Disclaimer of the Bonus?
62Mr Finch submitted that the Appellant had been free not to pay a bonus to the Respondent because the Respondent had disclaimed the bonus. He submitted that the conditions subject to which the Appellant proposed to pay the bonus were an intrinsic part of it, and that the Respondent made clear that he did not accept the conditions. That, Mr Finch submitted, was in effect rejecting the bonus itself.
63Clearly, the Respondent vigorously disputed (at the time the bonus was under discussion between officers of the Appellant and the Respondent, and at the time of the hearing before the primary judge, though not now) that the Appellant had the power to impose any conditions upon payment to him of the bonus. Mr Finch points out, correctly, that after expressing his views about the Appellant's lack of power to impose conditions on the bonus, the Respondent never communicated a change of position, never accepted the conditions, and never said that if the Appellant was able to impose the conditions, he would accept them. Against that stands the judge's finding, not appealed against, that the Respondent never advised the Appellant that he would not adhere to the conditions specified if he were paid the bonus on those terms.
Is Disclaimer Legally Possible?
64There are some legal difficulties in accepting that the conduct of the Respondent disentitled him to receive the bonus.
65The law concerning disclaimer finds its most familiar fields of application concerning transfers of property, where the transferee is a volunteer. In his illuminating discussion of disclaimer, Professor Crago identified its field of operation as follows:
"There are many circumstances in which a person may wish to reject (or 'disclaim') a proffered gift. This article considers the nature, requirements for, and the legal consequences of an effective disclaimer. It will be seen that these elements vary according to the nature of the gift and the type of property comprising it, and in particular whether the gift operates at common law, in equity by way of trust, or under the provisions of the will."
(Neville Crago, "Principles of Disclaimer of Gifts" The University of Western Australia Law Review , vol 28 (1999) at 65). As well, a liquidator of a company has a power to disclaim certain of the property of a company under s 568 Corporations Act 2001 (Cth). Even in this statutory usage of disclaimer, it is "property of the company" that can be disclaimed. Sub-s ection 568(1)(f) makes clear that the property that can be disclaimed includes " a contract" , but the power to disclaim must be exercised in relation to the whole of the contract, not in relation to specific rights that arise under it. As well a liquidator does not have any entitlement to receive the company's property by virtue of any consideration he has given or any contractual right that he has against the company. Section 133 Bankruptcy Act 1966 (Cth) confers on a trustee in bankruptcy a similar power to disclaim a contract of a bankrupt, but again the power exists in relation only to the whole of the contract, not in relation to specific rights under it. The Full Federal Court (Lee, Merkel and Healy JJ) discussed the general law relating to disclaimer in Federal Commissioner of Taxation v Ramsden [2005] FCAFC 39; 2005 ATC 4136 at [31], but that discussion is all in terms of disclaiming a gift of an item of property. The same can be said of the discussion of disclaimer in In re Paradise Motor Co Ltd [1968] 1 WLR 1125; Re Boyd (deceased) v Commissioner of Inland Revenue [1966] NZLR 1109 and Tantau v MacFarlane [2010] NSWSC 224 at [77]-[121].
66In support of his submission that the Respondent had disclaimed the bonus, Mr Finch relied on the decisions in Federal Commissioner of Taxation v Cornell (1946) 73 CLR 394, MSP Nominees Pty Limited v Commissioner of Stamps (South Australia) [1999] HCA 51; (1999) 198 CLR 494 and the judgment of Mahoney JA in Burns Philp Hardware Ltd v Howard Chia Pty Ltd (1987) 8 NSWLR 642 at 646. It is necessary to examine those cases in some detail to ascertain what can be drawn from them for present purposes.
67Federal Commissioner of Taxation v Cornell is a decision of Latham CJ sitting as a single judge. Mr Cornell was divorced from his wife. She had remarried, and become Mrs Corfield. He was bound by a deed to pay her a particular monthly payment. For the purpose of reducing his income tax he wanted to establish a trust of certain shares that he held. That trust was to be one whereby the income of those shares would be held for Mrs Corfield, and other rights concerning the shares held for other members of his family. He proposed that the amount of trust income would reduce pro tanto his obligation to make maintenance payments to Mrs Corfield. The shares were actually transferred to the intended trustees. A draft deed of trust was prepared, and submitted to Mrs Corfield's solicitors. However, they wrote saying they objected to the proposal for creating a trust, because it would increase their client's taxation liabilities. Latham CJ held that, in the circumstances, the income of the shares remained part of Mr Cornell's taxable income because no fully constituted trust had come into existence. He continued, at 401-2:
If, however, it were held that a trust had been created by the transfer of the shares with the intention of conferring benefits upon Mrs Corfield and some sufficiently identifiable members of the taxpayer's family, the case for the taxpayer would nevertheless fail because, as Holroyd J in Townson v Tickell (1819) 3 B & Ald 31, at p 38 [106 ER 575, at p 577] said (speaking of a devise):-'I think that an estate cannot be forced on a man. A devise, however, being prima facie for the devisee's benefit, he is supposed to assent to it, until he does some act to show his dissent. The law presumes that he will assent until the contrary be proved; when the contrary, however, is proved, it shows that he never did assent to the devise, and, consequently, that the estate never was in him.' Best J said (1819) 3 B & Ald, at p 39 [106 ER, at p 578]:-'It seems to be contrary to common sense to say, that an estate should vest in a man not assenting to it: there must be the assent of the party, before any interest in the property can pass to him.' The same case shows that the dissent need not be evidenced by disclaimer in a court of record or by deed; any evidence of actual dissent is sufficient. The law was stated with equal definiteness in Standing v Bowring (1885) 31 Ch D 282, at p 288, where it was held that, when there is a transfer of property to a person, it vests in him even before he knows of the transfer, 'subject to his right when informed of it to say, if he pleases, "I will not take it." When informed of it he may repudiate it, but it vests in him until he so repudiates it.' See also London & County Banking Co v London & River Plate Bank (1888) 21 QBD 535; Mallott v Wilson (1903) 2 Ch 494."
68Latham CJ held that the letter from Mrs Corfield's solicitor:
"... was a clear and decisive refusal to agree to the establishment of any fund for the purpose of paying the annuity to Mrs. Corfield. The result, therefore, is that, even if the evidence were sufficient to establish a trust in favour of Mrs. Corfield in the absence of evidence of dissent, the dissent which is proved makes it impossible to hold that a trust in her favour continued to exist."
69Several circumstances distinguish Cornell from the present case. First , the subject matter of the disclaimer in Cornell was an item of property, namely a beneficial interest in the shares. In the present case, the subject matter of the alleged disclaimer is purely a contractual right. While some contractual rights are for some purposes regarded as an item of property, because they are assignable, the right that the Respondent had to receive payment of the bonus was of value not for any reason connected with its being an item of property. (There may be room for argument about whether the conditions attached to the Respondent's right to receive the bonus made it inherently personal and hence not assignable, but as that question was not gone into in argument I shall not rely on it.) Second , in Cornell what was disclaimed was the totality of a benefit that passed to Mrs Corfield under a freestanding legal instrument. In the present case, the right to receive a bonus on particular terms that was conferred on the Respondent were only a part of his rights under the contract of employment. Third , in Cornell the benefit disclaimed was not granted pursuant to any power in any document that set out basis under which legal relations already existed between Mr Cornell and Mrs Corfield. In the present case the decision of the Remuneration Committee was made pursuant to a power to do so in an existing contract of employment. Fourth , in Cornell the document that purported to confer the benefit on Mrs Corfield was a deed, while in this case the right to the bonus arose through an exercise of a contractual power by the making of a decision, not by the entering of a deed. Fifth , in Cornell the creation of the beneficial interest in the shares was unasked for, and in the nature of a gift, while here the bonus was the result of the working through of a contractual procedure for fixing the remuneration of the Respondent for work he had already done. I recognise that Mr Cornell and Mrs Corfield were already in a contractual relationship, by reason of the agreement to pay maintenance, but the intended trust of the shares was not the outcome of that contractual relationship, and indeed Mr Cornell hoped to use the creation of the trust as a means of persuading Mrs Corfield to agree to vary that contractual relationship. Six th , there are principles that govern the manner in which individual rights arising under a contract can come to cease to be enforceable that operate in accordance with principles different from those that govern loss of rights through disclaimer in the law of property. I consider those further at [79] ff below.
70MSP Nominees Pty Limited v Commissioner of Stamps (South Australia) arose when two holders of certain units in a unit trust requested the trustee to redeem their units. Upon such redemption the trust deed entitled them to receive a proportionate part of the value of the trust fund. A provision of the South Australian stamp duties legislation imposed ad valorem duty on certain instruments that effected or recorded a transfer of a beneficial interest in property subject to a trust. A definition in sub-s 71(15) of that legislation extended "transfer" to include "surrender or renounce a beneficial interest or potential beneficial interest in, or in relation to, property" . The High Court (Gleeson CJ, Gaudron, Gummow, Hayne and Callinan JJ) held that the redemption of the units did not fall within the taxing statute. The main argument in the High Court related to whether the redemption was a "surrender" . However, at [35], their Honours made remarks on which Mr Finch relies:
"Paragraph (b) of the definition of 'transfer' in s 71(15) also uses the term 'renounce'. It is not clear to what extent, in the alternative, the Solicitor-General for South Australia relied upon this as a basis for imposing the duties. [The unitholders who requested that their units be redeemed] exercised rather than renounced their rights. 'Renounce' may be used here in the sense of a disclaimer or abandonment which results in either refusal to accept a benefit (see Federal Commissioner of Taxation v Cornell (1946) 73 CLR 394 at 401-402; Crago, 'Principles of Disclaimer of Gifts', University of Western Australia Law Review, vol 28 (1999) 65) or extinguishment, without replacement, of an interest held by one party and which, in either case, has the practical effect of conferring or swelling the value of the interest of another . An example, again from old system conveyancing, is the yielding up by the holder of a rent charge, profit a prendre or easement to the owner of the land subject thereto. This operates by way of an 'extinguishment' of that burden, and is described by Challis ( Challis's Law of Real Property , 3rd ed (1911), p 88) as an instance of 'the annihilation of a collateral thing in the subject out of which it issues, or in respect to which it is enjoyed'. The redemptions by [the two unitholders] involved the cancellation (under cl 35) of their units but they were not renunciations in any of the senses discussed above." (emphasis added)
71The units in the unit trust that were the subject of MSP were clearly items of property. In so far as the judges in MSP recognised that there could be a renunciation consisting of a refusal to accept a benefit, MSP shows a five-member bench of the High Court endorsing the principle stated in Cornell . However, at least in the context of the statute being construed, MSP subjected that principle to a qualification that Latham CJ did not express. It is that the refusal to accept a benefit " has the practical effect of conferring or swelling the value of the interest of another" . That language is apposite only to interests in property. While MSP was concerned with construction of a particular statute, and discussion of a word similar but not identical to "disclaim" in that statute, the extra characteristic of a renunciation that their Honours identified in MSP does seem to be a characteristic of all disclaimers that operate under the general law. (A disclaimer of a contract pursuant to the statutory power of a liquidator or trustee in bankruptcy to do so ([64] above) does not necessarily result in any specific proprietary right of the liquidator or trustee being conferred or swelled in value - it just increases the total distributable assets of the liquidator or trustee. However, the power of a liquidator or trustee to disclaim a contract is a statutory extension of the general law's concept of disclaimer). In Cornell , if the trust had been properly constituted the effect of Mrs Corfield's disclaimer would have been that the right to the income of the shares would have been held on a resulting trust for Mr Cornell. Because of that, it would be appropriate to say that the qualification recognised in MSP was satisfied because Mr Cornell had an " interest " in the shares the subject of the trust " conferred " on him by reason of the disclaimer. In the present case, it could not be said that, even if the Respondent had refused to accept the bonus there was any " conferring or swelling [of] the value of the interest of another" . The Appellant might be richer than it otherwise might have been, by an amount equal to the bonus, but that is not an increase in the value of its interest in any specific property.
72Burns Philp Hardware Ltd v Howard Chia Pty Ltd concerned the construction of a rent review clause in a lease of commercial premises. The reviewer was required to fix the rent by reference to "the then current annual market rent of the premises" . The lease contained a covenant limiting the use of the premises to that of "a hardware department store or such other business as shall be determined by the Lessee and approved by the Lessor (such consent not to be unreasonably withheld)." It also contained a covenant imposing restrictions on the lessee subletting or licensing the property without the consent of the lessor. Conscious that those provisions of the lease had a tendency to depress what would otherwise be the market rental of the premises, the lessor executed and sent to the lessee two deeds poll. In broad terms, by those deeds poll the lessee, through a variety of conveyancing devices, purported to give up its rights under those clauses. The devices included a declaration and covenant that the lessee would not be in breach of the covenants, an irrevocable waiver of any compliance by the lessee with the covenants, and a granting in advance of consent to any change of use or lease or license that there might thereafter be. The dispute that the court decided concerned what use the reviewer was entitled to make of the deed poll in ascertaining the current annual market rental.
73Priestley JA (with whom Glass JA agreed) held that the only effect that the deeds poll achieved was that they provided some evidence of the likelihood of the lessor thereafter consenting to a change of use, or to a sublease or a license. He held, at 659, that they did not operate as an effective waiver by the lessor of a provision inserted for its sole benefit. This was because the covenants in question were not for the lessor's benefit only, as their presence benefited the lessee by depressing the rent. He held, at 659-660, that they were not effective as an irrevocable consent, because they did not fulfil the necessary requirement for a valid deed of having been delivered. That was because delivery of a deed poll required that there be acceptance of, or reliance upon, it by the person to whom it is delivered. He held, at 660, that the deeds did not operate as an effective covenant not to sue, because they had not been delivered. Nor (at 660) did they operate as an estoppel, because the lessee had not acted to its detriment in reliance upon them.
74Notwithstanding that the ratio of the decision is found in the reasons of Priestley JA, Mr Finch relied on the separate reasoning by which Mahoney JA, at 646, reached the same conclusion as Priestley JA:
"In my opinion, the deeds poll, whatever be the effect they had until that time, ceased to have effect following the lessee's letter of 21 November 1985. The lessor, by the deeds poll, sought to confer a right on or undertake obligations in favour of the lessee. To the extent that the deeds would have such an effect, it was open to the lessee to disclaim them and, on its doing so, the rights and obligations ceased, as such, to have effect in favour of the lessee: see Federal Commissioner of Taxation v Cornell (1946) 73 CLR 394 at 401-402; Halsbury's Laws of England , 4th ed, [1975] vol 12, par 1370 at 549, and the cases there referred to.
In the present case, the lessee effectively disclaimed the deeds poll as far as they had such an effect. In the letter of 21 November 1985, it was said for the lessee: 'We regard the relationship as unchanged until both parties have agreed upon a change.' That, in its context, was in my opinion an effective disclaimer. Nothing had occurred which prevented the lessee disclaiming the deeds."
75Burns Philp Hardware was decided before MSP . If one applied the extra qualification introduced by MSP (that a disclaimer will increase another's interest in property) to the fact situation in Burns Philp Hardware , that qualification is not satisfied. In Burns Philp Hardware , it was the lessee that was renouncing or refusing to accept the rights that the deeds poll purported to confer on it. However, the practical effect of it renouncing or refusing to accept those rights was that it increased the value of its own interest in the leased property and diminished the value of the lessor's interest - it was not a renunciation or refusal that had the "practical effect of conferring or swelling the value of the interest of another" . That suggests caution in following the reasoning of Mahoney JA in Burns Philp Hardware .
76As well, the passage in Halsbury to which Mahoney JA refers appears in the portion of that work devoted to deeds, in the part that is headed "avoidance, discharge, alteration and rectification of deeds" (p 542). The particular paragraph to which Mahoney JA referred says (omitting footnotes):
"No person is obliged to accept any assurance made to him or obligation undertaken in his favour without his consent. If, therefore, any such assurance or obligation is so made or undertaken by some deed, he may disclaim the benefit of the deed; and the disclaimer need not be made by matter of record or deed, but may be made orally or by conduct; it can, however, only be made with knowledge of the interest alleged to be disclaimed and with an intention to disclaim it, although for this purpose detailed knowledge is not necessary, and a putative donee may, by sufficiently explicit words, disclaim whatever interest he may have without knowing in detail of what it consists. Upon disclaimer the deed and the act evidenced thereby will become void, and if the deed contained an assurance to the person disclaiming of some estate or interest in property, the same will revest in the party who made the assurance or his representatives. A disclaimer of an attempt inter vivos to make a gift is irrevocable and cannot be withdrawn subsequently.
Where, however, property is conveyed to a person upon trust he may, if he has not accepted the trust, disclaim the property and the trust, and thereupon the conveyance is made void as regards him and the property revests in the settlor, but the settlor will hold the property upon the trusts declared by the deed."
All this clearly relates to disclaimer of rights conferred by a deed. Further, it relates to a disclaimer of all the rights conferred by the deed.
77As Cornell related to disclaimer of a benefit under a draft deed of trust, and Burns Philp Hardware also concerned a right arising under a deed, I do not regard Mahoney JA as stating any principle that applies concerning discrete rights arising under a simple contract.
78In my view, there is no principle of "disclaimer" that can produce the effect that a statement by a person who has rights under a contract that he or she will not exercise one of those rights is sufficient by itself to produce the effect that the right in question thereby become un-exercisable. If the statement is relied upon by the other party to the contract, it might give rise to an estoppel. If the statement is made in circumstances where the person who made the statement was, at the time of making it, confronted by a choice between inconsistent rights, it might give rise to an election. If the statement is made for consideration flowing from some person other than the person who makes the statement, it might give rise to a contractual variation. However, none of those situations apply in the present case. It may well be that if the Respondent had actually been paid the first instalment of the bonus he would have been placed in a situation of being required to make an election between keeping the money on the conditions on which it was paid and rejecting it, but that situation never arose.
79In Agricultural and Rural Finance v Gardiner [2008] HCA 57; (2008) 238 CLR 570 the High Court considered a submission:
"... that the common law has long recognised a doctrine (described as waiver, or forbearance from exercising a contractual right) that is distinct from cases of contractual variation, election between inconsistent rights, estoppel or what the Borrower called 'the unilateral renunciation or abandonment of a right or benefit where a party acts in a manner inconsistent with the maintenance of that right or benefit'." ([68])
In an extended discussion of that submission at [69]-[82], the plurality judges (Gummow, Hayne and Kiefel JJ) were unable to find any scope for operation of such a principle in circumstances that were not covered by contractual variation, election between inconsistent rights, or estoppel. Nor could their Honours find any support in previous decisions for the existence of such a principle.
80Their Honours also considered whether a contractual right could be lost through a waiver arising from "abandonment" or "renunciation" . They pointed out that in the Commonwealth v Verwayen [1990] HCA 39; (1990) 170 CLR 394 Toohey and Gaudron JJ had each recognised that the Commonwealth had waived its right to rely on a limitations defence, but that the factors upon which Toohey and Gaudron JJ had relied were all dependent upon the "waiver" in question having occurred within the context of litigation ([60]). Brennan J in Verwayen had recognised that a party to litigation could sometimes abandon a right to plead a limitations defence but held that such an abandonment could happen only when the time came for exercising the right that was abandoned. As the plurality in Gardiner explained at [89]:
"... the notions of abandonment or renunciation of a right of which Brennan J wrote in Verwayen were being examined in the context of the conduct of litigation. Application of these notions was, therefore, overlaid by considerations of the fair and just conduct of the proceedings. Considerations of that kind are not relevant to the identification of the rights and obligations of parties to contracts."
81Further, the plurality in Gardiner explained at [90] that Brennan J had regarded the time for waiving a limitation defence as being the moment before judgment is entered. The correctness of the precise time that Brennan J identified as the time for abandonment of the limitation defence might need reconsideration in the light of current principles of case management and the decision in Aon Risk Services Australia Limited v Australian National University [2009] HCA 27; (2009) 239 CLR 175, but the point remains good that the right to plead a defence is waived, in the sense accepted by Brennan J, only at the last moment when it is open to the litigant to raise the defence. Even if it were legitimate to apply this principle of "waiver" outside the context of the conduct of litigation, in the present case there is no reason to believe that the last moment for the Respondent to decide whether he would accept the bonus on the conditions it was offered (other than its precise time for payment) had arrived by either 18 June 2010 or 24 June 2010.
82Though my opinion on this topic is not essential for my conclusion that there has not been an effective disclaimer, it might be instructive to consider what the situation would have been if the Respondent had said unequivocally on 17 June 2010 that he would not accept the bonus on the conditions it was offered. I see no reason why he could not thereafter change his mind, and state that he would accept it, if nothing had been done in the meantime in reliance on his rejection, and there was no reason to conclude that he was on 17 June required to choose between inconsistent rights, and his refusal was not given for consideration. Such a situation seems to me to be within the words of the plurality in Gardiner at [95]-[96]:
"But if, as is the case here, there was no election between inconsistent rights, there was no variation of the contract, and there was no detrimental reliance upon the representation, no reason is given for holding the party concerned to its earlier expressed attitude beyond the fact that the representation was made. To hold that the making of the representation, without more, suffices to alter the rights and obligations for which the parties stipulated by their contract is a step that should not be taken.
It should not be taken for two reasons. First, to hold that the making of a representation, without more, alters the rights and obligations of parties to a contract would be to supplant accepted principles governing whether an estoppel is established and whether a contract has been varied. It would supplant those principles by dispensing with the need to show detrimental reliance to establish an estoppel and by discarding as irrelevant the need to show consideration for an agreement to vary an existing contract. The second reason, which in a sense is no more than the obverse of the first, is that no reason is proffered to hold the person making the representation to it. The person to whom the representation is made has not relied on it; it is not demonstrated that departure from the representation would be unjust; there was no consideration to support a bargain."
Did Disclaimer Occur on the Facts?
83Even if, contrary to my view, it had been legally possible for the Respondent to disclaim his entitlement to the bonus, there would be factual difficulties in the way of accepting Mr Finch's submission that there had been an effective disclaimer before the time that the contract of employment came to an end. For the purpose of considering these factual difficulties it is necessary, in this section of the judgement, to speak as though disclaimer of a single contractual right such as the Respondent's entitlement to a bonus were possible. It should not be thought that by speaking in that way I am departing from my view that such a disclaimer was not possible in the present case.
84Mr Finch accepted that in the conduct of the case the parties had treated time as being of the essence so far as making payments was concerned (tp 11). Thus, to justify the failure to pay the bonus on 16 June 2010 it would be necessary to identify a disclaimer that had occurred on or prior to that day, or perhaps to show that there was a consensual postponement of the time for payment of the bonus, during the time of which postponement the Respondent disclaimed the bonus. The possibility of there being a consensual postponement of the time for performance of a contractual obligation, which does not result in the obligation to perform the substance of the contractual obligation disappearing has been recognised in Electronic Industries Ltd v David Jones Ltd [1954] HCA 69; (1954) 91 CLR 288, as explained in Gardiner at [84]-[87].
85Crago, op cit at 78-79, says:
"An effective disclaimer must constitute an absolute rejection of the gift. It must evince a final and non-negotiable refusal to accept the property which the donor proffers. It must be 'simple': it must not purport to do anything other than disclaim. ... A gift cannot be disclaimed subject to some qualification sought to be imposed by the donee, such as disclaimer only for a period of time. ... And herein lies the fundamental basis of the principle that a disclaimer must be pre-emptory: any gift is the donor's gift, and must be assented to or disclaimed on the donor's terms. A contract must (at least nominally) be negotiated; a gift, being a transfer of property for nothing, must be assented to or disclaimed. There is, by the fundamental policy of the law, no middle ground. A gift altered by negotiation is a new gift."
86There was no communication between the Appellant and the Respondent that could amount to a disclaimer of the bonus prior to the time its first instalment fell due for payment. The only communication relating to the bonus, between the time of the letter of 28 May 2010 that notified the decision to pay the bonus, and the time when its payment was due, was the meeting on 11 June 2010 ([23] above). Mr O'Sullivan and Mr Cronin would have been well aware at that time that the Respondent was deeply unhappy about the conditions, and disputed their power to impose the conditions, but up to the meeting on 11 June the Respondent had not decisively rejected either the bonus, or the conditions. Further, his position at the meeting on 11 June 2010 was that "he needed to review what was proposed about bonuses over the weekend." In the context of the meeting, "what was proposed about bonuses" related to both what was proposed about bonuses in the new draft employment contract, and what was proposed about bonuses by the letter of 28 May 2010. The Respondent had not communicated any outcome of that review before the time for payment of the first instalment of bonus came and went.
87On and after 16 June 2010, there is no basis for finding that there was any consensual deferring of the time for payment of the bonus. The consistent stance of the Respondent on and after 16 June was that the Appellant had breached its contractual obligation by not paying him in the June payroll on 16 June.
88In any event, even after 16 June 2010 the Respondent did not reject unequivocally either the bonus, or the conditions attached to it. Rather, he sought to have the dispute about the bonus resolved through the grievance procedure.
89The Respondent gave uncontested affidavit evidence that at the time of receipt of the letter of 18 June 2010 "I was prepared to resolve my grievances and to abide by the result of the grievance process conducted on an impartial basis" . As this is purely a statement of his subjective attitude, I leave it out of consideration. What would matter for any disclaimer is an unequivocal communication of rejection, not any subjective attitude towards acceptance or rejection.
90In my view, the Respondent has never disclaimed the bonus. At no time has he conveyed the message that he would refuse to accept the bonus on the conditions on which the Remuneration Committee had decided to pay it to him.
91If the Appellant had paid the first half of the bonus to the Respondent, and the Respondent had thereafter returned the money and made clear that he was doing so because he did not accept the conditions, that may well have been an effective disclaimer. If, before the time for payment of the money had arrived, the Respondent had made clear that he would not accept the bonus on the conditions on which it was proffered, that may likewise have been an effective disclaimer. However, the judge has found that he never advised the Appellant that if he were paid the bonus on the conditions specified he would not adhere to them. I reiterate that my remarks in this paragraph are made on the assumption that, contrary to my view, a disclaimer was in principle possible.
92Though my opinion on this topic is not essential for my conclusion that the Respondent's right to receive the bonus was not lost by "disclaimer" , I am inclined to accept Mr Fernon's submission that if the Appellant had paid the Respondent the part of the bonus that was due on 16 June 2010, and he had not returned the money, he would have been bound by the conditions on which the bonus was paid.
93It may be that the preferable analysis is that in the circumstances the obligation to repay would be a contractual obligation, just as the Appellant's obligation to pay the bonus was contractual. It may be that the failure to return the money in those circumstances gives rise to a variation of the contract of employment, as well as to an election to be bound by the conditions. However, even if that were not so, the Respondent would be subject to an equitable personal obligation to adhere to the condition on which he received the money. Once the Respondent had been paid, he would have received an item of property subject to a condition.
94Such a situation is recognised in Meagher, Heydon and Leeming, Meagher Gummow and Lehane's Equity Doctrines and Remedies , 4 th ed (2002) LexisNexis Butterworths at para [39-015]. The authors there consider a situation:
"... where a testator by his will gave a legacy of $10,000 ... but this was expressed to be on the condition that the legatee give up Blackacre to a third party. The testator has himself not purported to dispose of Blackacre but has made clear that the legatee takes nothing under the will unless he performs the condition attached to the legacy. If the legatee declines the legacy he keeps Blackacre and gets no part of the $10,000. If he accepts the legacy he loses Blackacre in its entirety."
95Many of the cases where an equitable personal obligation to adhere to a condition attached to a transfer of property have been ones where the condition is for the benefit of some third party: see Heydon and Leeming, Jacobs Law of Trusts in Australia , 7 th ed (2006) LexisNexis Butterworths at [234]-[239], Young, Croft and Smith, On Equity (2009) Thomson Reuters at [6.1070]. However, there is no reason of principle why a condition that is attached to a transfer of property and benefits the transferor cannot give rise to an equitable personal obligation. In Gill v Gill (1921) 21 SR (NSW) 400 Harvey J gave an explanation at 406-407, of the basis upon which an equitable personal obligation can attach to a transfer of property that does not depend on who is to benefit from performance of the condition:
"... where property is given to a beneficiary on condition that he should maintain certain persons or pay certain liabilities, it has been held that a quasi contractual relationship is created; in other words that the person taking the property is treated as being liable in the Court of Equity to carry out the obligation in the same way as if he had contracted to do so; the quasi contract would presumably be made with the testator and be enforceable at the suit of the personal representative.
But I see no reason why it should not also be enforceable at the suit of the individual (if any) for whose benefit the obligation is created, provided the personal representative is joined as a party. The obligation seems to me to flow from the equitable doctrine that a person cannot 'approbate and reprobate' under the same instrument. That such an obligation gives rise to a personal liability seems to be established by such cases as Gregg v Coates (23 Beav 33); Re Williames (54 LT 105); Re McMahon ([1901] 1 Ir 489).
...
In some cases the Court may see that what the testator intended was to attach a charge or trust upon the property, in other cases it may conclude that a personal liability alone is intended. The view taken would depend partly on the language used to describe the obligation, partly on the nature of the property given to the obligee, and partly on the nature of the obligation. In cases where the obligation is merely personal in its nature, calling for the personal activity of the obligee it may be the Court could not effectively secure its specific performance; I see no reason why, in such cases, the Court should not mould the remedy so as to give a remedy by way of damages for the breach of the quasi contract. The objection that the Court cannot give damages in lieu of specific performance does not appear to me to raise a real difficulty, because it is only in this Court that the obligation can be given effect to and the remedy may not be specific performance but, as in the analogous case of election, mere compensation."
In this analysis, the obligation to perform the condition is primarily owed to the transferor, and only by extension to the person who is to benefit from the condition.
96In Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583, Brennan and Dawson JJ dissented from the majority judges who imposed a constructive trust on the property of a de facto couple who had separated. The female partner had included the man's name on the title of the house that she had paid for because of his assurances that he would improve the property. Brennan J held, at 605, that the man's acquisition of an interest in the property was on condition that he carry out those improvements. Brennan J said, at 605-6:
"A condition annexed to a gift may be of either of two kinds: a condition involving a forfeiture for non-fulfilment or a condition creating merely a personal obligation to fulfil it. A donee who takes a gift to which a condition of the latter kind is annexed incurs an equitable obligation to perform the condition: Countess of Bective v Federal Commissioner of Taxation (1932) 47 CLR 417, at pp. 418-419. Lindley LJ in In re Williams; Williams v Williams [1897] 2 Ch 12, at p. 19, said:
... there is no difficulty in disposing of one's own property upon condition express or implied that the person who takes it shall do something himself, e.g., shall dispose of his property in a particular way indicated by the owner of the property which he accepts. Moreover, a condition of this kind is enforceable in equity, and need not amount to a common law condition - i.e., a condition involving a forfeiture of the property taken subject to the condition - if that condition is not performed."
A condition which creates a personal obligation may be enforced in equity by an order for compensation or, where appropriate, by a decree of specific performance: Gill v Gill (1921) 21 SR (NSW) 400, at p. 407; Gregg v Coates (1856) 23 Beav 33 [53 ER 13]; In re Hodge; Hodge v Griffiths [1940] Ch 260."
97Similarly, Dawson J at 624-5, said:
"Such a condition, whilst not a condition of forfeiture and falling short of creating a trust or charge, may give rise to a personal equitable obligation analogous to a contractual obligation, enforceable by compensation or, in an appropriate case, by specific performance. The precise basis in principle of this doctrine may be debatable but it is firmly founded in precedent and affords a convenient means of reflecting the equity of the situation: see Messenger v Andrews (1828) 4 Russ 478 [38 ER 885]; Gregg v Coates (1856) 23 Beav 33 [53 ER 13]; Rees v Engelback (1871) LR 12 Eq 225; Gill v Gill (1921) 21 SR (NSW) 400; In re Hodge; Hodge v Griffiths [1940] Ch 260; Countess of Bective v Federal Commissioner of Taxation (1932) 47 CLR 417 at 418-420, per Dixon J."
98Though their Honours were in dissent, these passages show that there is no difficulty in principle about an equitable personal obligation arising that requires a transferee of property to perform a condition that benefits the transferor that is imposed upon a transfer of property.
99The scope within which such an equitable personal obligation can arise has been held to extend beyond situations where there is a transfer of property subject to conditions. In Brejwo v Public Trustee of New South Wales [2002] NSWCA 115 a judge had approved the settlement of an action for damages for personal injury brought by a severely injured child. In approving the settlement the judge ordered that so long as the child's father "shall continue to reside with and materially assist in the daily care and management of the plaintiff, the Public Trustee shall pay him the sum of not less than $150 per week" . Handley JA (Stein and Heydon JJA agreeing) held that the father was not a deemed worker employed by the Public Trustee, for the purposes of workers compensation legislation, but also said, at [21]:
"Mr Rayment argued that the husband had a right to recover these payments if he fulfilled the conditions and that must be so. The order was binding on the Public Trustee and in the event of a dispute the Court could have determined whether the conditions in the order had been fulfilled, and in that event would have compelled the Public Trustee to make the payments. However, as Heydon JA said during argument, the order and performance of the conditions created an equitable obligation enforceable at the suit of the husband in accordance with Gill v Gill (1921) 21 SR (NSW) 400, 406-7 which was approved in Muschinski v Dodds (1985) 160 CLR 583, 606-7 and 625."
100I propose that the appeal be dismissed with costs.
101MACFARLAN JA : I agree with Campbell JA.
102YOUNG JA : This appeal is yet another instance of problems caused by the adoption of a bonus plan for senior employees. In the Equity Division, the usual dispute is caused by an employee dissatisfied with his or her bonus leaving the company and working in breach of a restrictive covenant. The present case is a mere claim by an ex employee to be paid a bonus.
103I am indebted to Campbell JA for his recitation of the facts and major documents and the history of this litigation and I will not repeat that material except insofar as it is necessary to understand these reasons.
104The present case is essentially a dispute as to the terms of a contract and whether it has been breached.
105The contract of employment was made on 5 March 2009 and its terms, so far as are relevant, were that there was to be a salary of $220,000 per year payable monthly by bank deposit on the 16 th day of each month plus a performance incentive payment.
106The latter was spelt out in the letter of appointment as follows:
You will be eligible to receive a performance incentive payment (ie cash bonus), in addition to the total remuneration package, the amount of which will be subject to both the Firm's performance and also to your successful achievement of agreed objectives and performance targets.
Specific objectives and performance targets and the mechanisms by which these will be measured will be agreed with you in writing within 60 days from the date of commencement of employment. The timing of payment for successful achievement will also be agreed in writing at this time.
The Firm operates a more traditional bonus regime, whereby all staff are eligible to participate in the bonus pool which is determined annually for the year ending 30 June. The bonus pool is generally limited to 50% of the Firm's EBIT (before bonus allocations) and may involve vesting for up to 3 years for cash allocations over $250,000. An individual's performance during the period will be assessed against their peers and a discretionary amount allocated by the Remuneration Committee. Payment of any performance incentive will be at the sole discretion of the Firm's Remuneration Committee.
107As Campbell JA has pointed out in [12], the bonus concerned in this litigation is that referred to in the third paragraph of the above quotation.
108On 28 May 2010 the directors of the appellant wrote to the respondent as follows:
"Having regards to the performance of the Firm and your achievements for the year ending 30 June 2010, we have pleasure in advising that you will be paid a cash bonus of $300,000 (the Bonus).
You will receive half of the Bonus in the June 2010 payroll and the balance in the June 2011 payroll, conditional upon you remaining in employment with O'Sullivan Partners (OP) at the time the Bonus is due to be paid (and having not given notice of resignation).
Should you resign from employment with OP and seek employment with a competitor before June 2011, you will be required to repay the gross upfront amount of any bonuses paid to you.
109The primary judge said at [105] and [106]:
[105] It was not in issue that by its decision conveyed to Mr Foggo by the letter of 28 May, the defendant exercised its contractual rights in relation to payment of a bonus. Thereby it determined that Mr Foggo would be paid $300,000, on the conditions it had specified. That decision bound both it and Mr Foggo. What was in issue was its right to impose the conditions it had specified.
[106] While Mr Foggo disagreed with the defendant's view of its contractual rights and obligations in relation to bonuses, that disagreement was not such as to relieve the defendant of the consequences of the decision it had made and implemented by its 28 May letter. Thereby it was contractually bound to pay him $150,000, if he was in its employment in June 2010.
110At [108] the primary judge rightly rejected the contention that the letter of 28 May was an offer to pay the bonus which was never accepted. Her Honour repeated that the appellant had no right to reconsider its decision.
111The conclusion that her Honour reached, that the decision to allocate the bonus could not be revoked, has not been challenged. However, it must be pointed out that there may be circumstances where such a decision can be revoked before the recipient acts on it. One is where the contract expressly or impliedly gives that power, another is where the recipient has asked for a benefit for which he or she provides no consideration. An undertaking to provide the benefit can usually be withdrawn before it is acted upon.
112The challenge was that a decision to allocate a bonus is not the same as a decision to pay a bonus, an argument that the appellant says the primary judge did not consider.
113There are some situations where this distinction is real. For instance merely because an association's budget contains an item "replacing the secretary's computer $3,000" does not mean that the secretary is entitled to spend $3,000 on a new computer unless those with authority to purchase make the decision to do so.
114In Lagunas Nitrate Company Ltd v Schroeder & Co (1901) 85 LT 22, the directors had declared an interim dividend, but, because of receipt of an adverse claim, paid the amount needed to meet the dividend into a suspense account at the company's bank. Joyce J declared that the company was not bound to pay the dividend.
115It is a matter of construction of the relevant contract to determine whether there is a distinction between a decision to allocate a bonus and a decision to pay the bonus. Are there one or two stages in the decision process?
116The question of construction is of little moment in the instant case. I respectfully agree with Campbell JA in [58] that despite Mr Finch's protestations, the words in the letter of 28 May, "we have pleasure in advising that you will be paid a cash bonus" were communication of a decision to pay.
117The only other argument of the appellant that might operate to incline me to favour reversing her Honour's decision is the submission that the respondent disclaimed the bonus.
118Whilst the strict meaning of "bonus" is a gift, in modern commercial dealings it may be either a gratuity or something to which the employee is contractually entitled: Commissioner of Inland Revenue v Smythe [1981] 1 NZLR 673, 676.
119The concept of disclaimer does not sit well with a person who is entitled to receive benefits under a contract. I agree with Campbell JA at [78] that a statement by a person who has rights under a contract that he or she will not exercise one of those rights is insufficient by itself to produce the effect that the right in question thereby becomes un-exercisable. I also agree with [90] that, if disclaimer were possible, there was no disclaimer in this case as a matter of fact.
120Accordingly, I agree with the orders proposed by Campbell JA.