29 The Employment Agreement did attach the "draft KPIs" referred to in Item 8. As was noted in the Offer Letter, the amount of the STI (which was to be calculated "in accordance with agreed KPIs which will be based on financial and non-financial targets as detailed in the KPI document attached (draft)") was to be $250,000. This was reflected in the documents attached to, and comprising part of, the Employment Agreement relating to the STI, which comprise pages 75-7 of Exhibit B (STI Schedule). The STI Schedule itself comprised three separate documents being: (a) a list of KPIs for FY2014; (b) a 'Scorecard' comprising a 'Corporate scorecard' for FY2014 (which set out various corporate targets, weightings and KPI values for those targets for that financial year) and a 'Divisional scorecard' for FY2014 (which set out 'Financial' and 'Non-Financial' KPIs, indicated targets, assigned weightings and provided a value for these targets for that financial year); and (c) a document describing a 'Divisional (Additional) Incentive', referable to a KPI value, if the EBITDA target contained in the Divisional scorecard had been exceeded by sums identified in $500,000 increments. The confusing nature of the STI Schedule is examined further below.
30 Of course, Mr Leahey's first full year as an employee of CSG was FY2014. The draft KPI targets, as set out in the second document of the STI Schedule, appear to set the anticipated targets for the payment of the FY2014 STI (in respect of which there is no complaint). It is unnecessary to determine whether these draft KPIs, that is, the Scorecard for FY2014, changed. What is relevant to note, for present purposes, is that after entry into the Employment Agreement, Mr Leahey received an amount comprising his anticipated STI entitlements in monthly instalments.
31 As to the LTI, pursuant to the Rules, it is common ground that Mr Leahey also received what were described by the parties as 133,333 'shares', which were allocated on 2 December 2013 (by which, I infer, 133,333 Performance Rights were allocated). In January 2014, Mr Leahey was granted 93,333 additional "Stage 1" Performance Rights.
32 On 1 July 2014, Mr Leahey, who previously had held the title of "Regional General Manger, NSW & ACT", was appointed as the regional general manager of South Australia. Not long thereafter, in August 2014, he had a discussion about what additional amount he was going to be paid for taking on responsibilities in relation to South Australia with Mr Declan Ramsay, the "Executive General Manager (Business Solutions Australia)" of CSG, to whom Mr Leahey directly reported.
33 On 10 October 2014, Mr Leahey was provided with a draft Scorecard for FY2015 and, shortly thereafter, had a conversation with Mr Ramsay about his draft Scorecard, during which he and Mr Ramsay wrote on the draft Scorecard with suggested changes. It will be necessary to return to the issue of the Scorecard for FY2015 in more detail (and make additional findings) in Section E below.
34 Nothing of any enduring relevance occurred until 1 September 2015, when Mr Leahey participated in a performance review with Mr Ramsay (September 2015 Meeting). Mr Ramsay raised no significant issues in relation to Mr Leahey's performance. During the September 2015 Meeting, Mr Leahey again enquired about an increase to his base salary for managing South Australia, about payment (or more properly, the finalisation of payment) of the FY2015 STI and also details in relation to what needed to be achieved in order to obtain the FY2016 STI. The conversation, to the extent that it related to the FY2016 STI, was as to the provision of a Scorecard referable to that year.
35 On 16 September 2015, Mr Leahey received an assessment of his performance against what was said to be the Scorecard for the FY2015 STI. At around that time, Mr Leahey telephoned Mr Ramsay and disputed that the FY2015 Scorecard (that had been used to assess his performance for FY2015) was the Scorecard that had previously been provided to him, and disputed how his performance had been assessed.
36 It was around this time, in September 2015, that Mr Mark Thomas joined CSG in a senior management role with the title (reflecting the peculiar lexicon of modern management) of "Chief People Executive".
37 On 26 October 2015, Mr Ramsay sent Mr Leahey an email setting out options for payment of the FY2015 STI. It was as follows:
As per our conversation on 16th September please see the below summary:
Attached are the 2 versions of the STI for FY15.
1. The official STI that was reviewed and approved by the CEO
2. The second [STI] that was re done by you and I. (PDF you provided to me)
I have also provided a spreadsheet of the 3 different outcomes of the 2 STI's [sic] above and a DR proposed
1. First one is the one approved by CEO stating an amount of -$42 887 is owing by you to CSG due to the pre-payment
2. A DR proposed showing a payment to you from CSG of $27 113 after pre-payment and also a Q1 16 pre-payment with no further pre payments to bring in line with all others in the Business. Total payable to you by CSG of $77 114 - TO BE APPROVED BY CEO
3. A FL proposed as per the STI you provided me showing an amount owing by you to CSG (including a Q1 16 advance payment) of -$63 486.
Can you please advise what option on the spreadsheet FL STI - 1, 2 or 3 you are suggesting we take to the CEO for approval.
Once we receive your suggestion this will be presented to the CEO for final approval and payment depending on the option you select. This will then close out FY15. If you have a different view can you please document it in detail for our consideration.
We are then happy to have a conversation regarding the FY16 STI structure, the base pay plan amount and the company policy around payment policy and industry benchmarking.
38 The day after, Mr Leahey responded to Mr Ramsay's email, and made an enquiry about his remuneration in which he stated, among other things, that:
I am aware that I technically did not meet the criteria for this part of the incentive payment (that is, the FY2015 STI) but I never received a salary increase for taking on the South Australia part of the business and this was something that I had requested and discussed with you and HR several times. I strongly feel that with SA I have turned an underperforming part of the business around and deserve some compensation.
I understand that with the nature of business things change including targets but I also feel that targets need to be fair and achievable. Sales is an incentive driven business and receiving targets in November each year does not make things easy, it would be preferable to commence the year with agreed targets in place and not have to wait 4 months into the year to find out what target numbers are…
In relation to the structure of FY16 I am more than happy to get in line with the rest of the business and look forward to sitting down with you and [Mr Thomas] to work out the best way to do this…
39 It is important to put this email into some context. It was copied to Mr Thomas and the reference to getting "in line with the rest of the business" was a reference to the fact that Mr Leahey had been paid his STI on account during the year, rather than being paid after the final determination of quantum after the end of the financial year. The evident frustration of Mr Leahey in relation to finalisation of his FY2015 STI and the belated setting of targets was entirely understandable. It was now October 2015, well into the second quarter of FY2016, and yet the position as to the FY2015 STI had not been finalised (let alone targets set for FY2016). This is against the background that the STI Schedule (Exhibit B, page 76) had made clear that amounts were to be paid to Mr Leahey progressively on account by reference to achievement to date. Further, all "other bonus entitlements will be paid after the annual declaration of the financial results (late August)" (underlining added). How could CSG assess an additional bonus when it was tardy in resolving the final amount paid by way of STI?
40 The STI was a very important part of Mr Leahey's agreed contractual remuneration. It is apparent that within the management of CSG there was a view that the payment of STI was a form of pure discretionary bonus; indeed, from time to time, there was reference to the STI payment being a 'bonus' (see, for example, the reference in [39] above where the underlined word 'other' implicitly suggests the STI is a species of 'bonus', or the evidence of Mr Thomas extracted at [59] below). Indeed, it was often referred to as a 'bonus' during the course of hearing by Counsel for CSG. On one level this is explicable as it was not the same as base salary and the amount of payment was dependent on achievement of financial and non-financial performance targets. Moreover, it seems to me that discretionary considerations would come into play when EBITDA targets were very substantially exceeded (see the 'Divisional (Additional) Incentive' at Exhibit B, page 77). This 'Divisional (Additional) Incentive' received no attention in the case, because EBITDA never reached the level which would have meant it became relevant.
41 Having noted this, at least insofar as Mr Leahey was concerned, there was a contractual obligation to pay the STI upon achievement of KPI targets and, as I explain below, an obligation to discuss and then set 'agreed' targets in a timely way in order to allow Mr Leahey to obtain the benefit of the Employment Agreement. As it turns out, it appears that a consequence of management treating the STI as though it was a pure discretionary bonus caused dilatoriness and uncertainty in setting targets, of which Mr Leahey complained. The confusion as to the FY2015 Scorecard - which was still being debated four months after the end of the FY2015 financial year (see [37] above) - is a case in point: these were supposed to be prospective KPI targets against which an employee was to have his or her contractual remuneration later assessed and (at least with respect to Mr Leahey) was to be monitored and paid progressively throughout the year. It seems remarkable that the affairs of CSG were being conducted in such a way as to result in the uncertainty that Mr Leahey had to endure. It is perhaps stating the obvious to remark that a 'target' as used in the present sense is, as a matter of ordinary English, a goal or object aimed at or to be attained. Leaving aside for a moment the content of any contractual obligation, to set targets after the time has passed during which efforts could be made to meet them is not only intuitively odd but is also behaviour apt to cause the sort of uncertainty which is a cause of some of the problems that have arisen in this case. In making this comment I am conscious, as is evident in the following paragraph, that budgets were no doubt distributed in a timely way. However, the remuneration structure set up by the Employment Agreement, properly construed, necessarily required the question of KPIs to be looked at ex ante and not ex post (at which time final assessment against those targets would occur). Another apparent manifestation of the view that STI payments were purely discretionary was the diktat, which later emerged, without any reference to CSG's contractual obligations (to at least Mr Leahey), that no FY2016 STI payment would be made (see [59]-[60] below).
42 In any event, returning to the narrative and the FY2016 year, on 2 November 2015, Mr Leahey had an exchange of emails with Mr Ramsay in which Mr Leahey noted that he was on target to exceed his budget for New South Wales (with a possibility of exceeding budget if certain deals went through), and would only be slightly behind budget for the Australian Capital Territory and South Australia. The email chain acknowledged that Mr Leahey was unlikely to hit his so-called 'EBITDA number' for New South Wales and Mr Ramsay noted that Mr Leahey was "[$]1M behind" budget.
43 On 3 November 2015, Mr Leahey sent an email to both Mr Ramsay and Mr Thomas requesting payment of his FY2015 STI, as well as following up on the email he had sent on 27 October 2015. In this email, Mr Leahey noted: "I really need to get paid".
44 On 23 November 2015, for the first time, Mr Leahey attended a meeting (November 2015 Meeting) in which any performance issues were raised with him. That meeting had been arranged to discuss the finalisation of issues relating to the FY2015 STI issue and also, it seems to me, the outstanding issue of finalisation of the targets for the FY2016 STI. Two days later, Mr Leahey received an email from Mr Ramsay summarising what were said to be the "key messages" that arose from the meeting held on 23 November 2015. This is an important email, which usefully sets out how CSG perceived its 'reward structure', and is worth extracting at some length:
[Mr Leahey]
As promised, I have documented the key messages from the discussion [Mr Thomas] and I had with you on Monday 23rd November 2015. I have done this so there is a clear understanding of expectations and where we stand so we can now move forward in a positive manner.
Remuneration
To summarise your remuneration is:
Salary $250,000 pa
Superannuation $19,307 (this is the current legislative Superannuation cap)
STI $250,000 pa split (20% company performance, 80% Divisional performance)
LTI 457,143 Performance Rights under the 2012- 2015 plan
While much of our discussion was remuneration related it is important to acknowledge that CSG's reward structure is important to our 'high performing' culture. As discussed by any standard your remuneration package is a significant one. The base salary which is guaranteed compensates for what are the base expectations as outlined in your position description. The STI is designed to reward outperformance in the short term with a heavy weighting on individual contribution. The LTI provides longer term balance to short term decisions and encourages common purpose across the executive group regarding the creation of shareholder value. I stress, however, it is the achievement of the results that generate the rewards - not the reverse of this.
(emphasis in original)
45 After then dealing with details concerning the FY2015 STI and the FY2016 STI, Mr Ramsay went on:
To give you every chance of success and allow you to focus on the largest area of opportunity, management of the Adelaide office will be reallocated to allow you to concentrate on NSW.
[Mr Thomas] also spoke about leadership and accountability for the local culture. It is an important component of your role to ensure we have a professional and constructive environment that allows all CSG people who work from the Sydney office to maximize their performance. You cannot underestimate the impact that your leadership style and behaviours have on other staff. We discussed a number [sic] general examples including perceptions of others being important at times (even if reality is different) and I ask you reflect upon these. Having positive constructive discussions with people and stamping out/not fuelling the gossip will go a long way to addressing this. In an effort to improve this we also agreed for you to transition your office into a common meeting room and you will move out to the sales floor to be involved in the day to day. Can you please do this ASAP.
In summary, getting results and creating the right culture in tough times are leadership qualities that are required of all senior managers. We need you to rise to the challenge, by leading from the front in these areas and displaying the 'can do' attitude we know that you possess. NSW represents the largest market and potential opportunity for CSG; and under your leadership you have the opportunity to not only be personally very successful but to ensure that this success flows through to CSG and the team.
46 A considerable amount of time was spent on evidence which went to the issue of the allocation of revenue for the purpose of meeting targets which, as would already be evident, were material to a particular regional general manager meeting annual revenue targets.
47 I accept that there was a mutual understanding between the parties, being a mutually known fact, existing at the time of the entry into the Employment Agreement that, as a general proposition, revenue derived from one geographic region would be allocated towards the revenue budget of the regional general manager for the state or territory in which the head office of the customer was located. Although there was some confusion in the evidence about the precise scope of this established practice, it seems to me plain that this 'rule' existed, at the time of the Employment Agreement, given:
(a) the evidence of Mr Leahey, gleaned from industry experience of twenty years and, in particular, his evidence that the practice reflected his understanding at the time he performed the role of regional general manager as a contractor before entry into the Employment Agreement;
(b) the evidence of a current regional general manager for Victoria, New South Wales and the Australian Capital Territory, Mr Paul Williams; in this regard I note that Mr Williams was an impressive witness who did not seem to have any doubt as to the existence of the practice (at least during the time that the Employment Agreement was in existence); of course, any understanding of Mr Williams of contemporary practice, or practice after the entry into the Employment Agreement, is not relevant to determining what was a common understanding at the time the Employment Agreement was struck, but there is nothing about Mr Williams' evidence that suggests that the practice had somehow changed over time;
(c) Mr Ramsay's evidence, which was somewhat consistent with that of Mr Williams;
(d) commercial commonsense, in that if one has a regional general manager, then revenue generated is likely to be allocated by reference to the region or regions for which that manager is responsible.
48 It is apparent, on the evidence, that the mutually known fact as to the rules as to revenue allocation, at the time of entry into the Employment Agreement, were as explained by Mr Williams (T 142):
…wherever head office is, that that's where the lead should go to, or the opportunity go to ..... we're really talking about new business here. It's not existing. So any new business lead that comes in, it typically will go to the RGM (regional general manager) of the head office of that area. Then if - if there was a time when, say, for example, I had a really good relationship with the new business opportunity, then I would liaise locally with the - with the RGM in that space and tell them about the opportunity, and then I would still probably own it and run with it, and then we would - we would split the revenue fifty-fifty.
49 Mr Williams agreed that the practice that the revenue goes where the head office is located geographically was well established and further explained the rationale as being (T 142):
…it's a little bit around a cultural thing as well, because we don't really want sales people going all around Australia and going at whatever opportunity they can get. But we don't want to lose the opportunity as a business. So if we can win it, we absolutely want to win it.
50 The apparent exception to the general geographic allocation rule would be when one regional general manager was responsible for the introduction of a 'deal' and there would be a discussion, at the time of the introduction of the deal, between the introducing regional manager and the regional general manager in whose area the head office of the customer was based, for a 50/50 revenue split to be agreed. There was some effort to suggest that this arrangement was not operative when a deal was introduced by a person other than a regional general manger (for example, the CEO) but I do not believe that this was established on the evidence at all (let alone established as a mutually known fact at the relevant time). The well entrenched rule made commercial sense; not only because the management of the business was organised on geographical grounds, but also, as explained by Mr Williams, there was the need to ensure that sales people did not run all around Australia trespassing on the turf of others.
51 Notwithstanding this, in November 2015, CSG did not allocate certain sales to Mr Leahey, which had the effect of impacting upon Mr Leahey's ability to achieve his budgetary targets for FY2016. This departure from established procedure caused some tension. Not only did Mr Leahey consider that what occurred was unfair; according to Mr Williams, he also considered that the diversion of revenue for what was described as the 'Queensland deals' (Queensland deals) was unfair to Mr Leahey (T 148):
Because we - we were told that the - the rules were in play; that head office is where the head office is, and if someone has an opportunity to go in there, if we get a lead to go into that space, it goes to that territory. And I thought it was against the - the spirit of what - what the rule was.
52 I should pause here to note that in referring to the subjective views of Mr Leahey and Mr Williams and dealing with their views as to what happened, I am not having regard to irrelevant post-contractual behaviour for the purpose of construing the Employment Agreement: see Agricultural & Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570 at 582 [35] (Gummow, Hayne and Kiefel JJ). Nor am I having regard to the idiosyncratic views as to fairness, which is similarly beside the point in a commercial world governed by the objective theory of contract formation. The relevance of this subjective evidence is limited to its use and weight in corroborating the other evidence that the rule (as explained by Mr Williams and Mr Leahey) was well entrenched and was a mutually known fact at the time of entry into the Employment Agreement. More generally, the extrinsic evidence as to revenue allocation to which I have referred is admissible to identify the meaning of those descriptive terms in the Employment Agreement as relate to revenue and KPIs; the evidence also relates to the "genesis" and the "aim" of a transaction (objectively ascertained) to show the principled attribution of meaning to revenue targets and KPIs, and to reject a meaning contrary to the established practice (which would be inconsistent with the terms of the bargain objectively ascertained): see DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423 at 429 per Stephen, Mason and Jacobs JJ. There is no need in this case to enter upon discussion about the so-called 'ambiguity gateway'; the terms of the Employment Agreement are what reasonable persons in the position of Mr Leahey and CSG would have understood them to mean, considering the surrounding circumstances and the commercial purpose and objects to be achieved by the Employment Agreement: see, for example, Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; (2017) 91 ALJR 486 at 491 [16] (Kiefel, Bell and Gordon JJ). Provisions as to KPIs and revenue allocation are to be construed by reference to the commercial purpose sought to be achieved, on the basis that the parties intended to produce a commercial result, which made commercial sense, and one which is consistent with the commercial object of the Employment Agreement which allowed an important part of the remuneration to be struck for a regional general manager, by reference to regional revenue targets: Ecosse at 491 [17].
53 Before leaving the rule as to revenue allocation, for completeness, I should note that there was a suggestion made on behalf of CSG that the Business Solutions Division of CSG was not focused on print and non-digital technologies. The reason why Mr Leahey was not allocated revenue for the Queensland deals was because those deals represented a new area of growth for CSG outside of the Business Solutions Division, in which Mr Leahey operated. It was said that the Queensland deals represented the development and growth of the Digital Display Division (which was not established until 1 July 2016). It followed that there was nothing arbitrary or capricious about CSG exercising its management prerogative to allocate the Queensland deals to a manger with the requisite skills to conduct those deals, given their intrinsic nature.
54 Although the evidence was far from pellucid, I accept that CSG may have been moving away, for sound commercial reasons, from allocating revenue on simply a regional basis. The difficulty for CSG is that the Employment Agreement, for reasons I will detail below, was based on a remuneration system which had, as one component of that remuneration (the STI), targets or KPIs based on the common understanding and established practice that deals would be allocated according to their regional location, subject to providing some previously agreed 50/50 variation in the event the deals were introduced through the work or contacts of another regional general manager. I will return to this subject in Section E below in the context of dealing with the FY2016 STI.
55 Returning to the chronology, again, on 11 December 2015, Mr Ramsay informed Mr Leahey that his EBITDA FY2016 performance was behind budget.
56 On 29 March 2016, Mr Leahey sent an email to Mr Ramsay, Mr Thomas and Ms Kerin requesting details about his FY2016 STI. The response of Mr Thomas to this email was to send an email to Mr Ramsay (not copied to Mr Leahey) which was in the following terms:
Firstly, if i am not mistaken when we meet [sic] with [Mr Leahey] last year on his 2015 bonus that he was unhappy with, I believe you spoke about his current targets. You said to him something along the lines of……."you don't have them in writing but you know your targets don't you [Mr Leahey]? …"
I remember this because you repeated this 3 or 4 times before he agreed. (and you were also concerned he was behind budget for the current year when we spoke to him).
Secondly, Julie-Ann's call but I don't think it appropriate or should be expected by [Mr Leahey] that the CEO gets involved in setting his targets.
57 Mr Ramsay's response, the next day, was as follows:
Yes [Mr Thomas] correct on both points.
He knows his targets and i have no intention of troubling the CEO with this.
I also find his timing incredibly poor based on the previous note about a Syd MA.
58 Shortly thereafter, Mr Thomas responded to Mr Ramsay:
[Mr Ramsay]
Thanks. I suspected that we would both be on the same page. I will leave to you to deal with as this is essentially a line management issue but happy to be involved however if you want some support in a meeting with him.
Let me know
59 The reference by Mr Ramsay to incredibly poor timing was never really explained. In any event, on 16 May 2016, Mr Leahey received an email from Mr Domenic Capaldi, the "Financial Performance Manager" of CSG, stating that there would be "[n]o bonus accrual in FY16". This was a reference to the FY2016 STI. This was not peculiar to Mr Leahey; the evidence of Mr Ramsay (T 247) and Mr Thomas (T 263) was that there were no FY2016 STI payments made. The decision was apparently made by the CSG Executive Team (which included Mr Thomas) because of budgetary pressure to make a forecast that had been made to the Australian Securities Exchange (ASX). This can be seen from the following extract from the evidence of Mr Thomas (T 264):
HIS HONOUR: … the board was faced with a situation presumably where it gave guidance to the market, and it had become apparent that if you paid out the STIs, that guidance would have to be revised or, alternatively, a decision would be made not to make the guidance, in which case the forecast would… have to be amended. And there was a decision taken on that basis, as I understand it, is that right?---That's correct, your Honour.
Did you know from your own involvement in that process whether any consideration was given as to whether or not, in respect of some or other contracts, there was a contractual obligation to pay STIs or was it just regarded as a purely discretionary matter?---It was regarded that it was a discretionary thing. It's very typical in businesses…that companies don't hit their target, particularly the core financial ones, that there are no bonuses across the piece.
60 One could be forgiven for thinking that this apparent lack of concern for compliance with its contractual obligations to its employees was a somewhat cavalier approach to be taken by a public company towards its obligations to its employees (or at least those employees who had contracts in a form similar to the Employment Agreement). In any event, the immediate response of Mr Leahey was to email Mr Capaldi to ask him to clarify what "no bonus accrual in FY16" meant and to telephone Mr Ramsay with the same query (T 132). Mr Ramsay responded by indicating (somewhat surprisingly, in the light of Mr Capaldi's definitively worded email) that he was still trying to find out what was happening in relation to the FY2016 STI.
61 On 18 May 2016, Mr Leahey participated in a performance interview with Mr Thomas. This interview was part of a programme of interviews that Mr Thomas had decided to undertake in order for him to be apprised of the individual characteristics of relevant managers. It formed part of a process whereby Mr Thomas prepared a "Talent Review and Organisational Structure" document (Talent Review document) which was an analysis of what was described as the "Quality of Leadership and how we structure the business". As part of what was called (in Americanised 'HR speak') a "snapshot of bench strength", the review process identified features relevant to the individual performance of senior management. Eventually an appraisal document was prepared by Mr Thomas which was described as a "Performance/Values Matrix: Senior Management" (Matrix) (Exhibit B, page 269B), which indicated three categories, providing a ranking of those senior managers who: (a) had peaked/been over-promoted at their current level; (b) had the potential for growth at their current level; or (c) had the potential for more senior roles, with development. Mr Leahey was eventually identified by Mr Thomas, partly as a result of highly subjective assessments, as falling in the first of the three categories, that is, a person whose performance had peaked or a person who had been over-promoted at his current level.
62 During the course of a wide ranging discussion, Mr Leahey said to Mr Thomas, among other things, that there was too much focus on getting the sales numbers on target (prima facie, a somewhat surprising remark from a salesman) and that Mr Leahey felt he had lost enthusiasm for his current role. This last comment came to be characterised by Mr Thomas, in an expression redolent of the ambiguous nature of these assessments, as Mr Leahey saying he had "lost his mojo" (T 294).
63 I accept that these comments caused Mr Thomas some concern as to the suitability of Mr Leahey for further advancement within CSG and contributed to him genuinely forming the view that Mr Leahey was a less valuable manager than others. After this assessment was complete, Mr Leahey's position was identified, along with others, for redundancy in a possible restructure.
64 There was evidence that during this meeting, Mr Leahey indicated that he wished to remain with CSG for ten years (T 115). Although Mr Thomas did not record this comment in his notes, I accept that Mr Leahey did make this comment but it is hard to be certain of the context and whether that was a reference to a continuing relationship as an employee performing the tasks he was then performing. Whatever the context, it is clear that Mr Thomas took away from the meeting an impression that Mr Leahey lacked enthusiasm for his current role.
65 In late April or early May 2016, Mr Leahey was walking past the CSG boardroom and chanced upon seeing a 'Power Point' presentation which reflected the organisational effect of the possible restructure, which reduced the number of regional general managers within the business.
66 On 24 June 2016, Mr Ramsay sent an email to the regional general managers setting out a table indicating the performance of the master sales agents in each territory. This analysis did not reveal that Mr Leahey's master sales agents were performing any worse than, for example, those reporting to Mr Williams.
67 On 7 July 2016, the Brisbane Incident occurred (which I will address, in detail, in Section E) and a fortnight later, Mr Thomas and Mr Ramsay met with Mr Leahey and had a lengthy discussion. Again, this is an important meeting, and it is necessary to set out a number of the matters discussed.
68 Prior to doing so, it is convenient to again interrupt this factual summary to make a point about the evidence of this meeting. At the time the hearing commenced, Mr Leahey proposed to tender a transcript of the meeting which he had recorded covertly. Despite no objection being taken by CSG to the tender, I indicated that, even absent objection, I was concerned as to whether it was appropriate that I receive the material (or that it be in a party's possession) given the provisions of ss 11 and 12 of the Surveillance Devices Act 2007 (NSW) (SDA). The SDA contains a prohibition on communication or publication of private conversations and prohibits a person possessing a record of a private conversation recorded by the use of a listening device in contravention of Part 2 of the SDA. Section 12 relevantly provides:
12 Possession of record of private conversation or activity
(1) A person must not possess a record of a private conversation…knowing that it has been obtained, directly or indirectly, by the use of a listening device…in contravention of this Part.
Maximum penalty: 500 penalty units (in the case of a corporation) or 100 penalty units or 5 years imprisonment, or both (in any other case).
(2) Subsection (1) does not apply where the record is in the possession of the person:
(a) in connection with proceedings for an offence against this Act or the regulations, or
(b) with the consent, express or implied, of all of the principal parties to the private conversation or persons who took part in the activity, or
(c) as a consequence of a communication or publication of that record to that person in circumstances that do not constitute a contravention of this Part.
69 It eventually became apparent that there was a further telephone recording (see [88(c)] below) that had also been obtained in circumstances which appeared potentially to be in breach of Part 2 of the SDA.
70 Although I indicated that in these circumstances it would necessary for me to perhaps conduct a voir dire (or, in any event, to rule on the admissibility of this material), my concerns were rendered otiose because each party to the relevant recorded conversations, through their legal representatives, expressed that they were content (and hence provided their explicit consent) for the Court to be provided with the recorded material or otherwise implicitly provided their consent by originally recording the conversation. I consider this to be sufficient, given the terms of s 12(2)(b) of the SDA, to allow the Court to receive the recordings and, given that there was no objection, the relevant recordings were admitted into evidence.
71 Returning to the terms of the conversation, the following occurred:
(a) After an exchange of pleasantries, the meeting commenced with Mr Ramsay noting that "what we're doing here today mate is having a conversation about what happened, two weeks ago, on Thursday" (Exhibit B, page 306), relating to the Queensland Incident; this was described as the first part of the conversation and then, "as per [Mr Thomas'] email" it was suggested there would be a "broader conversation" about what Mr Leahey wanted to do including, ominously, "what you want to do with your life" (Exhibit B, page 306).
(b) Mr Thomas then said, after speaking to witnesses, that the material he had obtained "puts us in a really difficult position" and referred to the expectation that as a "Senior Manager in the business, that we can't have people punching other people in, what could be perceived as a violent way" and that "we can reasonably conclude that your actions were totally inappropriate" (Exhibit B, pages 306-7).
(c) It was then said this conclusion as to what had occurred did not leave CSG with a "lot of room to move and it is a likely outcome is that we see it as gross misconduct and, as you're probably aware, gross misconduct means that your employment will be terminated and terminated with effect immediately. It means that there would be no notice paid and it would have to be some other implications for you and…we shouldn't beat around the bush on that. That is with respect to your last tranche of performance rights because under the rules of the Plan; gross misconduct…the words are actually "a wilful breach". The Directors don't have any choice or any discretion on the matter, you automatically get classed as a bad leaver" (Exhibit B, page 307).
(d) Mr Leahey then referred to the fact that he had not had a chance to respond to the allegations and that this was the first time that he had sat down and been told of the conclusions reached by CSG (Exhibit B, page 308). Mr Thomas responded by saying that he had put the allegations to Mr Leahey on the telephone, noted that there was no CCTV footage of the event, then said he had spoken to a number of "independent people" and that "we can only come to the conclusion, what we're entitled to do if you think if [sic] an Employment Law perspective, we can come to what is a reasonable conclusion and we have concluded, on what we've found" (Exhibit B, page 309).
(e) There was then a discussion concerning whether or not Mr Leahey had been provided with procedural fairness, at which point Mr Thomas responded, curiously, that the obligation to give procedural fairness only applies in certain circumstances, not present here, where unfair dismissal laws applied (Exhibit B, page 310).
(f) Mr Thomas then moved away from the discussion of the incident by saying "what I was trying to paint to you is a picture [Mr Leahey], if we go down that path and that's the conclusion, the end outcome. We don't have any flexibility or the Board won't have any flexibility" and if he was terminated on grounds of "serious misconduct" it had to be reported to the CSG Board (Board) and "[t]hat is just the rules of the Plan. No one has got any flexibility…" and he would be deprived of his entitlements under the LTI Plan (Exhibit B, page 311).
(g) Mr Thomas then moved to the previous comments that had been made to the effect that Mr Leahey had had a "gutful" of the current job and that he was better off going back to being a master agent (Exhibit B, page 312).
(h) Following a discussion of performance and enquiries by Mr Leahey as to whether or not he was being fired based on his performance, Mr Thomas then said "we as a [sic] executive team and business, have lost confidence. Now the path then is that we would issue notice under your contract which [sic] are obviously entitled to do…with four weeks' notice and then parties can go their separate ways. The difficult [sic] or if I highlight a [sic] issue with that, is that we run into a similar problem as the last scenario around the incident that when we go to the Board because we have to tell them that once [sic] of the performance rights holders has left. The problem that we run into as soon as they ask why, why has the person we [sic] left. We say on the scenario I've just painted; on the performance of [Mr Leahey] over the last couple of years but particularly the last year has fell [sic] well short of expectation. The problem with that is that again, the Directors will look at definitions of a good leaver or bad leaver and I will quote here "dismissal due to poor performance shall be considered a bad leaver" and…once you're a bad leaver, the rights lapse…" (Exhibit B, page 313 - I note, incidentally, that it is unclear from what, if any, document Mr Thomas was quoting).
72 After painting these scenarios, Mr Thomas then turned to resignation. He said (Exhibit B, page 314):
One of the things that often happen in this situations, [sic] similarly we've had at discussions with other people that have been confronted with that choice, people say "okay what's the situation if I resign". Unfortunately, if that's what you chose to do, that doesn't help us to a great degree because voluntary resignation is also a bad leaver. Right that's the rules of the Plan.
73 All of the above was prologue to Mr Thomas then suggesting a way forward, which he was entreating Mr Leahey to take. Again this was introduced by explaining that the consequences of a termination effective "immediately with no notice for gross misconduct" was said to be that although CSG would be obliged to pay amounts for annual and long service leave and statutory requirements, the shares (that is, I infer, the Participation Rights) "would still lapse". Mr Ramsay then noted that that the shares (which I interpolate would be obtained upon exercise of the rights under the Rules attaching to the Participation Rights) were worth about $200,000 (Exhibit B, page 314).
74 Finally, the point of the conversation was reached. It was said that an alternative was being presented to Mr Leahey to "try to come up with a way that at least can protect the shares". The alternative option presented was for Mr Leahey to sign an agreement (the terms of which were not discovered or put in evidence) which effectively said the parties had mutually agreed to separate. Again, this alternative option was presented in the context of a representation being made to Mr Leahey that if he simply resigned, that course would "vacate the shares" (Exhibit B, page 314).
75 If the alternative option was taken up and such a release was signed, Mr Thomas indicated that he, Mr Ramsay and also the CEO would be prepared to recommend to the Board that Mr Leahey be treated as a 'Good Leaver' which would then "preserve your shares" and that an agreement would be reached about exiting the business. Allied to this proposal was the opportunity for Mr Leahey to return to becoming a master agent with CSG (Exhibit B, page 315).
76 The reaction to these entreaties (for that is what they were) was for Mr Leahey to continue to dispute the version put to him concerning the Brisbane Incident and to deny that there was anything wanting in his performance. Mr Thomas then returned to the alternative option, saying, in my view less than accurately, that "I'm not trying to force you down a particular path" adding that "[i]f I was in your shoes, I think it is a pretty clear decision, I know what I would do, but we're trying to put it out there so you can decide" (Exhibit B, page 325).
77 In short, the apparent alternative option put to Mr Leahey was for him to sign an agreement effecting mutual releases in a way which was said to secure him financial benefits that would not otherwise be available to him if he adopted another course of action, such as resignation or if he was dismissed on notice because of CSG's lack of confidence in him. As part of the deal, he would also be appointed a master agent.
78 I do not consider that these discussions reflect well on CSG in general, and Mr Thomas in particular, and I will return to what I will describe as the "Exit Discussion" later in these reasons. In any event, no agreement was reached between the parties along the lines suggested and on 23 August 2016, Mr Leahey's employment was terminated by the Termination Letter, the relevant parts of which I have already set out at [4] above.