Lau v Bob Jane T-Marts Pty Ltd [2004] VSC 69

The plaintiff further claims that if he was not entitled to remuneration in accordance with a contract having a minimum term of five years he is entitled to damages in lieu of reasonable notice. The defendant concedes that a term was to be implied into the plaintiff's contract requiring the giving of reasonable notice from the defendant to the plaintiff upon termination of the plaintiff's employment.

Supreme Court of Victoria|2004-03-11|Before: OSBORN J

The application of this fundamental principle to contracts of employment was illustrated in the decision of the New South Wales Court of Appeal in Biotechnology Australia Pty Ltd v Pace[16]. In that case it was held that the promise of an option to participate in a non-existent equity share scheme, being dependent for its formulation on factors special to the particular employment relationship, was incapable of being valued in accordance with any existing or reasonable standards. It was therefore illusory and did not give rise to an enforceable contractual obligation. Kirby P summarised the relevant general principles applicable at p.135 and stated that the Court would not uphold the validity of an agreement where in effect it was asked to spell out to an unacceptable extent that to which the parties had themselves failed to agree. Nor would the Court clarify that which is irremediably obscure. Most particularly the Court would not accept for itself a discretion which the parties had, by their agreement, reserved to one or other of them. To do so would not be to effect the contract but to change it.[17]

In the present case the parties agreed to the development of a bonus incentive scheme. The scheme itself was, however, never finalised and the defendant never agreed to pay the plaintiff an ascertained or ascertainable sum. Moreover the evidence does not satisfactorily establish that the profit target contemplated for the proposed scheme was ever achieved. Accordingly the plaintiff's claim must fail.

The plaintiff further claims that if he was not entitled to remuneration in accordance with a contract having a minimum term of five years he is entitled to damages in lieu of reasonable notice. The defendant concedes that a term was to be implied into the plaintiff's contract requiring the giving of reasonable notice from the defendant to the plaintiff upon termination of the plaintiff's employment.

In Rankin v Marine Power International Pty Ltd[18] Gillard J stated:

"In determining what is a reasonable period in respect to an employee, it must be steadily borne in mind what the primary purpose of giving a period of notice is. It is to enable the employee to obtain new employment of a similar nature. Some types of employment are readily available, whilst others are not. Those who are at the top or near the top of their chosen fields, invariably have very few opportunities to obtain similar employment and hence, the period of notice is usually many months to in excess of a year."[19]

In Quinn v Jack Chia (Australia) Ltd[20] Ashley J stated the relevant principles governing the notion of reasonable notice as follows:

"It was common ground that the content of "reasonable notice" is to be determined as at the date when notice is given, not when the contract is entered into. In this context matters occurring antecedently to the making of and in the course of the performance of the contract up to the date of termination are not irrelevant. Macken et al, Law of Employment, pp.157-8, lists certain pertinent considerations. Thus, for example: the duration of the hiring; industry practice; the seniority of the position held; the importance of the position held; the size of the salary; the worker's age; the worker's length of service; what the worker gave up to come to the present employer; the worker's prospective pension or other rights."[21]

The most recent addition of the text to which Ashley J refers[22] states at p.171 that in addition to the duration of the hiring and industry practice, other relevant job related factors include the "high grade" of the appointment; the importance of the position; the size of the salary; and the nature of the employment. Relevant factors which pertain to the employee include: the length of service of the employee; the professional standing of the employee; the employee's age; the employee's qualifications and experience; her or his degree of job mobility; the expected period of time it would take the employee to obtain alternative employment; the period it was likely, apart from the dismissal, that the employee would have continued in the employment; what the employee gave up to come to the present employer; and the employee's prospective pension or other rights.

The factors which determine what is reasonable in a particular case must of course turn on the facts of that case. In the present case the defendant now contends three months would be reasonable notice objectively determined and not the one month which in fact formed the basis of the payment which the defendant made to the plaintiff upon the termination of his employment.

I have come to the conclusion that six months was the appropriate period for reasonable notice in the present case. Such a period is in my view reasonable having regard to the following principal factors:

* The seniority and importance of the plaintiff's position as Chief Executive Officer.

* The evidence of Mr Coysh (which I accept) that the plaintiff might reasonably have been expected to obtain an equivalent position within six months. In this regard I prefer the evidence of Mr Coysh to Ms Deane. In my view Mr Coysh demonstrated a more convincing expertise and knowledge with respect to the relevant market.

* The relatively high level of the plaintiff's remuneration which could not be expected to be readily replicated elsewhere.

* The expectation reflected in the discussions between Bob Jane and the plaintiff at the time of the plaintiff's employment that he might reasonably have expected to continue in his position as Chief Executive Officer for five to seven years.

* The identification by the plaintiff at the time of his sacking of six months as the minimum reasonable notice.

I do not accept that the other matters to which Mr Hayes referred in submission including the prior continuous record of employment of the plaintiff, the apparently high level of his qualifications, his relatively young age (41) and his prior degree of job mobility, lead to the conclusion that a lesser period is appropriate.

Conversely I do not accept that the facts in this case are sufficiently analogous to those before the Court in the cases of Quinn and Rankin to justify the greater period of 12 months.

A further question arises as to how damages in lieu of notice should be assessed. Following his initial employment and the defendant's letter of 17 November 1999 the plaintiff advised the defendant's pay officer, Nikki Berger, of his understanding of the terms of his remuneration. These terms were that he would be paid $180,000 per annum, plus superannuation and would receive the use of a car. Bob Jane has given evidence that what he intended by the letter of 17 November 1999 was remuneration of $180,000 per annum, plus a car but inclusive of superannuation. Nikki Berger has given evidence in turn that contrary to the plaintiff's assertion, she was not provided with a copy of the letter of 17 November 1999 at about that time. However, had she been provided with such a letter, she would have had further different understanding of it as a result of previous experience with Bob Jane. It might be said that the apparent plain meaning of the letter accords with none of these understandings.

Critically, however, Ms Berger gave evidence that she did not accept the advice she received from the plaintiff. She sought independent confirmation from Bob Jane of what she should pay the new Chief Executive Officer. Following this inquiry she was advised by Alex Chung (the General Manager of Corporate Affairs for the Bob Jane group of companies) that the plaintiff was to receive $180,000 gross per annum and she understood this from prior experience to mean that the plaintiff would receive superannuation in addition to this.[23] She knew independently that the plaintiff had been given the use of a car and her understanding thus accorded with the plaintiff's understanding of the arrangement and it was on this basis that the plaintiff was paid throughout his employment. In these circumstances I am satisfied that the apparent lack of consensus between the parties as at 17 November 2000 was resolved shortly thereafter and the defendant did in fact agree to pay the plaintiff on the basis that he was in fact paid. Confirmation of that agreement was effected firstly, by the independent instruction to Nikki Berger by Alex Chung to pay the plaintiff and secondly, by the ongoing making of such payments which can only have been regarded by the plaintiff as confirmation of the arrangement as he had understood and asserted it.

After his employment was terminated the plaintiff took reasonable steps to mitigate his loss during the relevant six months period. He initially sought to embark on a business venture which ultimately failed. In addition he set out on a series of extensive job applications. I am satisfied that the steps taken by the plaintiff were reasonable in this regard.

In the circumstances the plaintiff is entitled to the following:

(a) six months gross salary $ 90,000

(b) superannuation at 7% $ 6,300

(c) use of a motor car for six months

(valued by Bob Jane whose opinion I accept)

at $15,000 per annum[24] $ 7,500

$103,800

less amount paid $13,846

and one month motor car $ 1,250 $ 15,096

$ 88,704

The Counterclaim

The counterclaim relates firstly to alleged overpayment of superannuation and car allowance. The second matter is inconsistent with the evidence of Bob Jane himself, but in any event, for the reasons I have stated, I do not accept the plaintiff was paid superannuation or provided with a car otherwise than with the agreement of the defendant. Further, I note that this counterclaim was originally based on allegations of fraud which are now withdrawn. In my view it was originally misconceived and despite amendment remains unsupported by the evidence.

The further counterclaim relates to alleged overpayment of one week of annual leave entitlement and $371.50 of expenses. This claim is premised on the proposition that the plaintiff without the authority of the defendant treated a trip to the Sydney Olympic Games as part of his employment and further claimed incidental expenses relating to that trip. It is again to be observed that the evidence of Bob Jane was not consistent with the counterclaim as formulated. Bob Jane stated in evidence that he understood the counterclaim involved a claim with respect to one week's leave after the trip to the Olympics and also that it involved a question of airline expenses.[25]

I accept the plaintiff's evidence that the trip was offered to a senior representative of the defendant by key suppliers with whom the defendant's image and relationship was of some business importance. Bob Jane himself was unable to attend and the plaintiff sought approval to attend as the company's representative. I further accept that this approval was given. The expenses claimed were modest in the extreme and relate in part to ongoing communication with the defendant's office in Melbourne.

Once again, this counterclaim was originally formulated by way of allegations of fraudulent conduct. It was originally misconceived and in my view remains unsupported by satisfactory evidence.

Accordingly the counterclaim is dismissed and for the reasons I have already stated the claim is allowed in part.

Following our first discussion on this subject which I am committed to in principle, I have done some more thinking.

First of all I/we believe that the kind of incentive is most desirable and to some point very necessary as a tool for you as CEO to use to drive the company.

Since talking to you matters relating to our 2 directors while nothing has changed in my mind (sic).

At the board meeting on Wednesday there is a possible new director where AC will continue his role with Rod and I on sourcing product and MR will continue on the board with some specific responsibility. These responsibilities are outside managers and include matters like the bank, the wash up of sales tax, the finalisation of the end of year 1998/1999.

I can see that I am most probably committed to paying or making provision of the 2 x 5% total 10% to these 2 directors.

With this commitment still in place I have adjusted my thinking slightly to take this commitment into account.

For the first period Jan 1 2000 to June 31 2000 the formula I suggest should be -

Take 90% of the profit before tax, not audited yet but reasonable expected profit.

Open as you say to all permanent staff and not including people like Garry Philpott who commission is related to WA and who is well paid if not overpaid and any like person in our employ or under contract.

The percentage I have now in mind is as follows. Using your criteria as in 3 is as follows.

Management team 2½% range $175K to $350K for ... for disbursement

All staff 2% range $140K to $280K for disbursement.

Thomas this is a total of 6½% paid on 90% of estimated profit for the Jan 1 2000 to June 1 2000.

Based on how this works in the first period we will be in a much better position than we are now to estimate what this bonus system will provide for all parties participating.

I would on that basis review this bonus system for the next 12 months July 1 2000 to June 31 2001 paid in 2 parts, first half year paid in say August for the period up to June 31 2000 and in August 2001 for the period up to June 31 2001.

Tom I believe in spite of the slight changes of 9% and 6½ from 7½ that bonus system will work well.

[1] Defendant's court book 1168. I shall refer to the defendant's court book as the "court book" and identify exhibits principally by reference to it for the sake of convenience.

[3] Ryan v Textile Clothing & Footwear Union of Australia [1996] VicRp 67; [1996] 2 VR 235, FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] VicRp 76; [1993] 2 VR 343 and Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153.

[17] Kofi-Sunkersette Obu v A. Srauss & Co Ltd [1951] AC 243 at 250 (PC)..

"... The case involves the objective determination of the intention of the parties from a consideration of a series of communications exchanged by them in the context of their dealings over a period of time. In those circumstances it is both appropriate and necessary to have regard to the commercial circumstances surrounding the exchange of communications and, in particular to the subject matter of those communications: Allen v Carbone [1975] HCA 14; (1975) 132 CLR 528 at 531-532. Furthermore, as was noted earlier, it is proper to have regard to communications between the parties subsequent to the date of the alleged contract to the extent to which those communications throw light upon the meaning of the language which is being considered for the purpose of determining whether it expresses an intention one way or the other upon the critical matter. At the least, such subsequent communications will often form part of the context in which the particular exchanges in question are to be evaluated."

At a glance

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Judgment (51 paragraphs)

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Cases Cited (6)