Kennedy v Martinez

[2010] NSWIRComm 134

Industrial Relations Commission (NSW)|2010-07-01

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Source facts

Court

Industrial Relations Commission (NSW)

Decision date

2010-07-01

Source

Original judgment source is linked above.

Judgment (59 paragraphs)

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CITATION: Kennedy v Martinez [2010] NSWIRComm 134

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Juan Jose Martinez (First respondent) Ari Schachna (Second respondent) Evan Stents (Third respondent) Gail Owen (Fourth respondent) Peter Van Rompaey (Fifth respondent) Philip Battye (Sixth respondent) Roger Stansfield (Seventh respondent) Simone Marin (Eighth respondent) Craig Down (Ninth respondent) Fanoula Galanakis (Tenth respondent) Frank Xenos (Eleventh respondent) Maurice Thompson (Twelfth respondent) Paul Graham (Thirteenth respondent) Peter Bramwell (Fourteenth respondent) Picha Djohan (Fifteenth respondent) Rick Horsley (Sixteenth respondent) Ronnie Winchester (Seventeenth respondent) Jonathan Kramersh (Eighteenth respondent) David Jenkins (Nineteenth respondent) Jason Warat (Twentieth respondent) Jonathan East (Twenty-first respondent) Lindsay Reed (Twenty-second respondent) Matthew Reynolds (Twenty-third respondent) Paul Gordon (Twenty-fourth respondent) Peter Bittner (Twenty-fifth respondent) Phillip Heraghty (Twenty-sixth respondent) Philip Hunter (Twenty-seventh respondent) Ross Williams (Twenty-eighth respondent) Steven Henderson (Twenty-ninth respondent) Virginia Waterhouse (Thirtieth respondent) Wayne Jenvey (Thirty-first respondent) Graeme Traves (Thirty-second respondent) Karyn Reardon (Thirty-third respondent) Mark Lightfoot (Thirty-fourth respondent) Michael Cameron (Thirty-fifth respondent) Peter Daley (Thirty-sixth respondent) Rachel Weeks (Thirty-seventh respondent) Scott Butler (Thirty-eighth respondent) Simon Tolhurst (Thirty-ninth respondent) Anthony Highfield (Fortieth respondent) Brian Thomas (Forty-first respondent) Bryan Belling (Forty-second respondent) Chris Brierley (Forty-third respondent) David Vaughan (Forty-fourth respondent) Dennis Bluth (Forty-fifth respondent) Douglas Vorbach (Forty-sixth respondent) Elias Stephen (Forty-seventh respondent) PARTIES: Elisabeth Ritchie (Forty-eighth respondent) Grant Hummel (Forty-ninth respondent) Jane Hewitt (Fiftieth respondent) Joseph Hurley (Fifty-first respondent) John Bartrop (Fifty-second respondent) John Graves (Fifty-third respondent) Jonathan Tapp (Fifty-fourth respondent) Kerrie Chambers (Fifty-fifth respondent) Lachlan Paterson (Fifty-sixth respondent) Mark Harrowell (Fifty-seventh respondent) Mark Webeck (Fifty-eighth respondent) Martin Downing (Fifty-ninth respondent) Matthew Harding (Sixtieth respondent) Michael Bowyer (Sixty-first respondent) Michael Neylan (Sixty-second respondent) Nicholas Matkovich (Sixty-third respondent) Paul Stephenson (Sixty-fourth respondent) Peter Garrett (Sixty-fifth respondent) Peter MacKenzie (Sixty-sixth respondent) Robert Gardini (Sixty-seventh respondent) Robert Johnston (Sixty-eighth respondent) Robert Schneider (Sixty-ninth respondent) Simon Liddy (Seventieth respondent) Tim Griffiths (Seventy-first respondent) Alice De Boos (Seventy-second respondent) Andrew Miers (Seventy-third respondent) Brian Olliver (Seventy-fourth respondent) Damian Ward (Seventy-fifth respondent) Danella Wilmhurst (Seventy-sixth respondent) David Clarke (Seventy-seventh respondent) Duncan Campbell (Seventy-eighth respondent) John Bell (Seventy-ninth respondent) John Cole (Eightieth respondent) Julie Hamblin (Eighty-first respondent) Julian McGrath (Eighty-second respondent) Kirston Gerathy (Eighty-third respondent) Mary Digiglio (Eighty-fourth respondent) Penel Snyman (Eighty-fifth respondent) Richard Graham (Eighty-sixth respondent) Richard Gration (Eighty-seventh respondent) Robert McGregor (Eighty-eighth respondent) Sancia De Jersey (Eighty-ninth Respondent) Seamus Burke (Ninetieth respondent) Sonya Kroon (Ninety-first respondent) Steven Burns (Ninety-second respondent) Stuart Westgarth (Ninety-third respondent) Tom Suttie (Ninety-fourth respondent) Jury Wowk (Ninety-fifth respondent) Ashley Holland (Ninety-sixth respondent) Denis Hall (Ninety-seventh respondent) Grant O'Grady (Ninety-eighth respondent)

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14 The applicant was offered, and accepted, to become a fixed draw partner of HWLE on 5 May 2008 pursuant to a Deed of Agreement signed by the applicant on 16 April 2008 ('the Deed'). Clause 2.4 of the Deed provided that either party could terminate the Deed, and Mr Kennedy's participation in the merged firm, by giving only one month's notice. Mr Kennedy said he did not seek to negotiate a longer period of notice, as other E&E partners had done, principally because: I had consented to the merger, and bound myself to the Addendum MOU, in the belief that (i) subject only to the qualifications stipulated in clause 3.2 of the Addendum MOU, my remuneration as a Fixed Draw Partner was guaranteed until 30 June 2009, (ii) my performance as a Fixed Draw Partner would be assessed having regard to the 'KPIs' referred to in clause 3.2, rather than subjectively, and (iii) the only identified consequence of a failure on my part to meet those KPIs, or even the manifest neglect of my practice, was a reduction in my remuneration, and even then only after I had had the benefit of a remuneration review. 15 In relation to the notice provisions in the Deed, notice of termination was based on the 'period of continuous service with HWL'. In other words, 'years of service' as a partner with E&E were not to be 'carried over/forward' into the new firm, such that those years of service would be counted either for notice of termination purposes or for the calculation of any other entitlements on termination other than as specified. 16 Clauses 3.1(b) and 3.2(b) of the Addendum MOU stipulated the remuneration that Mr Kennedy, and all of the other fixed draw partners of E&E, was to be maintained after the merger until 30 June 2009 (the Addendum MOU in Schedule 2 stipulated that Mr Kennedy's remuneration was to be $195,000 per annum; this was $5,000 more than he received as a fixed draw partner of E&E). The provisions of cll 3.1(b) and 3.2(b) were qualified in two respects. The remuneration could be reduced on the grounds of a failure to meet stipulated performance criteria (called 'KPIs'), 'manifest neglect of practice' or 'other unusual circumstances', but only after the fixed draw partner had had the benefit of a remuneration review. 17 Clause 3.2(b) of the Addendum MOU provided:

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Peter Kennedy: "I want you to know that I have no work in progress and hardly any current work." I said: "Well Peter we are shortly going to join forces. We do try in our work area to work collegiately and I'm sure, where we can, we will refer you work however I must say that our business model is one where all partners whether they are fixed draw or equity are expected to build a practice and feed themselves and delegates." Peter Kennedy: "I thought I should let you know my current circumstances." I said: "Thank you for that. The combined business will be substantial and there should be opportunities for you to develop a practice." 27 A further meeting amongst these four partners occurred on 20 May 2008 at Mr Belling's house to discuss their area of practice and sources of work. It was Mr Kennedy's evidence that Mr Belling stated words to the following effect: We are top heavy with 4 partners and 1 solicitor in the Workplace group. We need to improve our leverage. We have to see if we have work to give junior solicitors. Aran Alexander is always complaining that he does not have enough work and that a lack of work can impact on his progress as a solicitor. We have to look at what work we have for solicitors. Mr Kennedy asserted he then said words to the following effect: I have no employment WIP [work in progress] because I have billed everything to date. I have very little future employment work of which I am currently aware for a junior solicitor. As I have always done, I am doing things in other areas. 28 An issue arose regarding the nature of the transaction between HWL and E&E. The transaction was portrayed as a merger of the two firms. Its true character, however, was as Mr Martinez described it, 'a huge lateral hire' by HWL of E&E's partners and staff. Mr Martinez said in cross-examination, 'we were using the word "merger" as PR exercise, and to soften the effect of what really was going on.' Mr Neil submitted: Mr Kennedy had been taken in by this misrepresentation. He was led by it to believe that HWL Ebsworth would carry on, and give effect to, the values of fairness and integrity that had characterised E&E, where it had not been his experience that partners were discarded without the benefit of any procedural fairness. 29 On 30 July 2008, Mr Martinez met with Mr Kennedy. This was the first time they had spoken. Mr Martinez saw this meeting to be part of his 'fixed draw partner review'. However, he did not advise Mr Kennedy of this. Mr M Kimber SC for the respondents, submitted, however, that not only was the applicant well aware that he would undoubtedly face a performance appraisal/review (even if only in the context of remuneration review), but he was also aware in May 2008 that other partners of the new firm had either left the new firm following review or had changed their status following such review. 30 Shortly prior to the meeting between Mr Kennedy and Mr Martinez, Mr Martinez had spoken to Mr Belling. It was Mr Belling's evidence that the following conversation took place: Juan Martinez: "I am a bit concerned with Peter Kennedy's practice. He does not seem to be getting much traction." I said: "I have known Peter for a long time, he acted for us in the NRMA Float Litigation as a specialist practitioner in insurance liability and he and Tony Scotford did a very good job. I was a bit surprised when he told me in the street a couple of years ago he was practising in Employment and Industrial Law as I thought he had a substantial insurance practice. I subsequently learnt that Peter went into management for a period of time. I know from my own experience that can be very disruptive. He and Alice talked to Seamus and I prior to the merger and Peter said he had no WIP [work in progress] and not enough work." Juan Martinez: "Well I'm getting around all the Partners to see what their plans might be I'm meeting with Peter following this. Would you mind getting him to come up?" I said: "No problem." 31 The basis upon which Mr Martinez formed an adverse view of Mr Kennedy's practice appears to have been conversations with Mr Patterson, Mr Belling and 'perhaps a couple of other partners'. It would have been apparent that Mr Kennedy had difficulty rebuilding his practice following his stint as managing partner of E&E and it is apparent that Mr Johnston, a colleague of Mr Kennedy at E&E for many years was not sympathetic to the view that Mr Kennedy could hold his own as a partner in the new firm. Indeed, there was no evidence from any other partner in E&E that supported the applicant's case. 32 In relation to the information from Mr Patterson, Mr Martinez said in his evidence in cross-examination: He was also a direct report in relation to marketing and he was also a direct report in relation to IT and other matters. I would have received quite detailed sort of updates about where he was observing people getting traction, where he was observing people being active in terms of entrenching their practise, any strategies around practice development; that was his key role and that's what he reported to me on directly. 33 Mr Martinez also said he received information about Mr Kennedy's performance against his time, billings and cash or receipts budgets. However, he accepted in cross-examination that, in the aggregate: 'In the period between 5 May and 30 July 2008 Mr Kennedy was ahead on each of his time, billing and cash budgets'.

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40 It was Mr Belling's evidence that on a date in late August of 2008 he had a telephone conversation with Mr Martinez: Juan Martinez: "Bryan I've been thinking about Peter Kennedy's position and I'm going to meet with him when I'm up next week. I'm very concerned when I asked him about his practice and his business plan and he told me it was a month to month proposition. Frankly that's not good enough for somebody who wants to maintain partnership. Peter seems to have no plans or no proposal as to how to build a practice." I said: "Well he has quite a legacy at Ebsworth & Ebsworth. Have you thought about that in the context of treating with Peter?" Juan Martinez: "I am prepared to recognise Peter's legacy with Ebsworth & Ebsworth. I propose offering him a consultancy for at least 12 months to afford him the opportunity to think about what he wants to do but I cannot maintain his partnership if he is not prepared to seriously address building a practice. Frankly what he said to me was disrespectful of his other partners." I said: "What do you have in mind?" Juan Martinez: "I think I'll offer him $120 or $125". ... I said: "Do you want me to talk to Peter beforehand?" Juan Martinez: "I don't think so. I'll meet with Peter and see how we go." 41 Mr Belling said in his evidence that shortly after the conversation with Mr Martinez he had a conversation with Mr Kennedy in his room on Level 13, Australia Square: I said: "Juan tells me he's going to talk to you about your future." Peter Kennedy: "I've received an invitation to meet with him on 3 September 2008." I said: "He has some concerns about your practice and maintaining your status as a partner but I think he may make you an offer as to consultancy or some such." I waited for Peter to respond but he did not. I then said: "Peter you have to think seriously about such an offer. I think Juan is prepared to offer you at least 12 months at a fixed sum to give you time to decide what you want to do. I don't know that many strings will be attached other than he will expect you to do your best and return to the firm at least the equivalent or better than what you are achieving now. Although he has not said so expressly I think it might be a recognition of your services to Ebsworth & Ebsworth. " I waited for Peter to respond but he did not. I then said: "You need to be concerned that you're not pushed out after 30 years on timing other than your own. That could do you some reputational damage. You need to buy yourself some time to make your own arrangements if you judge that you can't succeed here. I am pleased that Juan is going to offer you something as I would like to think there is some dignity attaching to the way we handle these matters. You don't have to accept Juan's first offer, talk him up a bit. Let me know how you go." 42 Mr Belling said he was being a 'bit naughty' in having the conversation with Mr Kennedy because when he asked Mr Martinez whether he wanted him to talk to Mr Kennedy, he said no, he would take it up with him. 43 Mr Kennedy denied there was any conversation at all with Mr Belling at the time, or along the lines, deposed by Mr Belling and confirmed this in his oral evidence. 44 By 26 August 2008, according to an email sent to Messrs Graves and Johnston, Mr Martinez had formed the following views: (a) that he was going to offer Mr Kennedy a consultant's position at a remuneration of $125,000 per annum and that was the best Mr Martinez could do; and (b) the reality was that there was no real position for Mr Kennedy at all. 45 Mr Johnston responded that it was his 'sense' that it would not be a surprise to Mr Kennedy, but he did not see any need for him (Mr Johnston) to be involved in any meeting when Mr Martinez spoke to Mr Kennedy.

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48 On 3 September 2008, Mr Kennedy met with Mr Martinez. By then Mr Martinez had not spoken with Mr Kennedy since their meeting on 30 July 2008. Mr Martinez did not inform Mr Kennedy as to the reason for the meeting or what was likely to be discussed at the meeting. There is no issue that during the meeting on 3 September 2008 Mr Martinez said to Mr Kennedy: 'You do not meet the criteria for being a partner.' Mr Martinez stated that he identified to Mr Kennedy three criteria that he had taken into account: 'performance', 'inability to rebuild a practice' and 'inability to detail a plan for the future as a partner'. 49 Mr Martinez proposed a consultancy arrangement, with Mr Kennedy having the status of an employee with a package of $125,000. Mr Kennedy advised Mr Martinez he would have to think about what was proposed, obtain advice and respond by the following Friday. Mr Kennedy said that at no time prior to or during his discussion with Mr Martinez did he, or anyone else from HWLE, tell him what the criteria for partnership of HWLE were or how he had failed to meet the criteria and that at no time prior to 3 September 2008 did Mr Martinez or any other partner of HWLE inform him that his performance or conduct was deficient or unacceptable in any way, nor was he warned that there was any possibility that his partnership would or might be terminated. 50 There was an issue about whether Mr Martinez gave notice of the termination of the Deed during the meeting. Mr Martinez stated, '…I was very clear on the point that his tenure as a Fixed Draw Partner at [the merged firm] was being terminated at that meeting.' Mr Kennedy did not have that understanding. Soon after the meeting, Mr Martinez wrote to Mr Kennedy to 'confirm the termination of your partnership with the firm.' Mr Kennedy responded: 'I did not regard our meeting today as termination of my partnership with [the merged firm].' Mr Martinez replied by email: 'You have been given notice of the termination of your partnership today - the date it is effective is a matter for me.' 51 On Friday 5 September 2008, Mr Kennedy advised Mr Martinez that he would not accept the offer of a consultancy. On 9 September 2008, Mr Martinez stipulated that the period of notice was one month. Mr Kennedy ceased to be a partner of HWLE on 3 October 2008, being the date stipulated in the notice given on 9 September 2008. Mr Kennedy now practices as a sole practitioner. HEADS OF COMPLAINT

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55 Mr Kennedy was a solicitor of longstanding. He was managing partner of E&E from 1997 to 2001. Once he finished his term as managing partner he was unable to get back into professional indemnity work because there was too much competition for that work within the firm. At the time Mr Kennedy commenced doing employment law, there was a good deal of litigation work available in unfair contracts and unfair dismissals in the New South Wales jurisdiction, but that work dried up to a large extent by 2006. By 2007 the applicant recognised the inevitability of having to accept that he could no longer sustain a practice that would support him as a variable profit partner and opted to become a fixed draw partner. The applicant accepted that 'the problem' with workplace relations at E&E was that there was not a big enough commercial practice to generate internal referrals and 'it was too difficult to generate work externally away from what the firm was doing.' Mr Johnston recalled that: [W]hen Peter's status was moved from Capital Partner to Fixed Profit Partner, the recommendation or reason given for his move had to do with Peter not having sufficient clients nor sufficient billings or practice size to warrant him remaining a Capital Partner. 56 Upon accepting the role of fixed draw partner Mr Kennedy was initially paid a fixed draw profit share of $220,000 per annum for the period 1 July 2006 to 30 June 2007 and from 1 July 2007 his fixed draw entitlement fell to $190,000 per annum. 57 The shrinkage in the available work for Mr Kennedy was reflected in what was occurring to his firm. By early 2002 it became apparent E&E was generating insufficient fees. In 2003, the Melbourne partners decided not to integrate with the Sydney partners and the firm, on seeking that integration, had expended a great deal of time. In 2004 and 2005, the commercial group left the firm, leaving only one commercial partner. By late 2007 E&E had found it necessary, because of the firm's financial circumstances, to seek out HWL with a proposition that the firms merge. It was Mr Martinez' evidence that Mr Graves had said to him in late 2007: E&E is in a very poor financial position and its partners are demoralised. I am concerned that if we do not merge our business with another business then the firm as a whole might dissolve altogether. 58 The deterioration of the firm's business and the decline in work available to Mr Kennedy is relevant to the conversation in the coffee shop in or about April 2008 involving Mr Belling, Ms De Boos, Mr Burke and Mr Kennedy. It was Mr Belling's evidence that the applicant stated that he wanted the others to know that in relation to employment work, 'I have no work in progress and hardly any current work'. Mr Kennedy denies saying those words. I consider that it is most likely Mr Kennedy did say the words attributed to him by Mr Belling or words to that effect. There is no reason to disbelieve Mr Belling or to question his recollection. The words are consistent with the decline in E&E's work and the state of available work for Mr Kennedy prior to the merger and the evidence of Mr Johnston in that regard. Mr Johnston was not required for cross-examination. 59 It was, of course, open to the applicant to bring evidence as to the state of his practice as at April 2008 in order to counter Mr Belling's evidence, but he did not do so. On the scant evidence that was available regarding Mr Kennedy's work at the relevant time it seems there may have been four current employment law matters in which he was involved, although the applicant did not expand on the nature or size of those matters except that one involved a claim under s 106. Further, the respondents had indicated that they were prepared to call Ms De Boos and Mr Burke to corroborate Mr Belling's version of what was said in the coffee shop, but the applicant indicated it was not necessary to do so. 60 Returning to the merger, negotiations with that objective in mind ensued and due diligence was conducted. An MOU in relation to the proposed merger was conditionally approved by the partners of E&E on 18 December 2007 and took effect on 20 December 2007. The final agreement to merge the practices of E&E and HWL was set out in the Addendum MOU, which was approved by the partners of E&E in February 2008. 61 Undoubtedly understanding the terms on which E&E would merge with HWL, the applicant obviously decided to join the new firm as a fixed draw partner. As a longstanding solicitor and managing partner at one time of a reasonable sized firm, Mr Kennedy could not have misunderstood that the objective in merging was to ensure the firm's survival, albeit in another form, and in order for that to be achieved there would be more stringent rules regarding - to use that dreadful term - 'financial hygiene'. It could not have been Mr Kennedy's expectation that it would be business as usual, but rather he would be required to operate 'in a more efficient and rigorous environment, where expectations are clearly identified and partner roles and supervision responsibilities are clearly defined'. Mr Kennedy accepted in his evidence that in joining the new firm he would be subjected to a higher level of scrutiny and required to make a greater contribution than hitherto had been the case. Eyes open

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63 Mr Kennedy contended that it was his understanding that the MOU guaranteed there could be no alteration to his status prior to 30 June 2009 and this was the main reason why he did not seek to have negotiated a longer period of notice in the Deed. He also considered he was safe in the knowledge that consistent with the culture that had prevailed at E&E he would be accorded procedural fairness if any issue ever arose regarding his performance. Moreover, he considered that insofar as performance was concerned, the critical benchmark was the KPIs set out in the schedule to the MOU and 'the only identified consequence of a failure on my part to meet those KPIs, or even the manifest neglect of my practice, was a reduction in my remuneration, and even then only after I had had the benefit of a remuneration review.' 64 There are a number of reasons why the applicant's contentions regarding tenure cannot be sustained. First, cl 3.2 of the Addendum MOU deals with 'Terms of agreed calibrations'. Clause 3.2 only purports to maintain 'profit entitlements' for fixed draw partners subject to a remuneration review, meeting the KPIs in Schedule 7, not being manifestly neglectful of their practice or other unusual circumstances. Clause 3.2, in terms, does not infringe on any right the respondents had under the Deed to terminate the contract with a fixed draw partner. 65 Even though Mr Kennedy said he thought that cl 3.2 protected him until 30 June 2009 from having his contract terminated and that cl 3.2 took precedence over the termination provisions of the Deed (which was not something indicated to Mr Kennedy by any person), it would have been evident to an experienced lawyer that at least there was sufficient doubt about such a construction of the relationship between provisions of the Addendum MOU and the Deed that the prudent course would have been to have it clarified or to seek to negotiate a longer period of notice, as others had. That was not sought to be done by Mr Kennedy and the reasons he provides for not doing so are not convincing. 66 Mr Kennedy said in his evidence he had expressed his belief about security of tenure before the merger to Mr Gration. There is no proper basis upon which I should accept this evidence as reliable in circumstances where there was no evidence that Mr Gration endorsed that belief or even that he was asked to or volunteered to put that belief to the HWL negotiators with a view to confirming that it reflected the common understanding of the parties. 67 Secondly, if Mr Kennedy held the belief that he had tenure until 30 June 2009, he did not mention this to Mr Martinez in the meeting on 3 September 2008 when Mr Martinez proposed a consultancy, nor did he mention it in his email when he declined the offer of a consultancy, nor when he was advised of the termination of his contract, nor at any time prior to the date of termination in order that the termination was forestalled. It beggars belief that in the circumstances, a man with such a long experience in advising people about their legal rights and obligations would not think to raise in his own defence that the respondents were precluded from moving against him before 30 June 2009 if he truly believed that was the case. 68 Thirdly, the Deed which Mr Kennedy signed also provided that he was agreeing to be bound by the terms of the HWL Partnership Deed 'to the full extent of those of its terms that applied a Fixed Draw Partners'. That Partnership Deed made it clear that even capital partners of HWL had virtually no security of tenure. There could be no doubt that the applicant, along with the other E&E partners, all had access to and an opportunity to consider the terms of the HWL Partnership Deed. Further, the E&E partners were aware that the individual deeds that the E&E fixed draw partners would be required sign, subject to any negotiated amendments, reflected the standard form of deed for fixed draw partners already in use within HWL. 69 In those circumstances, and given it was E&E seeking the merger because of financial difficulties, it is most unlikely that HWL intended to offer a higher level of security to fixed draw partners of E&E - even for 14 months - that was not enjoyed by any existing partner at HWL and not hitherto enjoyed by any E&E partner. Years of service with E&E

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70 It was contended for the applicant that the contract was unfair in that the applicant could be terminated on one month's notice in circumstances where that period of notice was not long enough in all the circumstances, noting inter alia, the length of service of the applicant with E&E. 71 Initially I had formed the tentative view that Mr Kennedy's situation was akin to that of an employee, and in some respects it is. From that perspective, it could appear to be unfair that a person who had spent 36 years with a firm received only one month's notice of termination of his contract shortly after there had occurred what might be regarded as a transmission of the firm's business to another firm. 72 However, even if that were an acceptable premise for considering the fairness of the notice period (there is a respectable argument that a partner in a law firm is more akin to a self-employed person), what may not be overlooked is that Mr Kennedy was an experienced lawyer well versed in employment law, who voluntarily agreed to take up the position of a fixed draw partner with one of the conditions, which was well known and understood by him and which he chose not to re-negotiate, being one month's notice of termination if the period of continuous service with the new firm was less than three years. There was no evidence that Mr Kennedy was led to believe that his years of service with E&E would be deemed to be years of service with HWL, for the purpose of calculating his notice entitlement. Indeed, he chose not to ask the negotiating committee to negotiate a notice period which would, in his view, recognise his years of service with E&E. 73 It was contended that not to give full weight to Mr Kennedy's service with E&E would fail to give appropriate recognition to the fact that Mr Kennedy relied on the representations that HWL's acquisition of E&E was a merger. It was submitted Mr Kennedy had been taken in by this misrepresentation. He was led by it to believe that HWLE would carry on, and give effect to, the values of fairness and integrity that had characterised E&E, where it had not been his experience that partners were discarded without the benefit of any procedural fairness. 74 Putting aside the question of procedural fairness, which I shall deal with later, even if E&E had survived and Mr Kennedy had remained with that firm, his notice of termination would have been subject to the provisions of the E&E Partnership Deed, which provided: A Partner will cease to be a Partner if a resolution that the relevant Partner resign is passed by Special Majority, on the day three months following the date of that resolution (provided that the relevant Partner has had 14 days written notice of the proposed resolution (and the basis) for it and is provided with an opportunity prior to the passing of the resolution to convince partners not to support the resolution). 75 It was submitted for the applicant that Mulford v Butterell [2001] NSWIRComm 137 at [105] was a useful analogy. There it was held by Schmidt J in relation to a former partner of an accounting firm: [105] The upshot of all of these matters is that I have been persuaded that in the circumstances of this case, having in mind the longstanding relationship between the parties, the nature of the business they had in common, the provisions of the deed and the circumstances in which the relationship was brought to an end, including the parties' respective conduct, which I have outlined, a notice period of 12 months was appropriate to redress the unfairness found. 76 Even if the Court were to find procedural unfairness in relation to the termination of Mr Kennedy's contract, the difficulty in accepting that 12 months' notice was appropriate is that the maximum Mr Kennedy would have received under the E&E Partnership Deed was three months. On any view of it, the applicant could not be entitled to be put in a better position than he would have been in had the E&E provisions regarding termination been incorporated in his individual Deed.

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80 In any event, Mr Kennedy understood there would be a remuneration review in accordance with cl 3.2 of the Addendum MOU. He was also aware that a partner in Melbourne did not agree with his review and had to leave HWL. He was also aware that a capital partner in Brisbane had become a fixed draw partner. Additionally, a solicitor of Mr Kennedy's background, which included time as a managing partner, must have expected that there would be a review of performance given that the lawyers of E&E had been taken on as a 'job lot' without any pre-screening process and it would be reasonable for him to expect that the merged firm would want to know about partners' plans to sustain or build their practice. Mr Kennedy could not reasonably have expected it would be business as usual and that a situation where he had hardly any current work would be acceptable in the new environment. 81 However, Mr Kennedy went into the meeting with Mr Martinez on 30 July 2008 seemingly regarding it as an opportunity for a friendly chat without any thought that he might be called upon to discuss any ideas he may have had to improve his work flow to a level that would be acceptable for a fixed draw partner. This attitude is reflected in Mr Kennedy's statement to Mr Martinez: 'My approach at the moment is really a month to month … I need to have referrals within the firm and not from the outside …' 82 Nevertheless, insofar as the meeting on 30 July is concerned, Mr Kennedy should be given the benefit of the doubt that he was not sufficiently forewarned of the purpose of the meeting and was not aware of Mr Martinez' adverse view. However, I accept Mr Martinez' evidence that he remonstrated with Mr Kennedy to the following effect: 'Isn't that a hopeless position for a partner? How can that be a vision or a basis on which to rebuild a practice which is fundamental for a Partner? Otherwise we could simply have an associate in the position to do the work'. Peter made no response to this statement by me. 83 That Mr Martinez is likely to have remonstrated with Mr Kennedy in the manner described is consistent with the managing partner's concern about Mr Kennedy's performance and Mr Martinez's commitment to a more rigorous environment regarding performance. The notion that the meeting was simply a friendly chat with Mr Kennedy leaving the meeting with no idea that there was concern on Mr Martinez's part about Mr Kennedy's lack of initiative is not consistent with Mr Kennedy's later speculation that the meeting scheduled for 3 September 2008 might have been for the purpose of informing him his remuneration was to be reduced. Mr Kennedy's approach to another law firm after the meeting on 30 July 2008 about whether a position might be available, adds weight to the likelihood that Mr Kennedy came away from the 30 July meeting with the impression that the managing partner was less than satisfied with Mr Kennedy's failure to explain how he might rebuild his practice. 84 Further, it is apparent that Mr Martinez did harbour a real concern about Mr Kennedy's month-to-month statement. That is reflected in the fact that he drew it to the attention of Messrs Johnston and Graves in his email to them on 14 August 2008 and also recounted the applicant's remark to Mr Belling in a conversation in late August 2008. Given that he held that concern, the greater likelihood is that Mr Martinez would have expressed it to Mr Kennedy at the meeting on 30 July. Whether applicant knew of purpose of meeting on 3 September 2008

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(b) Mr Kennedy was aware that he had hardly any current work and had not been able to articulate any firm idea about how he might rebuild his practice other than rely on internal referrals; (c) Mr Kennedy conceded in cross-examination that he had a 'fairly good idea that it might not be a friendly or happy meeting'; (d) he knew that the 3 September meeting was the time for him to 'put his best foot forward'. 87 Critically, however, despite Mr Kennedy's denial, I accept that in late August 2008 Mr Belling had a conversation with the applicant to the effect quoted earlier in this judgment where Mr Belling indicated to Mr Kennedy that Mr Martinez had 'some concerns about your practice and maintaining your status as a partner …' and that Mr Martinez 'may make you an offer as to consultancy or some such.' Mr Belling counselled Mr Kennedy to think seriously about such an offer. 88 Mr Belling had a clear recollection of this conversation with the applicant. What stuck in his mind about it were two things: (i) that he was very surprised with the applicant's lack of response to the propositions that Mr Belling put to him; and, (ii) because in warning him and providing advice about how to negotiate the situation, that he was being 'a bit naughty', as Mr Martinez had said that Mr Belling need not speak to the applicant in advance of the 3 September 2008 meeting. 89 Apart from the possibility that his recollection was faulty, no suggestion that he manufactured his evidence was put to Mr Belling by counsel for the applicant for the reason, I suggest, there was no proper basis for doing so. On the other hand, any acceptance by the applicant that the conversation occurred would have been quite inconsistent with his pleaded case that he went into the meeting on 3 September not knowing its nature and purpose. 90 The other thing that is apparent from Mr Belling's version of what was said in his conversation with Mr Kennedy, which gives it an added ring of truth, was Mr Kennedy's non-responsiveness to issues of quite some significance to the applicant. This strikes me as characteristic of Mr Kennedy's whole approach to matters that are put to him that he either inexplicably did not wish to engage about or he knew that what was being put to him was correct. He was non-responsive to Mr Martinez' remonstrations at the meeting on 30 July by, for example, failing to assert his belief that he was meeting the financial KPIs, which was all he was required to do; he complained that matters were not drawn to his attention during the merger between E&E and HWL, but never sought to ask any questions about the matters; he complained that he was not given the opportunity to be made a capital partner with HWLE, but never put forward any application to become a capital partner; he had little involvement in negotiating his individual partnership deed; he asserted he went over to the merged practice 'in the dark', but did not ask questions to clarify any concerns he may have had; and he made no protest that a consultancy or termination of his contract was not open to the respondents because he had a guarantee of tenure until 30 June 2009. Meeting on 3 September 2008

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91 The purpose of the meeting on 3 September 2008 was to provide Mr Martinez with the opportunity to inform Mr Kennedy that his tenure as a fixed draw partner was terminated and to offer him a consultancy on a salary of $125,000 per annum. The rational for doing so was that explained to Mr Kennedy to the following effect: Your performance and your inability to rebuild a practice make it impossible for you to stay in that role. In particular your inability to detail a plan for the future as a partner beyond taking it "a month by month". 92 Although Mr Kennedy denied these words were said, I accept Mr Martinez said words to the effect of those quoted above. The words reflect the purpose of the meeting and I find there is no reason to disbelieve Mr Martinez about this meeting. 93 As I earlier mentioned, although Mr Martinez did not advise Mr Kennedy of what he intended to do at the meeting on 3 September, Mr Belling forewarned Mr Kennedy. Mr Kennedy's response at the meeting was almost benign notwithstanding he knew what was coming. It was an opportunity to say to Mr Martinez that he had not had sufficient warning his role as a fixed draw partner was at risk and that he needed time to prepare a proper plan to rebuild his practice; it was an opportunity for Mr Kennedy to question the basis upon which Mr Martinez had come to his decision; it was an opportunity to say to Mr Martinez that it was his (Mr Kennedy's) understanding that if he were meeting the financial KPIs that was all that was required of him and, therefore, no grounds existed to terminate his contract as a fixed draw partner; and it was an opportunity to assert his belief that he had tenure until 30 June 2009. Mr Kennedy did none of these things despite his undoubted capacity to do so borne of over 30 years' experience as a solicitor, most of those years having been spent as a partner. 94 Moreover, it is an untenable proposition for a solicitor of Mr Kennedy's experience and standing to contend that he was left 'in the dark' about what was expected of him as a partner and what criteria applied to a partner. Even if Mr Kennedy did not know instinctively what was required of him in the new environment, it was spelt out in presentations to partners prior to the merger and he could not have been under any misapprehension that from the commencement of the merged firm there was to be a new level of rigour as to acceptable performance across all parameters, financial and otherwise. Assuming even then that he was still none the wiser as to what was required of him, the meeting with Mr Martinez on 30 July, and it being made clear a month-to-month approach was not acceptable, the obvious question would have been, 'well, what is it that you expect of me?' But such a question was not asked. 95 In the absence of any defence by Mr Kennedy of his position or any proposal to rebuild his practice, Mr Martinez was entitled to proceed with his proposal to terminate Mr Kennedy's contract and to offer a consultancy. It is readily apparent that Mr Kennedy did not have a practice that would sustain his position as a fixed drawer partner nor any plan or strategy to improve the position he was in. It is not a tenable proposition that provided Mr Kennedy was meeting the financial KPIs there was no obligation to take steps at least to ensure that would continue to be the case in the future and to look for opportunities to grow the practice. That was clearly part of the obligation on fixed draw partners in the merged firm, but in Mr Kennedy's case there was a complete lack of initiative That a senior partner (and former Managing Partner) like the applicant would have believed that his performance would only be assessed as if he was a senior associate or as an employed solicitor in th enew environment is a proposition I am unable to accept. 96 The applicant admitted that even at E&E, his performance as a fixed draw partner was assessed by reference to revenue (50 per cent) and other contribution to the firm (50 per cent). Mr Martinez indicated that a similar approach was adopted within HWL. 97 It was contended for the applicant that the basis upon which Mr Martinez decided to terminate Mr Kennedy's fixed draw contract and to offer a consultancy, was entirely subjective. That cannot be accepted in the light of the following considerations: (a) the evidence supports the conclusion that at the time of the merger Mr Kennedy's practice was at a low ebb and that he faced difficulty rebuilding it; (b) despite the opportunity for Mr Kennedy to do so, he offered no defence of his position and failed to offer a way forward in rebuilding his practice; (c) Mr Martinez had access to the applicant's former partners, namely, Messrs Graves and Johnston who advised Mr Martinez of the real and longstanding difficulties that the applicant had experienced in rebuilding and sustaining a substantial practice; (d) Messrs Graves and Johnston had advance notice of and supported the managing partner's proposal that the applicant be changed from a fixed draw partner to a consultant as and from September 2008; (e) Mr Belling did not oppose the proposal to offer Mr Kennedy a consultancy and advised Mr Kennedy to think seriously about it; (f) Mr Martinez had access to reports from Mr Patterson about how the applicant was 'tracking' in the new firm. Those reports were in a negative vein; (g) Mr Martinez had an opportunity to make his own assessment of the applicant and his likely suitability to continue as a fixed draw partner in the new firm when he met with him on 30 July 2008; (h) the applicant did not call any present or former capital or other fixed draw partner from the new firm to suggest that the applicant's situation had been inappropriately managed and/or that he had been unfairly treated. The consultancy

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106 Subjectively, one might be tempted to conclude that a person who has served a firm for 36 years and for a period of that, at the highest level, is entitled to more that one month's notice that his contract will be terminated and that to provide for only one month's notice is patently unfair. Subjectivity though, is not the test. One is required to consider the facts objectively and apply the law. 107 In doing so, the Court is required to have regard to all the circumstances, including the conduct of the applicant. In this case, the particularly unusual feature is that the applicant was a lawyer of very considerable experience who practised in the field of employment law and had experience in the unfair contracts jurisdiction. He was exceptionally well placed to know and understand the terms of any contract under which he was to provide his services, to avoid any exploitation or disadvantageous arrangement that he may have been asked to accept, and to defend any unfair or wrong criticism of his performance. 108 At the time of the merger, the applicant's practice was not strong and his firm was struggling to survive. Negotiations between E&E and HWL occurred involving senior lawyers, due diligence was carried out and the applicant was satisfied the merger should occur. The applicant had access to all relevant documentation regarding the merger. The applicant raised no objections to the MOU or the Addendum MOU. The applicant allowed a partner of E&E to negotiate his individual Deed of Agreement. The applicant raised no objection to the terms of the Deed and signed it. The applicant was well aware of the notice provisions in the Deed. The proposition that the Addendum MOU provided a guarantee of tenure until 30 June 2009 and took precedence over the notice provisions of the Deed is untenable for the reasons I have given. 109 At the time of the merger, the applicant had hardly any current employment work. He admitted as much. There was a proper basis upon which Mr Martinez formed an adverse view of the state of the applicant's practice. The applicant was given a clear signal at the meeting on 30 July 2008 that the managing partner was dissatisfied with Mr Kennedy's month-to-month approach to his practice and was seeking more from the applicant in respect of his plans for building up the practice. It was a reasonable expectation of Mr Martinez that a person of Mr Kennedy's background would have some constructive proposals regarding his practice and an understandable disappointment when this was not forthcoming. Mr Kennedy could not have failed to understand that he was now required to operate in a more rigorous environment both in terms of financial and performance objectives and that it would not be business as usual. 110 Despite the clear signal from Mr Martinez that a month-to-month approach was not acceptable, Mr Kennedy took no steps to develop proposals to build his practice and advise Mr Martinez accordingly. A proposition that Mr Kennedy was not specifically asked to undertake this task gives no credit for Mr Kennedy having an insight into what was required, an insight, because of his calling and experience, that he undoubtedly had. 111 But even if the message did not get through as a result of the 30 July meeting, Mr Kennedy was forewarned by Mr Belling in late August 2008 that Mr Martinez had some concerns about his practice and maintaining his status as a partner and that Mr Martinez may offer Mr Kennedy a consultancy. Still, Mr Kennedy remained completely and utterly unresponsive, either by way of failing to take steps to formulate plans regarding the future of his practice or failing to defend his position in the manner he has attempted in his application for relief in these proceedings. 112 In the result, the respondents decided to terminate Mr Kennedy's contract in accordance with the provisions of the relevant Deed and offer to him a continuing role with the firm as a consultant. That was not an unreasonable offer. Mr Kennedy rejected that offer. 113 I am unable to find the pleaded contract was unfair. ORDER AND DIRECTIONS

Kennedy v Martinez

At a glance

Court

Decision date

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Judgment (59 paragraphs)

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Cases Cited (2)

Cited By (2)