Millichamp v Pharmacy Platform Pty Ltd [2024] NSWSC 1236 | Case summary

Millichamp v Pharmacy Platform Pty Ltd [2024] NSWSC 1236 | Case summary | Zoe

JUDGMENT

HIS HONOUR: The plaintiff sues for damages for breach of contract. The Court is presently dealing only with the issue of liability. The contract is a contract of employment, and the breach concerns the non-payment of a Long Term Incentive Bonus (hereinafter the "Bonus") said to be payable to the plaintiff under his contract of employment.
The facts are largely uncontroversial and in short compass.
The parties have prepared a joint list of disputed issues and agreed facts and a joint bundle of documents that are uncontroversial, in the sense that each side accepts that the documents are authentic and pertain to the issues between them.
The plaintiff was the defendant's Chief Executive Officer and was employed under an Employment Agreement (hereinafter the "Employment Agreement"), which is in the form of a Letter of Offer dated 21 August 2020, counter-signed by the plaintiff.
While the commencement of employment, as distinct from the contract of employment, did not occur until a condition precedent had been met, being the establishment of the defendant's business, which occurred as a result of a merger of a number of businesses, it is accepted by each of the parties that the condition precedent was satisfied on or about 31 July 2020.
The issue between the parties is the effect of a Deed of Settlement dated 16 March 2022 (hereinafter the "Deed of Settlement") and whether the Deed of Settlement prevents the defendant from claiming the Bonus.
The parties are otherwise agreed that, but for the Deed of Settlement and its effect, the Bonus is payable.
In many respects, the terms of the Bonus and the basis upon which it is liable to be paid are uncontentious and probably unnecessary to recite. However, because the Court is determining whether there is a liability under the terms of the Employment Agreement to pay the Bonus, it is appropriate to extract its terms.
It derives from the provisions of cl 8.1.4 of the Employment Agreement and Annexure B to the Employment Agreement. It is payable upon the occurrence of an Exit Event. The terms of cl 8.1.4 and the relevant terms of Annexure B are as follows: "8.1.4 Long Term Incentive Payment (a) The Company must pay you a long term incentive payment upon the future sale of the Company in accordance with the terms of the Long Term Incentive as set out in Annexure B. (b) The Company must procure a novatIon or an assignment of the burden of clause 8.1.4(a) (and Annexure B) to the Inheriting Entity if a Company Restructure occurs prior to an Exit Event and, in connection with which, each reference in clause 8.1.4 and Annexure B to the Company is read as a reference to the lnheriting Entity. (c) A Company Restructure for the purposes of this clause 8.1.4 means the Shares in the Company or the assets of the Company involved in conducting the business undertaking (at the date of this Letter of Offer, being the business operated by the respective companies the subject of the Proposed Transaction) are transferred (whether directly or indirectly) to an Affiliate of the Company (Inheriting Entity), the term "Affiliate" meaning the same as in the Shareholders Agreement. Annexure B Long Term Incentive ('LTI') 1. Conditions of Participation The Company must pay you (or procure that you are paid) at the times specified in clause 3 below, the Bonus if the following conditions being met: 1.1 You must have been employed by the Company immediately prior to the completion of the Exit Event; 1.2 You are not employed by the Company immediately prior to the completion of the Exit Event but the cessation of your employment (which may occur at any time) was a result of a Survival Condition; 1.3 You must not be in breach (having been given 30 days to remedy any such breaches) of any of your obligations in your terms and conditions of employment as at the completion of the Exit Event (including, if your employment has terminated earlier as a result of a Survival Condition, any obligation that survives termination of your employment); and 1.4 The Exit Event must have completed (for the avoidance of doubt, if the Exit Event involves Instalment Payments, completion takes place on the first instalment). 2. The Bonus Structure The bonus that the Company must pay to you ('Bonus') will be calculated as follows, on the assumption that the Exit Event is a full disposal of all of the shares in or assets of the Company: • If the Consideration of the Exit Event is between $1 - $7m above the Base Business Value, the Bonus will be $210,000; • If the Consideration as at the time of the Exit Event is between $7,000,001 - $19,999,999 above the Base Business Value, the Bonus will be 3% of the amount by which the Consideration of the Exit Event exceeds the Base Business Value; • If the Consideration as at the time of the Exit Event is between $20,000,000 - $49,999,999 above the Base Business Value, the Bonus will be 4% of the amount by which the Consideration of the Exit Event exceeds the Base Business Value; or • If the Consideration as at the time of the Exit Event is greater than $50m above the Base Business Value, the Bonus will be 6% of the amount by which the Consideration of the Exit Event exceeds the Base Business Value. If the Exit Event that gives rise to a Bonus is not a disposal of all of the shares in or assets of the Company, the Bonus will be reduced in accordance with the following formula: B = FB * X Where: B = Bonus payable following an Exit Event that is not a full disposal of all of the shares in or assets of the Company FB = The full Bonus calculated above on the assumption that the Exit Event is a full disposal of all of the shares in or assets of the Company X = The proportion, expressed as a percentage, that the Board determines (acting reasonably) is the proportion of the shares in or assets of the Company that were disposed of in the Exit Event…"
It is agreed between the parties that an Exit Event occurred on 14 December 2021. The Exit Event was the sale of shares in the defendant to Pharmacy Alliance Group Holdings Pty Limited (ACN 609 137 546), pursuant to a Share Purchase Agreement dated 13 December 2021.
Chronology
It is necessary to put the foregoing employment term in context and, in so doing, deal with the chronology of events. The first employment of relevance was the commencement of the plaintiff's employment with Apotex Pty Ltd, which commenced on 6 March 2006. On 1 April 2013, the plaintiff was employed as Regional Managing Director, Australia and New Zealand of Apotex Pty Ltd.
On 26 September 2019, the plaintiff's employment with Apotex Pty Ltd terminated on notice, and his employment ceased on 30 June 2020. During his employment with Apotex Pty Ltd, the plaintiff engaged in work for one or some of its related entities without additional remuneration.
On 25 August 2020, the plaintiff commenced employment with the defendant and, on 9 October 2020, the merger of businesses, to which earlier reference has been made, was effected.
On 24 November 2020, the plaintiff served a letter of demand on Apotex Pty Ltd and, on 20 January 2021, mediation commenced in relation to the claim, evidenced by the letter of demand, against Apotex Pty Ltd.
Sometime between 20 and 23 May 2021, at a conference on the Gold Coast, the plaintiff was notified that the defendant's business was being sold to Arrotex Pharmaceuticals, or at least that the sale was being considered.
On 1 June 2021, at a meeting at Pharmacy Phusion offices, Harrington Street in Sydney, the plaintiff was provided with a "without prejudice" letter from the Chairman of the defendant confirming the plaintiff's resignation of employment with the defendant and its related bodies and offering the plaintiff an ex gratia payment of $470,000, less any required taxation, subject to the plaintiff signing a Deed of Release (hereinafter the "1 June 2021 Offer").
On 10 June 2021, the plaintiff rejected the 1 June 2021 Offer. On 11 June 2021, the plaintiff's employment with the defendant terminated, and, as was a required consequential effect of the termination, the plaintiff tendered his resignation as a Director of the defendant and its related entities.
On 15 July 2021, proceedings against Apotex Pty Ltd commenced and, on 20 September 2021, a defence was filed in the Apotex proceedings. A second mediation in relation to the Apotex claim was held on 12 November 2021.
On 7 December 2021, there were Calderbank letters issued in relation to the Apotex proceedings. On 13 December 2021, as already stated, the Share Purchase Agreement was executed and, on 14 December 2021, the sale of the defendant to Pharmacy Alliance Group Holdings Pty Limited took effect.
On 23 December 2021, the plaintiff issued his own Calderbank letter in the Apotex proceedings and on 19 January 2022, the Calderbank letter from the plaintiff in relation to the Apotex proceedings was accepted.
A Deed of Settlement was drafted on 1 February 2022 (hereinafter the "First Draft Deed of Settlement").
On 11 February 2022, the plaintiff instructed his solicitors to seek to amend the release clause in the First Draft Deed of Settlement to include a release with respect to "any services provided to any Group Company or Sherfam (whether or not for reward)".
Thereafter, on 14 February 2022, the plaintiff's solicitors wrote to the solicitors acting for Apotex requesting the inclusion of the words referred to in the immediately preceding paragraph (hereinafter the "Hayward Letter").
On 18 February 2022, an amended draft of the Deed of Settlement, containing the varied release, was circulated and, on 1 March 2022, the Final Draft Deed of Settlement issued (hereinafter the "1 March Draft").
On 7 March 2022, the completion of the sale of the defendant was reported in industry press reports and on 12 March 2022, the plaintiff received advice on the application of the 1 March Draft to the Bonus that arguably applied under the Employment Agreement with the defendant.
Further advice was received on 14 March 2022 relating to the scope of the release in the 1 March Draft and, on the same date, the solicitors for the plaintiff communicated in writing to the solicitors for Apotex accepting the 1 March Draft. The 1 March Draft was executed and became the Deed of Settlement on 16 March 2022.
On 18 October 2022, the defendant, through solicitors, communicated to the solicitors for the plaintiff denying any obligation to pay the Bonus pursuant to the terms of cl 8.1.4 of the Employment Agreement and on 15 December 2022, the plaintiff commenced the current proceedings before the Court.
The relevance of any subjective aspects is an issue with which the Court will deal shortly. Nevertheless, the Court should point out that the suggested alteration to the First Draft Deed of Settlement arose as a consequence of a concern as to the possibility of some liability arising out of the previously mentioned work performed without additional remuneration as a consequence of the plaintiff's position as Director for one or other of the members of the Group.
Further to the factual outline above, on 12 March 2020, Apotex gave the plaintiff notice that it had elected to enforce the post-employment restraints up to and including 26 September 2020. While the plaintiff sought and obtained employment during that period, the employment was restricted so as not to breach the applicable post-employment restraints. The alternative employment commenced on 1 July 2020.
Reference has been made earlier in these reasons to advice sought by the plaintiff from his legal practitioner in relation to the Deed of Settlement as amended. It is unnecessary to refer to the terms of the advice, which is contained in correspondence between the solicitor and the plaintiff and counsel. It is sufficient to note that the concern of the plaintiff was that the release in the Deed of Settlement did not apply to claims that the plaintiff had against the defendant. The aforesaid correspondence is before the Court.
Further again, on 7 March 2022, the announcement of the merger between Pharmacy Alliance and Pharmacy Platform was made, which merger formed the Pharmacy Platform Group.
It is agreed between the parties that as a consequence of that merger, the defendant, Pharmacy Platform Pty Ltd, is a related body corporate within the meaning of that term in the Corporations Act 2001 (Cth), of Apotex Pty Ltd (the Company in the Deed of Release) and Apotex Inc, the international parent company. The term "Group company" in the Deed of Release is defined by reference to the definition of related bodies under the Corporations Act.

[2]

Consideration

While there are some differences in the approach to the construction of contracts and deeds from the approach to some other documents, the general principles are identical. It is the function of the Court to ascertain and give effect to the intention of the parties, objectively obtained from the terms of the contract or deed.
It is appropriate to commence with certain principles relating to the enforcement of contracts. In Moschi v Lep Air Services; Lep Air Services v Rolloswin [1] , Lord Diplock reiterated certain fundamental conceptual aspects of contract in dealing with a deed. His Lordship was dealing with a contract of guarantee executed by deed, but that does not affect the relevance of the general comments. Lord Diplock said: "The law of contract is part of the law of obligations. The English law of obligations is about their sources and the remedies which the court can grant to the obligee for a failure by the obligor to perform his obligation voluntarily. Obligations which are performed voluntarily require no intervention by a court of law. They do not give rise to any cause of action. English law is thus concerned with contracts as a source of obligations. The basic principle which the law of contract seeks to enforce is that a person who makes a promise to another ought to keep his promise. This basic principle is subject to an historical exception that English law does not give the promisee a remedy for the failure by a promisor to perform his promise unless either the promise was made in a particular form, e.g., under seal, or the promisee in return promises to do something for the promisor which he would not otherwise be obliged to do, i.e., gives consideration for the promise… Each promise that a promisor makes to a promisee by entering into a contract with him creates an obligation to perform it owed by the promisor as obligor to the promisee as obligee. If he does not do so voluntarily there are two kinds of remedies which the court can grant to the promisee. It can compel the obligor to pay to the obligee a sum of money to compensate him for the loss that he has sustained as a result of the obligee's failure to perform his obligation. This is the remedy at common law in damages for breach of contract. But there are some kinds of obligations which the court is able to compel the obligor actually to perform. In some cases, such as obligations to transfer title or possession of property to the obligee or to refrain from doing something to the detriment of the obligee, a remedy to compel performance by a decree of specific performance or by injunction is also available… In these cases it was an alternative remedy to that of damages for breach of contract obtainable only in the court of common law. But, since a court of common law could make and enforce orders for payment of a sum of money, where the obligation was itself an obligation to pay a sum of money, even a court of common law could compel the obligor to perform it." [2]
In determining the obligation of one party to another under a contract, the subjective intention of the parties to the contract is irrelevant to the construction of any obligation or clause. Such subjective intentions should not be given weight in the interpretation exercise at the expense of the language of the contract. In these reasons, I use the term "contract" to include the Deed.
Notwithstanding that the Court is required to discern an objective construction of the contract, and an objective construction of the intention of the parties as evidenced by the contract, the context of the transaction between the parties assists a court in affording a commercial contract an appropriately businesslike and/or commercial interpretation. [3]
The High Court in Toll v Alphapharm [4] reaffirmed the principle of objective construction of a contract from the words that the parties have utilised in defining their respective rights. The High Court said: "[40] This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction".
As the High Court clarifies in the foregoing extract, an objective construction of a contract does not require that the contract be interpreted or construed in a vacuum. The result of the construction is to ascertain objectively the intention of the parties, and the intention of the parties is informed by the context in which the contractual obligations arise.
In construing the contract, the Court must, as with all documents, take a purposive approach; [5] read the contract as a whole; take into account the context in which the contract was made, including its commercial purpose; and, seek to arrive at a construction that achieves a harmonious operation of the contract as a whole in its context. [6]
The intention of the parties, where referred to above, is the mutual intention derived from the words used in the contract in their context, not the subjective intent of one or more of them.
Evidence of the circumstances surrounding the transaction may be relevant to the identification of constructional choices in the language of the contract and, as such, whether an ambiguity in the words of the contract arises. [7]
Such material, however, once admitted, is limited by the words used in the contract, as those words would be used by a reasonable person in the circumstances in which the contract was created. [8]
In this context, special meaning may derive from the commercial context or industry within which a contract operates. However, any "special" meaning or "industry" must be derived from a mutual understanding.
The surrounding circumstances and context include material covering the purpose and object of the transaction, including its genesis, background, context, and the market (if any) in which the parties were operating. [9]
As Allsop P (as his Honour then was) noted, the parties do not require the facts to be present in the mind and consciousness of the contracting parties at the time of contracting, but the whole construct is one that places the reasonable person, whose understanding is critical, in the mutual position in which the parties contracted. [10]
His Honour went on to say that the "binding Australian authorities make clear that the scope of the surrounding circumstances, knowledge of which is to be attributed to a reasonable person in the situation of the contracting parties (not one or some only of them), is to be understood by reference to what the parties knew in the context of their mutual dealings." [11]
The entirety of the judgment in QBE Insurance v Vasic makes clear that the surrounding circumstances, which can be attributed to a reasonable person in the situation of the contracting parties, must be understood first, to be referrable to both or all of the parties and, secondly, by reference to what the parties knew in the context of their mutual dealings.
Further, the terms of the release and discharge contained in cl 4 of the Deed of Release must be understood in the context of the whole of the Deed. The release and discharge releases both the Company and the Group Companies, together with the plaintiff.
But the release refers to those matters that are "connected with any or all of the events the subject of the Proceedings", and the Proceedings are those commenced by the plaintiff against Apotex Inc and the Company, Apotex Pty Ltd, not any other member of the Group.
Otherwise, it must relate to or be connected with the plaintiff's employment by the Company, his role as a director of the Company and Apotex Pty Ltd, the cessation of that employment, the Contract (meaning the Contract of Employment between the plaintiff and Apotex Pty Ltd), the cessation of that employment and the termination of that Contract.
The reference to "services provided to any Group Companies or Sherfam (whether or not for reward), plainly refers to services provided ancillary to the function of the plaintiff as a director of the Company or as an employee of the Company during the time of his employment with the Company.
The Bonus payable pursuant to the term of the Contract of Employment with Pharmacy Platform Pty Ltd is a contract that did not come into existence until after the subject matter of the proceedings between the plaintiff and Apotex had terminated.
It is totally unrelated to the proceedings between the plaintiff and Apotex and unrelated to the services provided that were connected with his employment by the Company (Apotex) or his role as a director of Apotex, nor any ancillary or collateral services that may have been performed for any company in the Group during the course of that employment.
The mutual understanding of the parties to the Deed of Release and, to the extent relevant, the plaintiff and the defendant in these proceedings is that the Deed of Release between the plaintiff and Apotex Pty Ltd and/or Apotex Inc does not relate to the obligations imposed upon the defendant in these proceedings as a result of the employment of the plaintiff by the defendant.
The Court makes the following orders: 1. The Court declares that the Deed between the plaintiff in these proceedings and Apotex Pty Ltd (ACN 096 916 148) and Apotex Inc does not release, discharge or indemnify Pharmacy Platform Pty Ltd, the defendant in these proceedings, from any claim by the plaintiff against the defendant in these proceedings in relation to or arising out of the Contract of Employment between the plaintiff and the defendant in these proceedings. 2. The defendant shall pay the plaintiff's costs of and incidental to the determination of this issue. 3. Leave is granted for the parties to approach the Court for further directions.

Millichamp v Pharmacy Platform Pty Ltd

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Cases Cited (13)