McGrath v Sturesteps; Sturesteps v HIH Overseas Holdings Ltd

The Issues in the Appeal 8The issues raised in the appeal and cross-appeal may be summarised as follows: (i) For the purpose of calculating Mr Sturesteps' entitlement to a retrenchment payment, was the period Mr Sturesteps was employed by M W Payne Liability Agencies Pty Ltd to be taken into account ("the construction issue")? The primary judge held that it should be taken into account. The appellants have appealed from that decision. (ii) To what extent was the retrenchment payment to which Mr Sturesteps was entitled attributable to the period in which he was a director of HIH Casualty for the purposes of s 556(1C) of the Corporations Act 2001 (Cth) ("the Act") ("the s 556(1C) issue")? The primary judge held that none of it should be so attributed. The appellants have appealed from this decision. (iii) To what extent should accrued annual leave due to Mr Sturesteps be attributed to the period Mr Sturesteps was a director of HIH Casualty for the purpose of s 556(1B) of the Act ("the annual leave issue")? The primary judge, proceeding by analogy to the rule in Clayton's case ( Devaynes v Noble (1816) 35 ER 781), proceeded on the basis that any leave taken should be debited against the earliest period of leave which had accrued. The consequence was that the whole of the annual leave entitlements of Mr Sturesteps with the exception of 11 days was attributed to the period in which he was a director and therefore he was not entitled to a priority payment under s 556(1)(g) of the Act except for an amount of $1,500. Mr Sturesteps has cross-appealed on this issue. (iv) To the extent that Mr Sturesteps' entitlement to a retrenchment payment and a payment in respect of accrued annual leave are priority payments for the purpose of s 556 of the Act, whether Mr Sturesteps is entitled to a payment of interest on such amounts in priority to the claim of non-priority creditors ("the interest issue"). The trial judge held he was not. Mr Sturesteps has cross-appealed in respect of this issue. (v)Whether Mr Sturesteps is entitled to reimbursement of various loans and expenses incurred by him in the course of his employment with HIH Casualty ("the expenses issue"). The primary judge held he was not so entitled. Mr Sturesteps has cross-appealed in respect of this issue. (vi) Whether Mr Sturesteps is entitled to some payment in respect of certain transactions relating to two apartments in California and whether Mrs Sturesteps was released from the loan referred to in par [6], the proceeds of which were used to acquire one of the apartments in question ("the US apartment issue"). The trial judge held that Mr Sturesteps was not entitled to any such payment, and as indicated in par [7], entered judgment in favour of HIH Overseas in respect of the loan. Mr Sturesteps has cross-appealed whilst as I indicated earlier Mrs Sturesteps has appealed against the judgment entered against her.

The Construction Issue 9Clause 17 of the agreement provided as follows: "TERMINATION BY HIH FOR REDUNDANCY OR OTHER REASONS 17.1 If: (a) HIH terminates this Agreement by reason of the redundancy of your position; and (b) HIH does not offer you an Equivalent Position then HIH will pay you the following gross sums (less tax); (c) your annual Remuneration Package plus 5/52 of your annual Remuneration Package for each completed year of service, or part of any year of service, with HIH up to a maximum total of three times your annual Remuneration Package; and (d) a sum equal to the bonus paid to you, or due to you, in the 12 months prior to the termination of this agreement. 17.2 If, as part of a restructure of any member of the HIH Group, your status, or authority, or responsibility, or duties are materially adversely changed (including your being required to directly report to a person other than the Chief Executive or the Board) or you are required to work at a location more than 30 kilometres away from your then location, then you will be entitled to resign on one month's notice and HIH must pay you on termination of your employment the net amount you would have received had your employment been terminated under paragraph 17.1. 17.3 The payment amount in paragraph 17.1 is made in recognition of your past service. Without limitation, it is subject to limitations in section 237(8) of the Corporations Law (or any replacement provision). 17.4 In this clause, 'Equivalent Position' means a position with all of the following: (a) a Remuneration Package of the same or greater value for; (b) the same or greater authority, and status, and responsibility, and duties (including your reporting directly to the Chief Executive or the Board) in; and (c) based at the same location or within 30 kilometres of the position you held at the time of termination of this Agreement. 17.5 Notwithstanding the provisions of paragraphs (a) and (b) of subclause 17.1 above, you are entitled to the payments identified in paragraphs (c) and (d) in subclause 17.1 where HIH terminates your employment for a reason not expressly provided for in this agreement or where HIH purposes to terminate your employment under another clause of this agreement but the requirements of that clause are not met for any reason. 17.6 HIH is not required to give you notice of termination if your employment is terminated under paragraph 17.1." 10The expressions "HIH" and "HIH Group" were defined in the agreement. In cl (1) of the agreement, HIH is defined as HIH Casualty whilst HIH Group is defined as HIH Insurance Limited and its related bodies corporate as defined in the Corporations Law . Each expression is used throughout the agreement, on a number of occasions within the same clause (see, for example, cl 17 itself and cl 21). 11Having regard to the definition of HIH, cl 17.1(c) would seem to impose an obligation on HIH Casualty to pay a redundancy payment by reference to the length of Mr Sturesteps' service with that company as distinct from any other company within the group. However, the primary judge's conclusion was to the following effect: "For those reasons, and despite the words and definition in the policy, the surrounding context was such that the parties would reasonably have understood the reference to 'HIH' as being a reference to the HIH group, and that cl 17 would, therefore, have caught service with a predecessor, such as International - had Mr Sturesteps employment from 1988 until 1999 been with International." (at [26]) 12His Honour's reference to "International" in this paragraph is a reference to a company called CEH International. There was a dispute in the Court below as to whether in the period from 12 December 1988 to 24 September 1999, the date of execution of the agreement (or possibly 29 September 1999; the date on the contract in evidence was unclear) Mr Sturesteps was employed by HIH Casualty or by CEH International. His Honour found that the employer during the period was HIH Casualty, a finding not challenged on this appeal. 13In reaching his conclusion his Honour relied on three matters. First, it was group practice to calculate redundancy or retrenchment payments by reference to total service with the group rather than service with a particular company. The cap on such payments was generally 65 weeks. Second, his Honour relied on the reference in cl 17.3 to the fact that the payment was for past services and assumed this meant that the payment was at least in part for services rendered prior to the date of the agreement. In that context he calculated that otherwise 21 years of service would be necessary to achieve the maximum of three times the annual Remuneration Package referred to in cl 17(1)(d) (1 year's remuneration plus 5 weeks per year for 21 years of service). The third issue which his Honour regarded as significant was summarised in par [25] of his judgment: "More significantly, as already mentioned, no termination payment was contemplated, and no payout of annual leave or long service leave was contemplated or offered, in 1999 at the time of execution of the new contract. Indeed, in the course of its negotiation there was no suggestion, and in my view it did not occur to anyone, that its effect would be to interrupt a continuity of service from an emoluments perspective. It would have come as a shock to any participant - particularly given the standard policy of the company as to continuity of employment - had such a suggestion been raised." 14So far as the second and third reasons are concerned, his Honour with respect appeared to have overlooked the fact that the execution of the agreement did not change the identity of Mr Sturesteps' employer. His Honour found that Mr Sturesteps had been employed by HIH Casualty since 12 December 1988. It follows that to achieve the contractual maximum only an additional 10 years service was required not 21 years as calculated by his Honour. As far as the third reason was concerned it is explicable that no termination payment was contemplated at the time as there was no change in employer. 15In his oral submissions Mr Rayment QC, senior counsel for the respondent, accepted that the correct approach to the construction of the agreement was that stated by the High Court in Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 to the following effect: "The construction of the letters of indemnity is to be determined by what a reasonable person in the position of Pacific would have understood them to mean. That requires consideration, not only of the text of the documents, but also the surrounding circumstances known to Pacific and BNP, and the purpose and object of the transaction. In Codelfa Construction Pty Ltd v State Rail Authority of NSW , Mason J set out with evident approval the statement by Lord Wilberforce in Reardon Smith Line Ltd v Hansen-Tangen : 'In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.'" (at [22], citations omitted) 16Mr Rayment submitted that in the present case the Court in construing the agreement should read HIH to mean HIH Casualty or any predecessor employer company within the group. He said this was because that was how a reasonable person in the position of the parties would have understood the expression. He submitted that in this context the Court was entitled to depart from the literal - or more accurately - the defined, meaning of the provision. He relied in particular on the speeches of Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912-913 and in Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at [14]-[15]. During the course of his submissions he stated that: "It's not what the draftsman sitting in whatever office it was, writing this document intended to produce by these words, it's how they would be reasonably understood by the parties". The principal matter relied on by Mr Rayment in this regard was the practice of the companies in the HIH group to pay retrenchment benefits to employees up to a maximum of 65 weeks service with the group generally, as distinct from any particular company in the group. 17In considering this issue it is important to bear in mind the extent to which the context and surrounding circumstances can be used as an aid in the construction of a written agreement. Whilst it is correct in my opinion that context and the surrounding circumstances known to both parties can be taken into account (see Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 at 350, 352) even in cases where there is an absence of apparent ambiguity ( Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [40]; International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 at [8]; Park v Brothers [2005] HCA 73; (2005) 80 ALJR 317 at [39]; Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 at [14], [63], [305]) that does not permit the Court to depart from the ordinary meaning of the words used by the parties merely because it regards the result as inconvenient or unjust: Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 at 109. 18This does not mean that there are not exceptional cases where, to use the words of Lord Hoffman, something has clearly gone wrong with the language so as to interpret it in accordance with the ordinary rules of syntax makes no commercial sense: see Chartbrook Ltd v Persimmon Homes Ltd, supra at [15]-[16]; Jireh International Pty Ltd v Western Exports Services Inc [2011] NSWCA 137 at [55], [60]. In such a case, in my opinion, a court is entitled to depart from the ordinary meaning to give effect to what objectively speaking the parties intended. This is not such a case. The parties have chosen to give their own definitions to "HIH" and "HIH group", and the expressions have been used throughout the agreement in a manner which is commercially sensible and not such as to indicate a mistake in the language, whether considered on its own or in conjunction with the surrounding circumstances. 19So far as surrounding circumstances are concerned, I have already indicated why the second and third matters relied upon by his Honour seem to have proceeded on the assumption that Mr Sturesteps was employed by a company other than HIH Casualty prior to the agreement. Once it is accepted, as his Honour found, that he had been employed by HIH Casualty for the previous 11 years, there is nothing commercially absurd in the termination payment which effectively gave him credit for those 11 years service, but did not include service with a related company prior to that time. 20Further, the fact that other employees' termination payments were calculated by reference to their length of service with the group does not, in my opinion, affect the position. Mr Sturesteps' arrangements were significantly different in that they imposed a 156 week contractual maximum as distinct from the 65 week cap imposed on other employees. The fact that in conjunction with this change, service was limited to the particular employer which had employed Mr Sturesteps for the previous 11 years provides no reason to depart from the literal construction of the provision. 21For these reasons, the appeal on the construction issue should be allowed. The total amount payable to Mr Sturesteps on termination was $1,599,099.

The s 556(1C) Issue 22Section 556(1)(h) gives priority in a winding-up to retrenchment payments over all other unsecured debts and claims with the exception of those in ss 556(1)(a)-(g). Retrenchment payments are defined in s 556(2) as "an amount payable by the company to the employee, by virtue of an industrial instrument, in respect of the termination of the employee's employment by the company, whether the amount becomes payable before, on or after the relevant date". 23"Industrial instrument" is defined in s 9 of the Act as "a contract of employment; or a law, award, determination or agreement relating to terms or conditions of employment". It is common ground between the parties that the amount payable to Mr Sturesteps pursuant to cl 17 of the agreement was a retrenchment payment. 24Section 556(1C) limits the priority given by s 556(1)(h) in respect of retrenchment payments given to excluded employees. Section 556(1C) provides as follows: "556(1C) A payment under paragraph (1)(h) to an excluded employee of the company must not include an amount attributable to non-priority days." 25The expression "excluded employee" is defined for relevant purposes in s 556(2) in the following terms: " excluded employee in relation to a company, means: (a) An employee of the company who has been (i) at any time during the period of 12 months ending on the relevant date; or (ii) at any time since the relevant date; or who is, a director of the company;" 26The expression "relevant date" is defined in s 9 of the Act as "the day on which the winding-up is taken because of Div 1A of Pt 5.6 to have begun". In the present case that date is the day on which the winding-up order was made - namely 27 August 2001. As Mr Sturesteps was a director within 12 months of that day he fell within the definition of excluded employee. 27The expression non-priority day relevantly is defined in s 556(2) as follows: " non-priority day , in relation to an excluded employee of a company, means a day on which the employee was: (a) If paragraph (a) of the definition of excluded employee applies - a director of the company;" 28Mr Sturesteps was a director of the company from 24 April 1989 to 12 September 2000. Having regard to the provisions of s 556(1C) any amount of his retrenchment payment which is attributable to those days would not be entitled to priority under s 556(1)(h). 29The primary judge held that none of the retrenchment payment was attributable to non-priority days. He concluded that the payment was attributable to the fact and date of termination which occurred after Mr Sturesteps had ceased to be a director. 30His Honour's reasoning preceded from a consideration of the judgment of the Supreme Court of Victoria in International Harvester Export Co v International Harvester Australia Ltd [1983] 1 VR 539 where Beach J held that retrenchment payments provided for by a industrial award were not payments in respect of service to the company, but rather a payment in lieu of monies the employee would have received had his employment not been terminated (at 546-547). His Honour the primary judge then considered the Explanatory Memorandum accompanying the introduction of s 441(1)(ga) of the Companies Code (the predecessor of s 556(1)(h)). That section, whilst it gave priority to retrenchment payments, excluded from the priority any payments to persons who were, or had been, within the previous 12 months, directors of the company concerned. By reference to the Explanatory Memorandum, his Honour concluded that the reason for this exclusion was to not provide directors with an incentive to allow the company to continue trading whilst insolvent, knowing their entitlements would be protected. 31His Honour then considered the recommendations in the Harmer Report ("General Insolvency Inquiry", ALRC Report No 45, 1988) and the Explanatory Memorandum to the Corporate Law Reform Act 1992 (Cth) which introduced legislation in similar form to s 556(1)(h) and s 556(1C). He referred to the fact that the Explanatory Memorandum stated that the limits applying to debts owing to "exclude (sic) employees, only apply in relation to the amount of the debt which arose during the period in which the person was an excluded employee" (judgment at [23], emphasis added by the primary judge). 32The primary judge then considered a decision of the Supreme Court of Western Australia, Rundell v Bedford (1998) 28 ACSR 66, where White J held that a termination payment was in respect of services rendered to the company. His Honour the primary judge held that this decision was contrary to what had been decided by Beach J in International Harvester, supra (at [27]). The significance of this difference as the primary judge perceived it was summarised at [29] and [30] of his judgment as follows: "[29] The competing available views are that supported by Beach J's judgment (that they accrue only upon termination and relate to the future after termination), that supported by White J's judgment (that they effectively relate to the whole of the period of employment) or that for which the defendant here contends (that they are attributable to the day on which the agreement under which retrenchment pay becomes payable is executed). [30] Having regard to the use in the Harmer Report and the Explanatory Memorandum of the concepts of accrual and arising and relevant to certain periods, it seems clear that Parliament was concerned fundamentally with wages and leave entitlements that accrued during the very period that the excluded employee was a director. Even if they accrued pursuant to an agreement made before the employee was a director, the intention was that they not be entitled to priority if they accrued during the time that he or she was a director. That is entirely consistent with the underlying policy of the 1985 amendments, that directors were to be disincentivised from continuing to trade an insolvent company. The underlying policy was not so much concerned with the fact that a director could influence the amounts of their entitlements, as with disincentivising insolvent trading. Once an employee ceases to be a director, there is no call for that disincentivisation, any more than there is before he or she becomes a director." 33After dealing with various authorities which considered the use of the word "attributable", his Honour then reached the following conclusions: "[36] Each of those cases depended on the statutory context in which the term 'attributable' was used. The statutory context here is informed, in the case of ambiguity, by the extraneous material to which I have referred. That extraneous material - together with identification of the mischief intended to be remedied, both by the 1995 amendments and by the 1992 amendments - facilitates a conclusion that Parliament intended, by the concept of amounts 'attributable to' particular days, amounts that accrued on or in respect of those days. [37] As Beach J pointed out in International Harvester , retrenchment pay does not accrue or arise over a period. It accrues or arises upon a particular event. That event is the fact which triggers the entitlement to retrenchment pay - not the original entry into the service from which the entitlement potentially arises, but may never arise if the applicable circumstances triggering the entitlement do not occur. [38] In this case, Mr Sturesteps had no entitlement to retrenchment pay until he was actually retrenched. The 1999 Employment Agreement gave him no more than a potential entitlement to retrenchment pay, which it [sic] had not accrued before he became a director, did not accrue while he was a director, and accrued or arose only when his employment was terminated, after he ceased to be a director. [39] The date upon which it accrued or arose - or in the language of the legislation, the date to which it [sic] was attributable - was not a non priority day. In my view, none of the clause 17.1 payment was attributable to a non priority day. It was attributable to the fact and date of his termination, which did not occur on a non priority day but occurred after he had ceased to be a director." 34With respect to the primary judge the approach to the construction which he adopted did not pay sufficient regard to the words of the statute itself or to the payment to which it had to be applied. To the extent that it was appropriate to pay regard to the earlier explanatory memoranda, the primary judge did not take account of the fact that the Second Reading Speech which accompanied the introduction of s 441(ga) of the Companies Code stated that the exclusion of the directors from priority in respect of retrenchment payments was for two reasons. The first was the reason stated by his Honour, but the second was that directors are largely able to determine their own remuneration and other entitlements. (See the passage of the Second Reading Speech referred to by the primary judge (second judgment at [19]).) 35Further, the approach of comparing the views of Beach J and White J to the particular award or agreement before them directed the attention of the primary judge away from the agreement in question in the present case. The fact that Beach J found that a provision in an award for retrenchment payments is compensation for loss of future employment as distinct from compensation for past services, does not mean that every agreement which provides for a payment on termination has that effect. Indeed, s 237(6) of the Corporations Law, as it existed at the date of the agreement expressly contemplated that lump sum payments in connection with retrenchment could be payments for past services. 36In considering the meaning of s 556(1C) the primary consideration should be the language which is used by the legislature: Commissioner of Taxation (Cth) v BHP Billiton Minerals Pty Ltd [2011] HCA 11; (2011) 277 ALR 224 at [47]; Alcan NT Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41; (2009) 239 CLR 27 at [47]; Saeed v The Minister for Immigration and Citizenship [2010] HCA 23; (2010) 241 CLR 252 at [31]-[32]. In the latter case the Court emphasised that statements as to legislative intention made in explanatory memoranda or by ministers however clear and emphatic cannot overcome the need to carefully consider the words of the statute to ascertain its meaning. (See also R v Bolton; Ex parte Beane [1987] HCA 12; (1987) 162 CLR 514 at 518.) 37We were referred to a number of dictionary definitions of the word "attributable" and a number of authorities in which the meaning has been considered. The Oxford English Dictionary defines the word as meaning "capable of being attributed or ascribed esp . as owing to, produced by". The Macquarie Dictionary definition referred to by the primary judge is to similar effect. 38The authorities to which we were referred emphasised the need for a causal link or connection between the matter in question and that to which it is sought to be attributed. Thus, in Roncevich v Repatriation Commission [2005] HCA 40; (2005) 222 CLR 115, in considering whether an injury was attributable to Defence Services for the purposes of s 70(5)(a) of the Veterans Entitlements Act 1986 (Cth) the plurality made the following remarks: "A causal link alone or a causal connexion is capable of satisfying a test of attributability without any qualifications conveyed by such terms as sole, dominant, direct or proximate" (at [27]). 39In Central Asbestos Co v Dodd [1973] AC 518 the House of Lords considered the question of whether a person had knowledge of material facts which demonstrated that his asbestos related disease was attributable to the negligence of his employer for the purpose of s 7(3) of the Limitation Act 1963 (UK). In that context Lord Reid made the following comment: "So probably the key lies in the use of the word 'attributable.' That means capable of being attributed. 'Attribute' has a number of cognate meanings; you can attribute a quality to a person or thing, you can attribute a product to a source or author, or you can attribute an effect to a cause. The essential element is connection of some kind." (at 533) See also Walsh v Rother District Council [1978] 1 All ER 510. 40Section 556(1C) in the present case requires identification of the amount of a payment which can be attributed to non-priority days. It assumes by use of the words "must not include an amount attributable to non-priority days" that a payment can be in part attributed to priority days and in part to non-priority days. I do not think the fact that the words "so much if any" as used in s 556(1A) and s 556(1B), are not used in s 566(1C), leads to a contrary conclusion. In these circumstances, what is required in my opinion is first to ascertain the reason for which the payment is made. If the reason for the whole or part of the payment was to compensate the employee for services rendered during the period the employee was also a director, then that portion of the payment will be attributable to non-priority days. This approach is consistent with the authorities to which I have referred above and, in my opinion, gives effect to the intention manifested by the legislature that a former employee / director of a company is not totally excluded from priority in respect of a retrenchment payment, but rather is only excluded insofar as the payment relates to a period in which he or she was a director. 41In the circumstances of the present case, cl 17 of the agreement expressly provided that the payment was made in recognition of past services. This appears expressly from cl 17.3 of the agreement, and the reference in that clause to the limitations in s 237(6) of the Corporations Law further emphasises the fact that the payment is in recognition of past services rendered by Mr Sturesteps to HIH Casualty. To the extent that those past services were rendered on non-priority days, any payment attributable to service on those days would not receive priority under s 556(1)(h). 42I have already indicated why in my opinion his Honour's approach to the construction of s 556(1C) was incorrect. Whilst it is correct that the liability to make a payment under cl 17 only fell due on the event of termination, which took place on a priority day, that does not answer the question of whether the payment or some of it was attributable to non-priority days. His Honour appears to have assumed that the question posed by s 556(1C) is when the entitlement to a redundancy payment accrued arose (at [38], [39]). However, s 556(1C) is concerned with whether a retrenchment payment includes an amount attributable to non-priority days. Further, his Honour's approach ignores the fact that s 556(1C) by using the words "must not include an amount attributable to non-priority days" contemplates that part of a retrenchment payment could be attributable to non-priority days and part to priority days. His Honour's construction would lead to the result that the whole of the retrenchment payment would be attributable to either priority days if the employee was not a director at the time the liability to make the payment arose, or to non-priority days if he was a director on that day. If a director resigned from that position and the next day resigned as an employee, the whole of his retrenchment payment would be attributable to priority days. This does not seem to me to reflect the intention of the legislature. 43Mr Rayment sought to support the conclusion of the primary judge by reference to ss 556(1A) and 556(1B), which impose similar restrictions on priority payments to excluded employees in respect of wages, superannuation and leave of absence. He pointed to the fact that those subsections were in similar terms to s 556(1C) and that as payments in respect of wages, superannuation and leave of absence accrue on a regular basis, these payments would be attributable to the day they accrued. He said that, consistently with that approach, for the purpose of s 556(1C) a retrenchment payment should be attributable to the day it accrued, namely the day the liability to make the payment fell on. 44I do not think that this submission provides support for the construction favoured by the primary judge. In each case the question is: to what day is the payment to be attributed? The fact that in some cases the day of attribution will be the date of accrual does not mean that the word accrued should be substituted for the word attributable in s 556(1C). 45It follows, in my opinion, that the learned trial judge was in error in holding that the whole of the termination payment was attributable to the date that the liability to make the payment arose and, therefore, that none of it was attributable to non-priority days. 46That leaves the question of the correct method of attribution. The primary submission of HIH Casualty was that the whole of the payment should be attributed to the date the agreement was entered into. With respect this seems to me to have similar difficulties to the construction proposed by the primary judge. Such a construction ignores the reason for which the payment was agreed to be made. Further, as with the construction preferred by the primary judge, it would mean that there would never be an opportunity to apportion the payment, as the attribution would depend solely on whether the employee was a director at the date of the agreement. Finally, it ignores the fact that the liability for the payment depended on the contingency of termination occurring. 47Each of the parties adopted fallback positions in their submissions. Each accepted that if the primary position was incorrect then the appropriate method of attribution of the second limb of the payment referred to in cl 17.1(c), namely "5/52 of your annual Remuneration Package for each completed year of service", was to apportion it between the period when Mr Sturesteps was a director and the period when he was not. As Mr Sturesteps was a director for 91.5 percent of the time in question it would follow that 8.5 percent of the termination payment was entitled to priority. 48It seems to me that this approach is correct. The amount payable under the second limb of cl 17.1(c) increased by a fixed formula for each year of service from the commencement date to the date of termination. In these circumstances it seems to me appropriate to attribute the payment equally over the whole period and then calculate the proportion of non-priority days by reference to the proportion of the period during which Mr Sturesteps was a director of HIH Casualty. 49The first limb of the payment referred to in cl 17.1(c), "your annual Remuneration Package", causes more difficulty. Counsel for Mr Sturesteps' primary submission was that it should be attributed to the day of termination and therefore, none of it was attributable to non-priority days. This suffers from the same difficulty as the construction preferred by the primary judge in relation to the whole payment. In summary, it ignores the fact that the payment was for past services. 50The fallback position adopted by Mr Sturesteps was that the payment be apportioned on the same basis as the amount due under the second limb of cl 17(1)(c). 51Senior counsel for HIH Casualty, Mr Gleeson SC, initially adopted the position that if his submission that the whole of the payment was attributable to the date of the agreement was rejected, then the whole of it should be apportioned over the period of employment. However, in the course of his argument he submitted that it would be appropriate to attribute the first limb to the period between the commencement of employment with HIH Casualty and the date of the agreement. This was because the entitlement of the payment under the first limb did not depend upon any further service. 52There is force in this argument but ultimately, in my opinion, it should be rejected. It must be remembered that at the date of the agreement, payment not only was contingent on termination but also the amount payable was dependent on the annual remuneration package to which Mr Sturesteps was entitled at the date of termination. Clause 5 of the agreement provided for an annual review of that remuneration package with the proviso that the review package would be not less than the package immediately prior to the review. 53In these circumstances it cannot be said, in my opinion, that the total payment due under the first limb was attributable only to the period prior to the agreement. The amount either would or could vary depending on the remuneration payable on the termination date. This weighs against attributing the whole of the first limb of the payment solely to the period prior to the date of entry into the agreement. 54Aligned with this, it must be remembered that the whole of the payment was for past services, that is services up to the date of termination. The first limb of the payment was not apportioned to any particular period. In these circumstances it seems to me to be more appropriate to attribute it to the whole period of service and apportion it between priority and non-priority days in the same manner as the second limb. 55It follows that 91.5 percent of the payment is attributable to non-priority days and 8.5 percent is entitled to priority.

The Annual Leave Issue 56It was common ground between the parties that Mr Sturesteps had an entitlement to 188 days annual leave, which, at his rate of pay at the time of termination with a 75 percent loading, produced an amount of $588,727.00 (third judgment at [6]). 57It was also not an issue that Mr Sturesteps took approximately 10 days annual leave per year, and that if the leave taken by him was debited against the entitlement which would have accrued had it not been taken, any leave entitlement which had accrued prior to him being appointed a director had been used up. Consequently, the whole of the remaining annual leave entitlement, with the exception of that which accrued after he resigned as a director (11 days), should be attributed to non-priority days. 58The primary judge referred to the fact that it was well established that the policy underlying annual leave is that employees should have a break from work on a regular basis. He stated that leave is credited to an employee on a progressive basis as time passes and is debited against that employee's leave account each time an employee takes leave (third judgment at [9]). 59In these circumstances, his Honour proceeded by analogy to the rule in Clayton's case ( Devaynes v Noble, supra) and concluded that leave taken should be debited against the earliest period of leave which had accrued. In these circumstances, his Honour concluded that only 11 days (leave accrued between 12 September 2000 and 18 April 2001) were attributable to priority days. 60Mr Sturesteps contended that the primary judge was in error in reaching this conclusion. This appeared to be for two reasons. First, to the extent that there had been a policy that annual leave had to be regularly taken, it had been departed from by the time of the Employee Relations Act 1992 (Vic) and the Workplace Relations Act 1996 (Cth). In this regard, it should be noted that his Honour expressly recognised the relaxation of this policy (third judgment at [9]). Second, counsel contended that the primary judge's approach by reference to Clayton's case relied on certain authorities from other fields of discourse. In this regard he contended that, as the amount payable in respect of annual leave is determined by either the ordinary rate of pay at the time leave is taken or the rate of pay at the time of termination, then logically if the rule in Clayton's case was to apply, the rate at which annual leave was to be paid would be determined by the rate of pay at the date leave accrued, not the rate of pay at the date of termination. This submission did not explain why, for the purpose of s 556(1B) of the Act, the rate at which payment was to be made had any relevance to the question of attribution. 61In reliance on the submissions referred to above, Mr Sturesteps contended that the 188 days of accrued annual leave should be apportioned over the whole period that he was engaged by HIH Casualty and before that by MW Payne Liability Agencies Pty Ltd. As he was a director of HIH Casualty for 32.5 percent of the period, that proportion of the accrued leave should be attributed to non-priority days. Alternatively, it was submitted that as Mr Sturesteps took approximately 10 days holiday per year, 53.33 days annual leave accrued during his time as an excluded employee between 24 April 1989 and 1 January 1992. As Mr Sturesteps took approximately 10 days holiday per year, it was submitted that over that period he would have taken 26.67 days leave. That meant of the 98 days which it was agreed had accrued by 1 January 1992, 71.34 days would have accrued when Mr Sturesteps was not a director (98 - [53.33 - 26.67]). These days, together with the 11 days which accrued post Mr Sturesteps' resignation as a director, it was submitted, should be attributed to priority days. 62We were referred to the relevant awards and legislation which governed Mr Sturesteps' entitlement to annual leave during the period he was employed by HIH Casualty and its associated company. 63From 1967-1992 Mr Sturesteps' award entitlement was governed by the Labour and Industry (Annual Holidays) Order 1967 (Vic). Clause 4 of that Order conferred on employees an entitlement of three weeks annual holiday pay. Clause 4(4) provided it should be taken within six months from the date it accrued and could only be postponed with the consent of the Secretary for Labour and Industry. Notwithstanding this provision, counsel for HIH Casualty did not seek to contend that the effect of the award was to preclude the claim made by Mr Sturesteps to the extent it was said to relate to entitlement to leave prior to 1992. 64The 1967 Order was replaced by the Industrial Relations (Annual Holidays) Order 1992 (Vic). That Order increased the annual holiday period to four weeks and contained a similar requirement that leave be taken within six months of its accrual, subject to postponement with the consent of the Director General of the Department of Labour. However, these provisions were replaced by the provisions of the Employee Relations Act 1992 (Vic) which was proclaimed to come into force on 27 November 1992. That provided for a minimum of four weeks leave but was silent as to whether the entitlement could be postponed or what happened to leave accrued but not taken on termination. 65From 1 January 1997, Mr Sturesteps' annual leave entitlement was governed by Sch 1A of the Workplace Relations Act 1996 (Cth). Clause 1(1)(a) of this Schedule provided for annual leave to accrue on a pro-rata basis and to be cumulative. 66Having regard to these provisions and particularly in the absence of any evidence of agreement between Mr Sturesteps and HIH Casualty as to how holiday pay taken by him was to be debited against his accrued entitlement, it seems to me the approach taken by the primary judge was correct. It was clear that up to at least November 1992 there was a firm policy that annual holidays had to be taken. Even if that policy was relaxed somewhat by the Schedules to the Employee Relations Act 1992 and the Workplace Relations Act 1996, in the absence of any evidence of a contrary practice it seems to me entirely sensible to debit leave taken against the longest accrued leave entitlement and to attribute Mr Sturesteps' outstanding leave to the balance of his entitlement. This was the approach adopted by the primary judge and it cannot be said, in my opinion, that he was in error in taking this course. 67In these circumstances, in my opinion, the cross-appeal on this ground should be dismissed.

The Interest Issue 68Mr Sturesteps claims interest on the amount he was held to be entitled to prove in the administration of HIH Casualty. In his notice of cross appeal he claimed interest on such amount as he was held to be entitled to payment in priority from 18 April 2001, whilst in relation to non-priority amounts he claimed interest from the declaration of any dividend in respect of ordinary unsecured debts. Ultimately it was suggested in argument that interest should run from 1 November 2005, which was said to be one month after Mr Sturesteps provided sufficient information to the liquidators to enable them to assess his proof of debt. 69The primary judge recorded (second judgment at [44]) that Mr Sturesteps accepted that his claim for interest was governed by s 563B of the Act, but that he put his claim against the liquidators personally, presumably on the basis that their wrongful rejection of the proof of debt kept him out of his money. His Honour noted that there was no inquiry under s 536 of the Act as to the conduct of a liquidator in rejecting the proof; the proceedings merely involved determining the correctness of the proof of debt. In these circumstances, he considered there was no basis to make the order sought against the liquidator (second judgment at [45]). 70It should be noted that to the extent any claim against the liquidator personally was asserted in the Court below, it was not pressed on appeal. 71In his written submissions in chief Mr Sturesteps sought to rely on s 100 of the Civil Procedure Act 2005 as providing the basis for his claim. That submission was abandoned in supplementary written submissions of 26 July 2011, but reliance was placed on the decision of the High Court in Hungerfords v Walker [1989] HCA 8; (1989) 171 CLR 125. The supplementary submissions stated there was power in the liquidator to make such a payment by virtue of s 477(1)(b) of the Act. 72In his oral submissions Mr Rayment accepted that s 477(1)(b) conferred a discretion on the liquidator. He submitted that interest should be awarded to compensate Mr Sturesteps for the loss he suffered in being kept out of his money consistent with what was said in Hungerford v Walker, supra, and the liquidator not having done so, the Court had power to make such an order under s 1321(1) of the Act. 73There are a number of difficulties with this submission. Most importantly, it was not raised in the court below. The power of a court under s 1321 and its predecessors to review a discretionary decision of a liquidator has generally been said to be confined to circumstances where the liquidator was acting unreasonably or in bad faith: Re Mineral Securities Australia Ltd (in liq) [1973] 2 NSWLR 207 at 230-231; UTSA Pty Limited (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 251 at 281; Re Burnells Pty Ltd (in liq) [1979] Qd R 440 at 441; Re Tyndall (1977) 17 ALR 182 at 185; Re Jay-O-Bees Pty Ltd (in liq) [2004] NSWSC 818; (2004) 50 ACSR 565 at [46]. However, it has been suggested that the power extends to circumstances where the liquidator has made an error of law, taken into account irrelevant matters or failed to take into account relevant matters: Re Equity Funds of Australia (in liq) (1976) 2 ACLR 238 at 239. 74Whatever is the scope of the Court's power, the issue was not raised by Mr Sturesteps in his pleadings or in submissions before the primary judge. Had the matter been pleaded or particularised, HIH Casualty might well have produced evidence to rebut the allegation. In these circumstances, the point should not now be permitted to be raised: Suttor v Gundowda [1950] HCA 35; (1950) 81 CLR 418. 75For this reason alone the cross-appeal on this ground should be dismissed. 76In any event, in my opinion, s 477(1)(b) of the Act does not empower a liquidator to pay post-liquidation interest to a creditor or class of creditors other than in accordance with s 563B of the Act. Section 553(1) of the Act provides that debts or claims which are admitted to proof are those the circumstances giving rise to which occurred before the relevant date, in this case the winding-up order. Although there are exceptions (cf 553(2) and the circumstances referred to in Re Jay-O-Bees, supra at [90]) these exceptions do not include post-liquidation interest which is expressly dealt with in s 563B of the Act. That section provides as follows: "563B(1) If, in the winding up of a company, the liquidator pays an amount in respect of an admitted debt or claim, there is also payable to the debtor or claimant, as a debt payable in the winding up, interest, at the prescribed rate, on the amount of the payment in respect of the period starting on the relevant date and ending on the day on which payment is made. (2) Subject to subsection (3), payment of the interest is to be postponed until all other debts and claims in the winding up have been satisfied, other than subordinate claims (within the meaning of section 563A). (3) If the admitted debt or claim is a debt to which section 554B applied, subsection (2) does not apply to postpone payment that so much of the interest as is attributable to the period starting at the relevant date and ending on the early of: (a) the day on which the payment is made; and (b) the future date, within the meaning of section 554B." That section confers a right to post-liquidation interest at the prescribed rate but postpones payment until all other debts or claims have been satisfied. The only exception is that referred to in s 563B(2). 77In circumstances where the legislature has expressly provided for the payment of post-liquidation interest and the circumstances in which it can be paid, it does not seem to me that a liquidator would be empowered by s 477(1)(b) to pay post-liquidation interest to a particular class of creditors, much less to a single creditor. In my opinion, the sole entitlement to such interest arises pursuant to s 563B and is payable in the circumstances set out in that section. In that context, it must be remembered that s 477(1)(b), and its predecessors, has generally been limited to two types of cases. First, where the creditors in question, although not within the priority payment provision of the legislation (currently s 556 of the Act), have a claim recognised in law as entitled to priority over other unsecured creditors, and second, where payment in full of the claims of the creditors in question is beneficial to the winding-up of the company, in that the collection and distribution of the company's assets for the general benefit of creditors will be, or will be likely to be, thereby facilitated: Re Walker Hare Pty Ltd (in liq) [1968] VR 447 at 454; Warne v GDK Financial Solutions Pty Ltd [2006] NSWSC 464; (2006) 57 ACSR 525 at [69]-[70]. Neither situation applies in this case. 78This conclusion is consistent with the fact that prior to the introduction in 1992 of the then equivalent to s 563B, there was no entitlement to post-liquidation interest, except as provided in the contractual arrangement between the creditor and the debtor or payable pursuant to some other legally binding obligation (as to the latter see Re Tahore Holdings Pty Ltd (in liq) [2004] NSWSC 397; (2004) 49 ACSR 550 at [11]) and then only after unsecured creditors were paid in full. These principles are set out by Giffard LJ in Re Humber Ironworks and Shipbuilding Co (1868-69) LR 4 Ch App 643 at 647: "For these reasons I am of the opinion that dividends ought to be paid on the debts as they stand at the date of the winding-up; for when the estate is insolvent this rule distributes the assets in the fairest way; and where the estate is solvent, it works with equal fairness, because, as soon as it is ascertained that there is a surplus, the creditor whose debt carries interest is remitted to his rights under his contract; and, on the other hand, a creditor who has not stipulated for interest does not get it. I may add another reason, that I do not see with what justice interest can be computed in favour of creditors whose debts carry interest, while creditors whose debts do not carry interest, are stayed from recovering judgment, and so obtaining a right to interest." 79That approach was adopted in Australia by the High Court in Mackenzie v Rees [1941] HCA 21; (1941) 65 CLR 1 at 4, 7-8, 12, 18-19; see also Midland Montagu Australia Ltd v Harkness (1994) 35 NSWLR 150 at 163; Re Emilco Pty Ltd (in liq) [2002] NSWSC 1124; (2002) 43 ACSR 536 at [15]-[17]; Gerah Imports Pty Ltd v Duke Group Ltd (in liq) [2004] SASC 178; (2004) 88 SASR 419 at [45]-[47]. 80It follows that the only basis on which Mr Sturesteps was entitled to interest was by virtue of s 563B of the Act. As the liquidators had no power under s 477(1)(b) to pay interest in priority to the other unsecured creditors, the Court cannot in the exercise of its powers under s 1321 order them to do so: Fraser v Australian Securities & Investment Commission (recs and mgrs apptd) [2007] FCAFC 85; 159 FCR 424 at [59]. 81It follows that the cross-appeal in respect of this issue should be dismissed.

The Expenses Issue 82Mr Sturesteps claimed to be entitled to prove in the administration losses totalling US$184,118.26. The losses were particularised in par [61] of the second further amended statement of claim as follows: "The Plaintiff incurred the following losses: (a) In or about 1996, the Plaintiff incurred a loss of US$50,000, whereby the Plaintiff was not repaid for the deposit of US$50,000 he had contributed to purchase of the [xx] Street apartment; (b) In or about 1996, the Plaintiff incurred a loss of US$27,972 for the sale of an apartment at [xx] [xx] Street, San Francisco ('the [xx] Street apartment'); (c) In or about 1996, the Plaintiff incurred a loss of US$6,000 for the repossession fees of the [xx] Street apartment. (d) In or about 1996, the Plaintiff incurred a loss of US$17,123.67 for the withholding tax paid on the sale of the [xx] Street apartment; and (e) In or about 1996, the Plaintiff incurred a loss of US$15,000 for furniture stolen from the [xx] Street apartment; (f) In or about 1998, for or on behalf of Heathcal (a subsidiary of the Third Defendant), the Plaintiff set aside US$50,000 of his own funds with the Bank of Marin, as guarantee for a separate draw down facility (also with the Bank of Marin) of an associate of Healthcal [sic], Mr. Sean Bailee. In or around 2000 Mr. Sean Bailee drew down on his draw down facility but did not repay the amount in time and as a result the plaintiff's US$50,000.00 was withdrawn by the Bank of Marin, causing the plaintiff to incur a loss of US$50,000, and (g) In or about 1999, the Plaintiff incurred a loss of US$18,022.59 for the sale of a Mercedes motor vehicle used during the course of his employment with the Third Defendant." 83The amount so particularised was said to be repayable pursuant to an agreement which was pleaded in par [57] of the statement of claim. This paragraph provided as follows: "In or around 1987, Mr Ray Williams, on behalf of the Third Defendant and/or a group of companies of which the Third Defendant was the holding company, entered into an oral agreement with the Plaintiff where it was agreed that the Plaintiff be reimbursed for any losses incurred by the plaintiff and/or his spouse whilst residing in the USA for the purpose of his employment. If the Plaintiff did incur any loss, HIH Group would compensate the Plaintiff ('the losses agreement'). By implication, the consideration for the agreement was the agreement of the Plaintiff to remain employed within the HIH group." 84The only evidence in support of such a claim is to be found in Mr Sturesteps' affidavit of 19 September 2008. Paragraph [17] of that affidavit so far as relevant provided as follows: "The executives were indemnified by C.E. Heath for all their travel expenses, accommodation expenses and all other out of pocket expenses incurred in the performance of their duties. This is what I have coined my ' losses agreement ' I have with Ray when I first became in charge of the International operations of C.E. Heath. Annexed hereto and marked GS7 is a copy of letter [sic] from Arthur Andersons [sic] to Mr Robert Kelly, Chief Accountant CE Heath Corporate Services dated 11 May 1993 which reflected the previous oral advice I had received from Arthur Anderson [sic] in 1987 regarding my employment status. Significantly at point 10 on page 4 of GS7 it is noted that Casualty and General would pay my living expenses while I was in California." 85His Honour held that this evidence did not demonstrate an agreement that Mr Sturesteps be reimbursed for any losses incurred whilst residing in the United States (first judgment at [42]). Further, he held that the items particularised did not fall within the agreement deposed to in par [17] of Mr Sturesteps affidavit. 86In my opinion, the primary judge was correct in so finding. None of the items referred to fall within the accepted meaning of travel expenses, accommodation expenses, out-of-pocket expenses or living expenses. 87In these circumstances, the cross-appeal on this issue should be dismissed.

The United States Apartment Issue 88The basis of this claim is obscure. The factual background seems to be that in 1987 a proposal was made by Mr Sturesteps to Mr Williams, the Chief Executive Officer of the HIH Group, that he or Mr Sturesteps buy an apartment in San Francisco for US$250,000, $200,000 of which would be advanced by way of loan from a company in the HIH group. In pars [45]-[48] of his first judgment, the primary judge made the following findings which senior counsel for Mr and Mrs Sturesteps did not dispute, although he stated they only showed part of the position. His Honour's findings were as follows: "[45] Subsequently, in a telephone meeting, the board of Heath Cal resolved to ratify its borrowing of $200,000 from C E Heath Underwriting Agencies and to lend the proceeds of that loan to Mrs Sturesteps for a term of 15 years at an interest rate of 7.5 per cent interest only, on the security of the California apartment. Mr Sturesteps was a participant in that meeting. His protestation that he did not consider that he was speaking on behalf of Mrs Sturesteps is incredible. [46] $200,000 was then paid by HIH into Mrs Sturesteps' account and subsequently applied to the purchase. Mr Sturesteps told his wife that interest at $15,000 per annum would be charged and paid out of her account. Mr Sturesteps arranged for the apartment to be rented to an HIH Group company, and annually Mrs Sturesteps drew a cheque for $15,000 on her account, which she gave to Mr Sturesteps, who gave it to Heath Cal. [47] Subsequent discussions, in about 1994, related to the purchase of a replacement unit at [xx] [xx] Street, for $300,000. Although there was some preliminary discussion about a gift of the [xx] Street unit to Mr Sturesteps as a bonus in conjunction with a release of the loan, the ultimate practical effect of what was agreed was that the HIH Group would pay Mr Sturesteps a bonus of up to $300,000 by funding the purchase of a replacement unit up to that value, and the Sturesteps would remain liable to repay the original loan in respect of the original unit, although interest would be foregone in consideration of them making the unit available for company executives to occupy. [48] The replacement unit was purchased, by arrangement, in the name of another HIH company as trustee for the Sturesteps, and on the basis that legal title would be transferred once the original loan of $200,000 was repaid. The original unit was not sold until December 1996. The net proceeds were $226,000. The title had been transferred to Mrs Sturesteps in accordance with an accountant's earlier advice, but only shortly before the sale. However, the loan was not repaid from the proceeds." 89The primary judge's conclusion on the basis of these findings was: "[50] Insofar as I can tell, the legal position is fairly plain. The Sturesteps acquired a beneficial interest in the second apartment, which was held upon trust for them. That apartment has since been sold by the HIH company which held it on trust, but that company is not the present defendant. It may well be that some breach of trust was involved in that sale, but any claim that the Sturesteps have in that regard are [sic] not against the present defendant. [51] The Sturesteps have not been released from the obligation to repay the $200,000 loan, at the latest upon sale of the [xx] Street unit, although they were released from interest. In my view, HIH Overseas Holdings is entitled to judgment for the principal of $200,000 plus interest at court rates from the date on which the sale was completed - when the loan should have been repaid to HIH Overseas Holdings." 90Mr and Mrs Sturesteps dispute that this conclusion accurately reflects the legal position. However, it is by no means clear what they contended the correct position was. It was put in oral argument by Mr Rayment in a number of ways. 91It was first submitted that in January 2001, Mr Sturesteps had a conversation with Mr Williams in the context of negotiations concerning Mr Sturesteps' termination payment, in which Mr Williams said Mr Sturesteps would be paid $350,000 in respect of his entitlement relating to the Californian apartment. Mr Sturesteps' evidence (at [98] of his affidavit) of this conversation was to the following effect: "Ray and I then had a conversation in words to the following effect: RAY: 'That amount includes $350,000.00 in respect of your entitlements in respect of the Californian Apartment'. ME: 'That's okay as long as I also receive the balance of what I am due once the apartment is sold to [xxx].' RAY: 'I've been having awful difficulty and I'm sorry how long it has taken. The whole thing has also involved my own situation and I've pushed the board as far as I can. They won't move any further. The board have approved me putting this offer of settlement to you.' ME: 'I'll accept that to avoid further acrimony and total war.'" 92However, it was acknowledged that no case was brought in relation to that alleged agreement. 93It was then contended that the legal analysis was that Mr Sturesteps had with his employer "a series of discussions and events" which "altered the way those arrangements (that is the arrangements in pars [45]-[48] of the first judgment of the primary judge) were intended to operate". It was said that the legal rights and liability of Mr Sturesteps and HIH after the failure to transfer the apartment were to be resolved between Mr Sturesteps and HIH Casualty. It was submitted as a consequence that some balance was due to Mr Sturesteps rather than by Mrs Sturesteps as a result of what happened. 94The difficulty with that argument is that apart from the conversation in par [98] of the affidavit of Mr Sturesteps of 19 September 2008, which was not sued upon, there was no evidence of any agreement to that effect. 95Next it was submitted that the failure to transfer the second apartment to Mrs Sturesteps discharged her liability. The difficulty with that argument was that the company which held the unit on trust for Mrs Sturesteps was not her creditor. 96Finally, it was suggested that there was a release of the debt due by Mrs Sturesteps and then a conditional reinstatement, the condition being the transfer of the second apartment to her or Mr Sturesteps. That condition not having been fulfilled Mrs Sturesteps liability was discharged. 97In this regard reliance was placed on pars [44], [46], [49] and [50] of Mr Sturesteps' affidavit. These paragraphs provide as follows: "44. In or about October 1994 at Sonoma just outside of Sacramento, Ray and I were attending a wedding of one of the former employees of Heath Cal, and we discussed bonus matters. I recall that we were wandering around the village square just after having a cup of coffee and were discussing points I had raised previously with Ray over my lack of reward for my success in the sale of HeathCal. I had suggested to Ray previously I think on a flight from India that I could be rewarded by way of a 'phantom stock' holding if Hong Kong was successful. I recall the conversation with Ray in words to the following effect: ME: 'Ray, have you given any more thought on the phantom stock idea I had in relation to the set up of Hong Kong?' RAY: 'Yes I have, it's not going to work.' ME: 'Well, I have an issue with that Ray. I am expected to bust my gut and drive Hong Kong just like I did HeathCal. There were plenty of bonuses handed around for the sale of HeathCal however yours truly got zip. Frankly, I don't feel all that motivated about Hong Kong and if you expect me to go to India you can forget it.' RAY: 'What if the company gives you the [xx] Street apartment in San Francisco, with no further obligation to pay HIH for the US$200,000.00 loan?' ME: 'Would that include free title, that is, forgiveness of the loan'. RAY: 'Yes, that's right'. ME: 'Okay, I think that's fair." ... 46. I recall a second conversation with words to the following effect: (I cannot recall whether it was at the same time as the above conversation or later): ME: 'Ray, the apartment has only 1 bedroom and it's not very practical when HIH people want to stay there whilst Beryl and I are there. What about a ceiling of US$300,000.00 and I purchase another apartment with 2 bedrooms and if it costs more than US$300,000.00 I will be solely responsible to pay the difference? That effectively means Ray the US$200,000.00 is still owing and that can be paid back once we sell the apartment.' RAY: 'Ok, that's fine. I agree, consider that your bonus for your part in the sale of HeathCal.' ME: 'Because we are continuing to give the company executives lodgings I would like you to make sure any future commitment to pay interest on the Two Hundred thousand dollars is waived.' RAY: 'George, what you have said to me makes sense. I agree that all future interest payments are waived.' ... 49. Arthur Anderson [sic] advised me that Beryl should not own or attempt to own more than one US property for tax reasons. 50. In or around January 1995 I telephoned Ray in Melbourne from California and conveyed Arthur Anderson's [sic] advice. Following this Ray and I had a conversation in words to the following effect: RAY: 'The US operation can purchase the apartment on trust for you and the title can be transferred to Beryl's name when you sell the [xx] Street apartment. How does that sound?' ME: 'That's fine, I agree'. RAY: 'I'll help you with the arrangements.'" 98There are two reasons why this submission should be rejected. First, his Honour described the evidence of Mr Sturesteps in respect of the $200,000 loan and its alleged forgiveness as contradictory and improbable. Even leaving aside the advantages that the primary judge had in assessing the evidence of the witness, pars [44] and [46] of Mr Sturesteps' affidavit of 19 September 2008, refer to two conflicting arrangements. One, involving forgiveness of the $200,000 and the other taking place potentially at the same time to the contrary effect. Second, and more importantly, the arrangement that Mr Sturesteps said was reached in January 1995 seemed to be consistent with the findings of the primary judge in pars [50] and [51] of his first judgment. 99For these reasons no error has been demonstrated in the findings made by the primary judge on this issue. The cross-appeal on this issue should be dismissed.

Orders 100In these circumstances I would make the following orders: (1) Appeal allowed. (2) Cross appeal dismissed. (3) Orders 1, 2 and 3 of the orders made by the primary judge on 10 June 2010 and entered on 22 June 2010 be set aside and the following orders be made. (4) Order that the first and second appellants admit the respondent to proof in the scheme of arrangement of the third appellant for the following amounts and the following classes applicable to s 556 of the Corporations Act 2001: (a) The amount of $216,690.17 for unpaid wages under s 556(1)(e); (b) The amount of $18,493.31 for unpaid superannuation under s 556(1)(e); (c) The amount of $37,578.33 for accrued annual leave under s 556(1)(g); (d) The amount of $241,388.36 for accrued long service leave under s 556(1)(g); (e) The amount of $132,523.42 for the retrenchment payment under s 556(1)(h); being a total of $646,673.59. (5) Order that the first and second appellants admit the claim of the respondent to proof in the scheme of arrangement of the third appellant for the following amounts as an ordinary unsecured creditor: (a) The amount of $551,148.88 for accrued annual leave; (b) The amount of $131,354.63 for accrued long service leave; (c) The amount of $1,426,575.58 for the retrenchment payment; being an unsecured total of $2,109,079.09. (6) Order that the respondent pay the appellants' costs of the appeal and cross-appeal. (7) Direct each party within 10 days of the date hereof to file submissions as to the appropriate order of the costs of the proceedings before the primary judge. 101MACFARLAN JA : Subject to what follows, I agree with the judgment of Bathurst CJ. 102I respectfully disagree with his Honour's conclusion that the payment for which the first limb of clause 17.1(c) of the Executive Employment Agreement provides is attributable to non-priority and priority days in the same proportions as the second limb payment is attributable to those days (see [49]-[55] above). 103The payment for which the second limb provides is "5/52 of [Mr Sturesteps'] annual Remuneration Package for each completed year of service". Applying the principles to which Bathurst CJ refers (see [40]-[44] above), that payment can, as his Honour holds, readily be regarded as attributable to Mr Sturesteps' years of service both before and after the date of the agreement, as all those years together act as the multiplier of the fraction of one year's remuneration to which the clause refers. 104However the first limb payment is a fixed amount equivalent to one year's remuneration. It is a payment to which Mr Sturesteps was entitled irrespective of when his position became redundant. It would have been payable even if the redundancy had occurred immediately after the agreement was entered into. In these circumstances I consider that HIH Casualty's agreement to pay it can fairly be regarded as attributable to the period of Mr Sturesteps' service with the company up until the date of the agreement. It should accordingly be apportioned between priority and non-priority days falling within that period rather than, as Bathurst CJ holds, to the whole of the period of Mr Sturesteps' service, whether occurring before or after the agreement. 105The express statement in clause 17.3 that "[t]he payment amount in paragraph 17.1 is made in recognition of your past service" provides some support for the conclusion that I have reached, although I recognise that that statement applies not only to the first limb of clause 17.1 but also to the second limb. The statement does not in my view require that the second limb payment be treated as attributable only to the period of service up to the date of the agreement because, in providing for the payment under that limb to be calculated by reference to years of service after the date of the agreement, clause 17.1 provides an explicit indication of the appropriate attribution. Such an indication is absent in relation to the first limb payment. Rather, one is left with the facts that it is in "recognition" of past service (clause 17.3) and is payable irrespective of any service being performed after the date of the agreement. 106Unlike Bathurst CJ (see [52] above), I do not regard the fact that the first limb payment is of Mr Sturesteps' remuneration package at the date of redundancy, rather than at the date of the agreement, as requiring a different conclusion to that which I have reached. Certainly this means that the payment will be likely to vary as service occurs after the date of the agreement. To some extent the payment could therefore be regarded as "attributable" to the period of service after the date of the agreement. However the terms of s 556(1C) (see [24] above) contemplate that with respect to any particular day of service it will be able to be said whether a payment or any part of a payment was attributable to it. As attribution in this sense involves considerations of causal links or connections (see [38]-[39] above) it is likely that circumstances that prevail will suggest more than one possible attribution. Events rarely result from a single cause. 107The effect of s 556(1C) is to require that a decision be made whether a payment (or an amount that forms part of a payment) was or was not attributable to a particular day. Thus a choice between possible attributions, and therefore causal links, must be made. This can only be done by giving effect to the predominant causal link or attribution. In the case of the first limb payment, that is in my view the period of Mr Sturesteps' service up to the date of the agreement, as this was the primary determinant of his right to payment. The link to his service after the date of the agreement was subsidiary as that service could have increased the amount of the payment but was not the cause of his core entitlement. 108For these reasons I would require the parties to calculate the retrenchment payment due in accordance with the views I have expressed above and would not make orders in respect of the amount to which Bathurst CJ refers. 109SACKVILLE AJA: I agree with the orders proposed by Bathurst CJ and with his Honour's reasons. 110On the issue on which Bathurst CJ and Macfarlan JA have expressed differing opinions, I prefer the analysis of Bathurst CJ. 111Section 556(1C) of the Corporations Act 2001 (Cth) (" Act ") provides that a payment under s 556(1)(h) (a retrenchment payment) to an excluded employee must not include " an amount attributable to non-priority days ". The relevant amount in the present case is Mr Sturesteps' annual Remuneration Package calculated at the date of termination of his employment by reason of redundancy. 112The amount of Mr Sturesteps' Remuneration Package at the date of termination of his employment was attributable to his service after the date of his employment agreement. This is because the amount of the Remuneration Package was increased at the end of each year of service by reason of the annual review required by cl 5 of the agreement. 113The question posed by s 556(1C) of the Act is whether the amount of the Remuneration Package is attributable to non-priority days, not whether his entitlement to the package is attributable to non-priority days. The amount of the Remuneration Package to which Mr Sturesteps was entitled on the date his employment was terminated was attributable to periods of service (that is, non-priority days) after the date of the agreement. Those periods of service created his entitlement to successive annual reviews of his annual Remuneration Package and therefore to increases in the amount payable to him under the first limb of cl 17(1)(c) of his employment agreement. 114In my opinion, this analysis is not only in conformity with the statutory language, but reflects one of the principal reasons given in the explanatory memorandum for excluding directors from priority in respect of retrenchment payments (see at [34] above). Whether the annual increase in Mr Sturesteps' Remuneration Package was modest or otherwise depended in practice on the decisions of his co-directors. 115Thus although the result on the facts of this case would seem to be marginally more favourable to Mr Sturesteps, the analysis leading to that result, in my opinion, gives effect to the policy underlying s 556(1C) of the Act.

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