full details were communicated to the Group Human Resources Manager - who confirmed its acceptability.

It is clear from recent correspondence and emails that Mortgage Choice is now reneging on that commitment and seeking to impose on me a significant adverse housing allowance.

This action is part of a much wider problem. The viability of this start-up operation was adversely affected by your decision to withdraw from the joint venture with Future Mortgages - without consultation with me, but more importantly without a workable fall-back strategy. The situation was worsened by your failure to either agree with my strategy and associated operational needs or to communicate an alternative strategy or in fact to come-to-grips with the operational imperatives of establishing an effective presence in the UK market.

For instance you have not responded on major issues such as whether or not it is reasonable to pay-away most of our income in order to establish a presence - on the premise that we will be able to generate trailing income, or if we should pursue the IPonline initiative (major implications for our Offer and speed of implementation), or how we might overcome the problem of proclaiming ourselves as the leader in technology - but we have no relevant software to show them (although to you I am just seeing an obstacle).

The action to merely change Policy (again without consultation) and to impose on me a housing allowance is in breach of my Employment Contract and amounts to repudiation of the Contract, that is Constructive Dismissal.

As you have now terminated my appointment (and in fact Jason Hine has openly discussed my replacement with staff) I will need to be paid my entitlements on Termination, including damages.

We both have much to lose. It would, therefore, have been more appropriate and sensible for Jason Hine (or yourselves) to negotiate a compromise solution with me rather than to discuss the suitability of various replacements with George Khan. Jason Hine's action not only shows a lack of appreciation of the "workings" of the team but is a continuation of his practice of communicating damaging information to other members of the UK team in a manner which totally destabilises my efforts to make this operation a success.

It would be appreciated if you could respond within 48 hours to finalise the calculation of entitlements.

42 On the 27 January Mr Hine emailed a reply to the applicant as follows: Greg

Rod and Peter have asked me to address the issues you have raised in your email.

As previously discussed, we are not debating that the relocation policy has changed. What we wish to ensure is that MC receives a fair return on its investment, whilst not disadvantaging relocated staff.

Once again whatever may have been agreed previously is relevant, but not necessarily in the best interest of all parties and clearly there needs to be acceptance of what is a fair and reasonable housing subsidiary in order to move forward.

To date the policy has not been formally changed and we can confirm that we will continue to communicate until agreement has been reached on when and how the change will occur.

The decision to withdraw from the JV with Future Mortgages was made after receiving advice from PWC. Our fall back position has always been to raise capital from investors. This has been communicated to you on numerous occasions. A strategy was agreed to whilst Peter and I visited the UK, which you agreed was to be our path forward.

The strategy, to which you agreed during our meeting in November, was to maintain our consumer proposition, which is to supply a no cost, impartial service. To achieve this we had to establish what the lenders will pay. This means forming a lender panel. It was agreed, that if we had to sacrifice income in order to achieve this, then we would do so. The effect would be to establish credibility with the lenders with whom we would have negotiated a trailing payment. The Software system for Aust is being finalised for the February conference and you have discussed the issue of the UK systems with Harry as late as last week.

The relocation policy, as mentioned previously, has not changed as yet. I do not see how our correspondence to date constitutes constructive dismissal.

As to my discussion with George Khan, I received a telephone call from George Khan wanting to discuss a number of issues about the UK operation. I reserve the right to ask any employee (whether that be George, Bryn, Luke etc), from any of the Groups Offices, their opinion, on any issue in relation to this business. George took it upon himself to discuss it with you and to phrase it in the way he did. I had asked George to give me a recommendation (in writing) in relation to the issues he raised, including a path forward, as he saw it, from there I would discuss it with Peter and Rod. There was never any talk of replacing any of our UK staff.

Greg if your intention is to resign it would be appreciated if you could outline your reasons for this decision. If you would like to discuss this with me please feel free to contact me on - 61 419 922 259

43 On Friday 28 January 2000 Mr Hine emailed the applicant as follows: Greg

Further to our conversation this morning I have spoken to Peter and Rod and we would like to arrange a conference call to work through the issues in relation to the relocation policy.

Both Rod and Peter will be away from the office on Monday so I was thinking that Tuesday evening or Wednesday morning our time (Tuesday morning or Tuesday night your time) would suit.

Could you please confirm and I will then organise the time with Peter and Rod.

44 The applicant responded as follows: Jason,

45 On Monday 31 January Mr Bates sent a facsimile message to Rod and Peter Higgins identifying the subject matter as under the hearing "constructive dismissal". The message was as follows: Dear Rod and Peter,

Further to my e-mail to you of 27 January 2000, I have not yet received your calculation of my entitlements upon your termination of my employment. I have therefore prepared my own calculation which is set out in the attached schedule.

Could you please arrange for the total termination amount specified in the schedule to be sent to me my account, G.S. & V.O. Bates, Colonial State Bank, North Sydney Branch 402 081 113187 81 by close of business (Sydney time) on Thursday 3 February, 2000.

I have noticed some discrepancies in the employer contributions to my superannuation fund which will need to be rectified and reconciled. Could you please arrange for these to be outlined in full by close of business (Sydney time) on Thursday 3 February, 2000.

I would like to help you arrange an orderly handover to my successor. For that purpose, if you wish me to do so, I am prepared to discuss working at the UK operation for a short transitional period on terms to be agreed between us.

Similarly I am also prepared to discuss transferring my housing lease at Virginia Waters in Surrey and/or my car lease in the UK into the Company's name so that the premises and/or car can be used by my successor. If in either case, you do not wish the lease to be transferred, I will arrange for it to be terminated. Any costs of termination will be to the Company's account. I have included my estimate of those costs in the calculations in the attached schedule.

If you would like to discuss the handover, please ring me at the UK office. I will spend the next couple of days at the office arranging my departure and briefing George and Bryn as best I can to take over after me in the period until my successor arrives. In the absence of any agreed transitional arrangements, I plan to vacate the office by next Friday, 4 February.

46 The annexed schedule of termination payment calculations by the applicant sought 12 months pay in lieu of notice, accrued leave, relocation back to Australia (£3,000), extra costs due to constructive dismissal, relating to the early termination of housing lease and a car lease and early re entry cost in Australia, giving a total claim of £113,174 plus annual leave plus superannuation.

47 On 1 February 2000 there was a conference telephone call between the applicant, Mr. Hine and both Higgins brothers. The content was summarised in an e-mail sent by the applicant to Mr. Peter Higgins at his request. It was as follows: Dear Peter,

You asked me for my impressions/outcome of this morning's discussion (GMT). I have set these out below. I should make it clear that I 'm doing this to keep things moving as quickly as practicable for the orderly handover consequent on the termination of my employment.

My understanding of your perceptions and feelings is that both yourself and Rod are disappointed with what you see as a lack of progress in the UK. You indicated that you had lost confidence in my ability to manage and motivate a small team. The emotion comes through. You feel that I am basically sitting in the office playing Head Prefect. This view could not spring from the work that has been achieved and demonstrated. Of course your impression has not been helped by my recent correspondence on funding and staff benefits, all of which lead you to wonder how effective my continuing presence will be - and thereby adding to your concern.

Obviously I have a different viewpoint on how things have progressed in the UK and the nature of the management challenge. I have stated these before in our previous emails and telephone calls.

I indicated in this mornings discussion that for my part I did not wish to get involved in apportioning blame for management problems nor to continue with any dialogue which was negative and disruptive. The fact is you own the business and it is your right to manage it as you see fit. As you have lost confidence in my ability to deliver and have taken steps to amend my terms of employment (although you and Jason disagree that you have repudiated my Contract of Employment) it is best that you appoint a replacement who carries an unreserved ability to make decisions including, therefore, obtaining the necessary funding.

I confirmed my willingness to assist you by continuing on with the work I had commenced - in particular software design, lender information and Panel selection, strategy compliance, operational issues etc (or the more "detailed work" as you called it this morning) - but for a limited 90 day transitional period. This is the way forward for the Company. I did not wish to give anyone the opportunity to say I left you stranded - regardless of who was at fault. I confirmed that I did not have another job, nor wished to go Walkabout.

I felt that you saw the commercial reality. Rod seems to continue to want to explore "who's at fault". You wanted to think through the possibilities and wanted me to discuss the situation with Mike Culhane (who was now an appointed Director of MCI, UK) and presumably negotiate a settlement with him (although this was not directly said - but what I thought was clearly implied). You did allude to the fact that we could revisit the situation at the end of 90 days, whereas I said that there was little possibility, given the circumstances, of my continuing to work for Mortgage Choice in other than a transitional capacity.

It is my belief that the whole crux of the mis-understanding lies in your concluding statement which is that you both wanted to see a "small fire started in the UK" - not only as a measure of progress but as a demonstration effect to those working on the IPO. As I said, I understood your need, but to be frank it does not fit with your earlier statement this morning to the effect that you would understand if there were unavoidable delays, not does it fit with the needs of a new entrant in this market.

The view and strategy that I have continued to take (in writing as well as verbal) is that we need to have a full Lender Panel on board dovetailed with an insurance offer, with commission rates maximised, in order to lift earnings to a rate which will enable us to pay - away an amount which will enable us to attract calibre franchisees. Unless we do we will not be able to attract them away from their existing arrangements - no matter how much they act as of a fringe-dweller. The other part of the exercise is that we need to be able to physically demonstrate our technology to the lenders and franchisees before we can either maximise commission (lenders) or get franchisees accepting our offer (as distinct from saying they were interested). So far this has not been possible. Yet we are working in a mature market.

You cannot, in my opinion, start small. The market has moved faster than you anticipated. The brokers now have access to software programs that provide information on all, repeat all lenders. It is for this reason that I also thought that the Company must have a broad information/intelligence base - the very reason to pursue the possibility of a joint venture/merger/buyout with IPonline. The Website strategy is all part of the plan to develop interest in the site, drive the mass of brokers to it, and to be able once again to demonstrate a Lead Generation capability - which is desperately needed by the brokers. The UK team is working on a total strategy yet I cannot get a reading from you on it other than to say "get started"; I cannot get the IT Department over here to help. No comment on the Website strategy from anyone. The "detail" will enable MCI, UK to deliver high quality, low cost applications for which the lenders are prepared to break the rules and pay higher up-front fees and eventually trailing commission. The need is to build an infrastructure as large as that existing in Australia. The team is close to achieving this broad strategic thrust (30-60 days).

Peter as discussed we need to resolve the transitional arrangements quickly. I understand that you are forwarding monies overnight to meet the Company's immediate requirements and this is critical.

I understand Mike will be able to meet with me Thursday UK time. Could you please authorise him to settle all the transitional arrangements in principle by this Thursday.

48 This email is a useful summary of the features of the UK operation which were troubling the applicant. It was responded to by Mr Hine on the 2 February in the following terms: Firstly I must reinforce the point, that to date, your employment with Mortgage Choice has not been terminated. Your contract of employment has not been repudiated, the companies relocation policy remains unchanged, no formal notification has been sent you indicating that your employment has been terminated and Peter Rod and I have said to you individually that you have not been terminated. But you are still claiming that Mortgage Choice has terminated your contract. I fail to see how you have come to this conclusion.

Taking into account your conversation last night with Peter, Rod and Myself and now reading your recount of our discussion, it is quite obvious that your desire is to resign your position at Mortgage Choice International (UK) Limited. Thank you for your offer to assist us by continuing on with the work you have commenced for a 90 day period as we understand that you do not wish to leave us stranded.

49 On 7 February the applicant again emailed Peter Higgins and Mr Hine in the following terms: Subject: Transitional Arrangements: G Bates & Mortgage Choice

I trust you will agree that the negotiation of a transitional period must be conducted in the spirit of mutual respect. I respect your need to continue with the project without needing to rehire or place someone else into the position on the eve of the major push to align UK lenders and insurers into the Mortgage Choice software - in full conformity with both the law and banking practices. For your part you need to understand that I have taken legal advice and am satisfied that as a result of the breach of my Contract through the Constructive Dismissal I am entitled to an immediate payment of all of the amounts specified in my fax to you dated 27 January, 2000. Indeed my legal advice is that my entitlements are greater that the amounts that I specified.

Having said that I am willing to negotiate a severance package in conjunction with the transitional arrangements. My minimum requirements would be as set out below. Please understand that this offer is "without prejudice" ie I reserve all my rights if we cannot reach agreement.

Despite your insistence, I do not have another job nor do I wish to travel. I wish to return home and consider my options. However, at the present time our apartment is occupied, but, by triggering a break clause, the apartment could be occupied on 28 May 2000. A smooth transfer into the apartment could be made possible by the negotiation of a 90 day transition period, thereby avoiding temporary accommodation in Australia and continuance of storage costs. Furthermore, should Mortgage Choice take over the lease on the car it would avoid the break costs and loss on re-sale. A further benefit to both of us is that by staying another 90 days the current lease on the apartment would expire. Agreement on these issues lessens my claim, maintains momentum on the project and does not require any additional outlay of monies by Mortgage Choice.

In addition to the above I also require the following:

An unconditional undertaking by Mortgage Choice that all terms and conditions of my appointment, as outlined in the letter dated 21 October, 1999 (including the housing allowance of PDS 2,200 per month) will be honoured for the term of the transitional period. This undertaking to be in form acceptable to my solicitor, including the commitment that it will be a fixed 90 day Contract and that any action by Mortgage Choice to remove me from office will bring forward all benefits then outstanding.

A Termination Payment equal to three months' salary (at AUD 203,000 per annum), payable immediately.

Relocation costs for personal effects and goods costing PDS 3,000 plus use of the existing open airline ticket for myself and my wife.

Mortgage Choice agreeing that there will be no claim on me for costs associated with my transfer as outlined in the Letter of Appointment.

Agreement to pay/distribute Annual Leave and Superannuation entitlements at the end of the 90 day period - which period will commence 15 February, 2000.

Mortgage Choice communicating its required strategy and associated budget for the period. This to avoid any dispute as to performance and to avoid any chance that failure to comply with the strategy will not be caused by continued lack of funds.

If this is not a basis for agreement it will not be possible for us to negotiate any transitional arrangements or severance package. It would be appreciated if you could respond by close of business 9th February, 2000 (Sydney time). Thank you.

50 This was responded to by Mr Hine: Further to our last discussion and my subsequent email dated 2/2/2000 I need to reiterate our position which has not wavered from the beginning. Your employment has not been terminated by Mortgage Choice.

This issue needs to be resolved and if you are determined to leave the company at the end of 90 days, as indicated in your email of 01/02/2000, then we must assume that you will be resigning your position. Please advise with official advice as to your intentions in relation to this matter as soon as possible.

If it is your intention to remain in the employment of Mortgage Choice then please advise so that a suitable time will be arranged to commence our discussions on the Mortgage Choice relocation policy

51 This history shows a misunderstanding about the legal effect of what was happening to the relationship between the parties. The concept of constructive dismissal seems to me to have had no application. The applicant raised that matter in his e-mail of 7 January 2000 but at that date he remained in employment and continued thereafter until 9 February. The concept of constructive dismissal requires a termination by the employee but at the behest of the employer. As the Full Commission said in Allison v Bega Valley Council (1995) 63 IR 68 at 72: "It is necessary to determine whether the actual determination was effectively initiated by the employer or by the employee particularly where the dynamics within a factual situation might change." In Brookton Holdings v Kara Kar Holdings (1994) 57 IR 288 at 289 Young J in the Equity Division of the Supreme Court of New South Wales spoke of constructive dismissal this way: However, the authorities are sufficiently full of examples of situations where an employer has repudiated the contract and the employee accepted that, or alternatively where there has been a constructive dismissal. I really do not think that there is any real difference between those two situations, though some philosophers might find some ground for distinction. Essential in both is that one side to a contract of employment has made it clear that the contract in its existing form is not to continue, but the employer puts forward a proposal that the employee will have a changed role.

52 Thus, approaching the facts in this case in the light of principle, one must be able to discover, in order to support a contention of constructive dismissal effected by the employer, an intention in the employer that the relationship come to an end. The final e-mail from the respondents, through Mr. Hine, makes it very plain that this was not the position. I accept the evidence of the Higgins brothers that they did not wish that to occur, if for no other reason than it would present an unacceptable image to their market to have the 'Managing Director' leave at such an early and critical stage of the U.K. venture. That this was a matter of concern was confirmed in the applicant's e-mail of 1 February, which recorded his offer to carry on through a transitional period of up to three months, saying "I do not wish to give anyone the opportunity to say I left you stranded". The only possible conclusion on the evidence is that, at the point of the applicant's cessation of employment, the respondents wished the circumstances then prevailing, in terms of their contractual relationship with the applicant, to continue. Of course, the applicant was treating his employment as ended or ending and was offering to continue on new, and much improved terms.

53 Accordingly it is necessary to look to the variation of the contractual terms which was effected in or about September 1999 to cover the new function in the U.K. and whether the conduct of the respondents subsequently effected a repudiation of those terms. The aspects of that conduct to which the applicant points are numerous.

54 From this factual history some essential facts may be extracted and, where appropriate, findings made. 1. The transfer of the applicant to the UK was by way of promotion.

Taking into account the Strategic Business Plan and the other evidence surrounding the issue, I find that it was intended that the UK joint venture was intended to be a substantial operation.

The failure of the joint venture to proceed was at the behest of the respondent. It was done on advice to suit and enhance the intended float. As the substantial shareholders in Mortgage Choice, this must be seen as having been for the principal benefit of the Higgins brothers.

The resulting "care and maintenance" or "shoestring" approach was a result of these variations in circumstances. I find it was not originally intended. The later suggestion that "organic growth" (which I take to mean a slow, solid growth, without the injection of a boosting element) was always intended cannot be accepted. The resulting change in funding left the UK operation in a parlous state. Employees were meeting office expenses personally, salaries were paid late and short; there was a lack of secured funding. The expressed intention to fund the UK operation from Australia nevertheless left the operation in this condition through January 2000. 5. The failure of the joint venture also caused the re-examination of the expenses of the UK operation. This focused on housing and power costs and lead to an alteration of policy. The email of Mr Hine, received by the applicant on the 24 December 1999, is expressed in terms which notify a unilateral change in that policy. The change had devastating effects on the applicant and the other staff in the UK. Its later withdrawal was no doubt welcomed, but its pall remained as an indicator of the overall malaise which had infected the UK operation. 6. The applicant was to be "Managing Director" of the UK company. In common parlance this means a member of the Board of Directors who is the Chief Executive in day-to-day management. I reject the view offered on behalf of the respondent that it was just a name. I consider that to so utilise it would be deceptive and misleading. I accept that the title "Director" may be utilised to elevate the status of an executive who was not a member of the board as in title "Finance Director" and "Director of Human Resources". That ordinary experience has never brought to mind a situation where the title of "Managing Director" is employed in respect of a person who is not a member of the board of directors. The respondents have argued that the applicant has not testified that his understanding that he would be a director of the UK company acted as an inducement for him to take up the position. This does not detract from the fact that he was made an offer an inherent aspect of which was the use of language which reasonably conveyed to him that he would be the managing director of the company.

Whether or not it was necessary to complete and file some documentation concerning the appointment of the applicant as a director, there is room for the view that his nomination as such was effective to appoint him to that role. Whether or not that appointment was effective, the applicant understood that he was the Managing Director. He was presented to the world as such. Accordingly, he was entitled to consider that he was in a precarious position having regard to his obligations and the financial status of the UK company.

I find on the evidence the substantial cause of the failure of the UK operation was the inability to meet the different needs of the UK market. I accept, on balance, that the applicant's view in that regard was correct and that the attempt by the respondents to trim back the operation to a financially supportable level was the real cause of the difficulty, not any actions of the applicant, including his "departure".

55 The first issue which requires resolution is the applicant's claim that he should have a remedy in respect of the failed incentive or inducement extended to him to join Mortgage Choice in the first place, that is, "equity". The discussions between the applicant and Peter Higgins about this matter occurred on the 12 February 1999 and have been set out earlier. The letter of appointment indicated a starting salary ($120,000) which was to be reviewed on 20 August 1999 to a pre-determined amount ($150,000 per annum). The letter also provided for discussions to occur at that time on "equity in the company". The applicant knew from his newspaper reading that certain former executives were shareholders and that the Higgins brothers were then undertaking a buy-back, having had what seemed to have been a major falling out with the departing executives. Peter Higgins knew that he would not enter upon that arrangement again given his experience. In discussing notions of equity he had in mind an option scheme on the intended float.

56 The applicant contends, applying the principle articulated by Mason J. in Codelfa Construction Pty. Limited v State Rail Authority of N.S.W. (1981-1982) 149 CLR 337 at 352 that the surrounding circumstances support the view that the offer to have discussions on equity, as contained in the letter of 17 February 1999, carried the implication that there was an opportunity to be granted equity in Mortgage Choice and that discussions would occur on a bona fide basis. The principle in Codelfa depends upon the words being susceptible of more than one meaning.

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