Plaintiff v Defendant

1 In January 2006, PAM Holdings Limited and Australian Unity Funds Management Limited (a subsidiary of Australian Unity) entered into a joint venture which resulted in the incorporation of Platypus Asset Management Pty Ltd ("PAM"). From that time PAM operated a funds management business.

2 In February 2006, the positions of senior equities analyst and quantitative analyst became available at PAM.

3 PAM retained Bunton & Barber, a specialist recruitment firm, to recruit appropriate people for these positions.

4 One of four potential candidates for the senior equities analyst position was the plaintiff, Mr Philip Pepe ("Pepe").

5 On 14 February 2006, Pepe attended a preliminary interview with Mr Ron Bunton ("Bunton") of Bunton & Barber as a result of which a further interview was arranged at Bunton's offices with two directors of PAM. In early March 2006 Pepe met some key employees of PAM in Sydney. The directors of PAM then decided that Pepe was the preferred candidate for the position.

6 On 9 March 2006, Bunton forwarded a letter of offer ("employment letter") and a proposed executive employment agreement to Pepe for his consideration. Pepe sought time to consider the documents and obtain legal advice. Legal advice was provided to Pepe by his solicitor on Friday, 10 March 2006. Bunton arranged for Pepe to meet with PAM's Chief Investment Officer Mr David Bryant ("Bryant") at PAM's offices in Sydney on Saturday, 11 March 2006 to discuss any issues of concern with a view to reaching agreement on the terms of Pepe's employment.

7 The meeting took place as arranged. The key issues in the proceeding turn principally on what was said at this meeting. Pepe alleges that it was agreed at the meeting that subject to a 12 month qualifying period, he would be entitled to 5% of the then issued capital of PAM or its monetary value if his employment was terminated after the qualifying period but before the equity had vested. According to Pepe, changes were made to the equity participation paragraph in the employment letter which gave effect to that agreement.

8 Pepe signed the amended employment letter and an amended executive employment agreement on Tuesday 14 March 2006 and commenced work in his new position.

9 On 30 August 2007, Pepe was invited to join the Platypus Employee Share Ownership Plan ("the ESOP"). He was offered 25,000 options to acquire shares in PAM which if exercised represented 2.5% of the then issued capital of PAM. The exercise price was $20.58 per option. Pepe alleges that the invitation to participate in the ESOP was inconsistent with the equity participation paragraph. He declined the invitation to participate. Accordingly no options were allocated to Pepe under the ESOP.

10 Pepe's employment with PAM was formally terminated in October 2007.

11 The issues raised for determination in the proceeding may be summarised as follows:

1. Whether on a proper construction of the equity participation paragraph Pepe became entitled to 5% of the then issued capital of PAM at the expiration of 12 months from the date of commencement of his employment ("the qualifying period").
2. Whether on the proper construction of the equity participation paragraph Pepe became entitled to the monetary value of the equity in the event of the termination of employment after the expiration of the qualifying period but before the equity had vested in Pepe.
3. Whether PAM represented to Pepe that he would become entitled to 5% of the then issued capital in PAM at the expiration of the qualifying period.
4. Whether PAM represented to Pepe that he would become entitled to the monetary value of the equity in the event of the termination of his employment after the expiration of the qualifying period but before the equity had vested in Pepe.
5. Whether the invitation to participate in the ESOP was inconsistent with the equity participation paragraph as drafted or as represented.
6. Whether there was a breach of any promise made by PAM in the equity participation paragraph.

7. Whether there should be rectification of the employment agreement or alternatively whether there should be an award of damages representing the value of the equity or some other amount.

12 Due to the extensive conflict in the evidence it is necessary to recite the facts in some detail.

13 In mid 1998 Mr Donald Williams ("Williams") and Mr Nicholas Wright ("Wright") established PAM Holdings Limited (as the company is now known) which from about January 1999 carried on a funds management business. While the business had operated successfully, it had a retail funds base and in order to grow significantly it needed to attract institutional funds. Australian Unity carries on businesses in health care, retirement living and investments. In its investment businesses it manages funds for retail investors and institutions in amounts which in total exceed $10 billion. In 2006, the investments business had approximately 100 staff. Mr David Bryant ("Bryant"), Group Executive Investments and Chief Investment Officer of Australian Unity is also the chairman or director of around ten or more companies related to those investment businesses.

14 In about January 2006, PAM Holdings Limited and Australian Unity Funds Management Limited (a subsidiary of Australian Unity) entered into a joint venture which resulted in the incorporation of the defendant PAM. Williams became the Chief Investment Officer of PAM. Wright became a non-executive director of PAM. As part of the joint venture arrangements Australian Unity Funds Management Limited acquired 50% of the issued capital of PAM and Bryant and Mr Rohan Mead ("Mead"), who were directors of Australian Unity Funds Management Limited, became directors of PAM along with Williams and Wright. Upon the establishment of the joint venture, Australian Unity provided at no cost to PAM substantial resources to assist with marketing, public relations, development of product, processes and research. It also provided additional $50 million of funds for PAM to manage. This approximately doubled PAM's funds under management. In this context, the need arose to recruit a senior equities analyst and a quantitative analyst.

15 On about 9 February 2006 Bryant attended a meeting with Bunton to discuss PAM's requirement for a senior equities analyst and a quantitative analyst. In relation to the assignment to recruit a senior equity analyst Bryant suggested four potential candidates for approach by Bunton & Barber, one of whom was Philip Pepe. Bryant outlined to Bunton the kind of remuneration package which PAM had in mind for the position, indicating an annual salary in the order of $150,000 to $200,000 subject to guidance by Bunton as to what remuneration would be necessary in the market for that type of position. Bunton asked whether there were any other components or potential components to the remuneration. Bryant outlined that PAM intended to establish a bonus scheme where PAM would make available to staff up to 20% of the pre-tax profits of the business on an annual basis and a scheme to make equity participation available to all employees with the expectation that over the life of the scheme up to 20% of the equity of PAM would be offered to employees. The equity scheme had yet to be designed.

16 On 10 February 2006, Bunton sent a document described as "Assignment to Recruit - Senior Equity Analyst" to PAM. It set out the preferred remuneration range of between "150k to 200k depending on the experience and calibre of the candidate" and noted that the new analyst would be eligible to participate in the annual bonus scheme. In relation to equity participation, Bunton wrote:

The analyst could be allocated equity in Platypus Asset Management after a qualifying period of 12 months following appointment. The amount of equity in the company will be determined at the time of annual review with around 5% as an early suggestion.

17 At about this time Bunton telephoned Pepe and said he was recruiting for a funds management role and asked Pepe if he was interested in having a discussion.

18 On 14 February 2006, Bunton interviewed Pepe. Bunton asked him about his experience at his then employer Jardine Fleming Capital Partners ("JFCP"), his remuneration package, his duties and reasons for wanting to leave JFCP. Bunton then told Pepe about the opportunity for which he was recruiting. Bunton asked Pepe about his remuneration package at JFCP. According to Bunton, Pepe said he was on a $200,000 base salary plus superannuation at 9%, that his last bonus was $100,000 and that he had equity at a 5% level. Bunton asked Pepe whether he had had a recent salary review and Pepe said he had received a salary increase of 5% in October 2005.

19 Under cross-examination Pepe admitted that his salary with JFCP was not $200,000 plus superannuation but $200,000 inclusive of superannuation and that his last bonus was $14,700 not $100,000. After initially agreeing that Bunton's notes reflected information he conveyed to Bunton about his salary at JFCP, Pepe denied that the information he gave to Bunton about his salary was incorrect, asserting that the notes Bunton had made about his salary were incorrect. Pepe also denied specifying what his bonus was, saying that he did not go into much specific detail other than to talk about how the bonuses were paid as a percentage of profits but without giving more specific information.

20 I do not accept Pepe's explanation that Bunton mis-recorded Pepe's current salary details. Nor do I accept that Pepe did not specify the amount of his last bonus. Pepe did not offer any explanation for Bunton's recording of the bonus amount of $100,000. There was no suggestion that Bunton had any reason to make up this figure. Bunton's evidence on these issues was given confidently and clearly. He was evidently very methodical. During the interview he made contemporaneous file notes. After the interview he prepared a consultant information form. On the same day, he completed a candidate report on Pepe. Each document accords with his evidence. Pepe on the other hand was unimpressive and evasive under cross-examination on these issues.

21 In relation to the reference to his equity interest percentage, Pepe acknowledged he had 5% equity in Capital Partners Group which owned 50% of JFCP (equating to a 2.5% interest in JFCP) and that he did not have 5% equity in JFCP. Pepe gave four versions of what he said to Bunton in relation to his equity interest. In evidence-in-chief Pepe said he told Bunton he had a "5% equity interest in the business". In cross-examination he said he had "a 5% equity interest"; "my words were 'I have a 5% equity interest in a profitable funds management company'"; and a "5% equity interest in a firm as a result of that employment." I conclude that Pepe was unable to recall precisely what he said to Bunton on this issue. I formed the impression that Pepe was treading very carefully when giving evidence on this issue, anxious to avoid making any direct reference to having a 5% interest in a specific entity, referring instead to "the business", "a profitable funds management company" or "a firm".

22 In my view, all of these answers were contrived to avoid the consequence that he had expressly said to Bunton that he held 5% equity in JFCP which would have been untrue. Under cross-examination Pepe accepted that if he had referred to a 5% equity in a profitable funds management firm without making the distinction between Capital Partners Group and JFCP the natural inference would be that he held 5% in JFCP. Pepe also accepted that the reference to the 5% equity interest in a firm as a result of his employment may have been interpreted as being 5% interest in JFCP.

23 Pepe said that he told Bunton during the interview that he had an interest in moving to Sydney for family and professional reasons and he was happy to look at other roles to advance his career. Though he wanted to move to Sydney, Pepe said he was not anxious to do so. He said he told Bunton that to consider a role based in Sydney he would require a base salary of at least $250,000 per annum and at least an equivalent amount of equity (5%) and the opportunity to benefit from the growth in that equity from day one. In my view, Pepe embellished his account to the extent that he said he "required at least an equivalent amount of equity and the opportunity to benefit from growth in that equity from day one" in order to move firms. This is not consistent with Bunton's file note which refers only to "equity potential" or to later discussions with Bunton to the same effect.

24 Bunton recorded the desired salary package as "min base pkg 250K + bonus/equity" in a consultant information form prepared on 14 February 2006.

25 In the candidate report on Pepe also prepared on 14 February 2006 in a section on remuneration, Bunton recorded:

"For a move to Sydney, Philip would need to be offered a minimum base of $250K plus bonus, plus equity potential that would provide at least similar earnings. He understands the dynamics of a 'start up' operation where bonuses could be limited in the early days. However, we would need to outline the potential for him in discussions."

26 On 24 February 2006 Pepe attended an interview at Barber & Bunton's offices where he met Bryant and Williams. Pepe gave evidence that during the interview Williams said that he had set up Platypus seven years ago and he was the chief investment officer of the new Platypus (PAM) which had recently entered into a joint venture with Australian Unity. In substance, Williams explained that Platypus had tried to grow for seven years and in that regard had been relatively unsuccessful. He said that the focus had moved from retail funds to institutional funds and in an attempt to grow they had set up a joint venture with Australian Unity and as part of the growth path they needed an investment analyst.

27 In early March 2006, Pepe attended PAM's offices in Sydney and met the PAM team. He then attended a lunch with Williams; Mr Gary Adamson, Chief Operating Officer; Mr Steven Best, portfolio administrator; and Mr Simon Bonouvrie, equity analyst. After the lunch when the others had departed, Pepe said Williams told him that Platypus was a small firm, not yet institutional grade and said a lot of work needed to be done to turn the firm into the type of fund that would appeal to institutional investors. Pepe said that he knew exactly what needed to be done because he had done that sort of work before and that he was happy to take on the challenge and help Platypus grow and benefit from that growth.

28 Williams agreed there was a conversation after the lunch but was unable to recall these remarks by Pepe, though he conceded it was possible Pepe made these points to him on that occasion.

29 On Friday 3 March 2003 after the lunch there was an email exchange about Pepe between Williams and Wright. Williams wrote:

"...1. Analyst. Two major things came out of yesterdays meetings with Phillip (he was here from 12-3pm and met with myself, Simon and Gary). Gary and Simon's first impressions were not as positive as mine. Gary's concern revolved around Phillip's criticisms of his current workplace, whereas Simon's major concern revolves around whether Phillip is 'senior' enough and a good stock picker. The only residual concern i have is i am not certain he will graduate from being an analyst to a portfolio manager. I don't think that should prevent us from hiring him as he will plug several large gaps for us, but I think that concern should be reflected in the amount of equity we are willing to offer initially. If we can't bring ourselves to employ Phillip that is telling me we should be looking for a more junior analyst, say 2.5 years' experience. in short i think you need to speak to him before we can make a decision..."

"...i am not sure we care if we can't figure out today whether he can be a port folio manager, we will know over time. (personally i think Simon is more highly likely in another 18 months-2 years to be our next port folio manager anyway), but he will fill some internal gaps, but also importantly he will make us look robust to the outside world. as far as equity is concerned i think we try and make the vesting period as long as possible into the future ... but David B will have some view on this..."

"... I agree with your synopsis, my problem is the guy is coming in thinking he is 2IC and the next portfolio manager ..."

32 On 3 March 2006 Bunton had a discussion with Pepe and reconfirmed his salary desires at that stage. According to Bunton, Pepe said he was looking for $250,000 plus superannuation and if he had that he would immediately accept the offer.

33 On 3 March 2006 Bunton also had a discussion with Williams and told him that Pepe was seeking a salary of $250,000 plus superannuation. During this conversation Williams said the policy on bonuses would need to be established and that they would be generous if PAM was profitable.

34 On 6 or 7 March 2006, Bryant had a discussion with Williams about Pepe's suitability. Bryant gave evidence that Williams expressed the view that Pepe had some good skills in particular areas, particularly as an analyst, and in effect that he would be a suitable candidate to for the job. Williams expressed some reservations about whether Pepe would develop into a more senior role and specifically requested that if they were to proceed with Pepe that they limit any remuneration particularly in the equity component until they had got to know him better and had a better feel for whether he would assume more senior responsibilities. According to Bryant, Wright had also raised questions about Pepe's ultimate development abilities and was reluctant for any commitment to be made, particularly about equity and the timing of it.

35 On 7 March 2006 Bryant had a telephone discussion with Bunton during which he said that PAM was interested in hiring Pepe and that he wanted to ascertain Pepe's remuneration expectations. Bryant recalled Bunton saying he would contact Pepe to have that discussion. He subsequently rang Bryant back, probably on the same day, and advised that Pepe wanted a salary package of $250,000 plus superannuation and that he was looking to participate in the bonus scheme and the equity scheme once they were designed and implemented. Either in that discussion or in an earlier discussion Bryant's recollection was that Pepe was seeking an equity participation opportunity in the order of 5%.

36 Bryant explained to Bunton that both the bonus scheme and the equity scheme were at a conceptual stage only. Bryant said that they had not considered the tax consequences, how the scheme could apply to all staff or whether effective elements such as allowing staff to use their bonuses to pay for equity might be employed. Bryant also told Bunton that at that stage the Platypus business had not been valued. This conversation concluded on the basis that Bryant would consider the salary package suggested.

37 After this conversation with Bryant, Bunton telephoned Pepe and advised him that PAM would like to make Pepe an offer subject to reference checks. Pepe's version is that Bunton said the offer would include a base salary, up to 5% equity and a potential bonus. Bunton's note of the conversation was that Pepe was comfortable with the potential in the bonus and equity. He recorded that Pepe said it was a "long term investment" and that he had no particular number on the equity share, he just wanted it to be "fair". Pepe said to Bunton that he needed and would readily accept $250,000 plus superannuation, otherwise the package would just be a cost of living adjustment. Pepe was keen to build the business and share the rewards in due course. In relation to other job search opportunities then current, Pepe told Bunton he was down to a final stage interview and had a meeting with the senior executives in Melbourne on the following Friday and that he had another opportunity which was at an early stage.

38 Pepe told Bunton that Platypus was his first strong option and he would accept an offer and dismiss the others without bargaining. Bunton recorded the substance of this conversation in his candidate comment details prepared the same day.

39 Pepe was asked about the reference in Bunton's note that "he has no particular number on the equity share. He just wants it to be fair." Pepe said that this was "absolutely false" and he made it clear to Bunton that he needed at least 5% equity. According to Pepe, Bunton had recorded what he had said inaccurately.

40 Pepe gave evidence that he told Bunton that he did have other options but Platypus was his preferred option given the equity component. Under cross-examination Pepe was at a loss to explain Bunton's note. He agreed he was not at the final stages in relation to an alternative position at that time. Again his explanation was inaccurate recording by Bunton. Similarly, Pepe was not able to explain the reference to "another option being at an early stage". Bunton recorded in his file note, "If he was offered $250,000 plus super he would accept readily". Pepe denied using the words "accept readily" and asserted that his words to Bunton were that the base salary component would need to be at least $250,000 to account for Sydney's higher cost of living. Pepe did not offer any explanation to explain why Bunton would have used the words "accept readily" and avoided giving a decisive answer when asked whether he used words to that effect. I had the strong impression that Pepe was seeking to underplay to the Court the extent of his eagerness to accept the position if it were offered to him.

41 Later on 7 March 2006, Bunton telephoned Bryant again and advised him that Pepe wanted by way of an offer a $250,000 base package, plus super, plus bonus, plus equity after 12 months and up to $5,000 relocation assistance and two weeks' honeymoon leave from 22 April 2006. Bunton agreed that the conversation was in the context of telling Bryant what Pepe would need in order to join PAM. Bryant's recollection was to the same effect. Bunton's file note is to the effect that Bryant said he would talk to Wright and that Bryant knew it was necessary to move by Thursday 9 March 2006.

42 On 8 March 2006, Pepe emailed Bunton and asked whether the equity component of the package in percentage terms was "5% of 100% or 5% of 50% (so 2.5%)? The former is obviously much more attractive." This was a reference to whether the equity would be a percentage of PAM's equity in the joint venture or a percentage of the whole business. Bunton responded by email that he understood the equity component was likely to be 5% of the total business, not part of a reduced share. Bunton said he picked up on Pepe's reference to 5% in his email and said that at that stage he did not think he had discussed the final equity component, though he had in his original briefing with Bryant "touched on 5% as a likely target or part thereof." In his email Pepe had also suggested that a title like "Deputy Chief Investment Officer" would imply a much clearer career path than Senior Research Analyst. In his responding email Bunton said that at the very early stage they might want to avoid using Deputy Chief Investment Officer until Pepe had been there for a while or maybe until equity was allocated. Bunton noted he would raise these points with Bryant and Williams when he next spoke to them.

43 On 9 March 2006, Bryant prepared a draft employment letter and draft executive employment agreement. He sent an email attaching these drafts to Wright asking in particular for Wright to check the wording around bonuses and equity participation and if he was happy with it, to arrange it to be placed on PAM letterhead subject to any comments from PAM's in-house counsel Ms Fanoula Ferro. Bryant said he sent the draft documents to Wright partly because it was a joint venture and the joint venturers worked together but also because Wright had questioned Pepe's ultimate development abilities and was reluctant to have any commitment made particularly around equity and the timing of it. Later that morning Wright responded to Bryant to the effect that it looked fine to him and attached the employment letter on PAM letterhead for Bryant to sign.

44 Bryant then sent an email attaching the employment letter and executive employment agreement to Bunton. Bryant then telephoned Bunton and asked him to let him know if he was comfortable that the letter reflected the discussions that Bunton had had with Pepe. Later that day, Bunton telephoned Bryant and raised the issue of the notice period on termination, expressing the view that 52 weeks was too long and asked that the title for the role be changed from analyst to senior analyst. He asked whether PAM had considered what would happen in relation to the vesting of equity on termination. Bryant said it was a matter that had not been considered or designed at that point and they would deal with it when the design work for the equity scheme was completed. Bunton made a record of this telephone conversation setting out the offer to be made to Pepe as follows:

"Offer for Philip Pepe - 250K base + SGC Super $12,139 = $262,139 total pkg + bonus share + equity offer of up to 5% after 12 months' service (STP). Discussed some aspects of the contract with David who amended it slightly, i.e. sick leave entitlement, notice period etc".

45 After the discussion, Bryant made some changes to the agreement, reducing the notice period on termination to three months in the event of the company terminating Pepe's employment and to six months in event of Pepe terminating his employment. The revised draft employment offer letter and executive employment agreement were then sent to Bunton by email.

46 On the same day, 9 March 2006, Bunton telephoned Pepe and verbally conveyed the offer from PAM. Bunton's file note of the conversation is as follows:

"Discussed equity structure - 5% of PAM. Relocation costs? Start date - 27/3/06. TBC. Resignation Tuesday - Mark?? away tomorrow - Accepted 250K + Super SGC 12,139 = 262,139."

47 After the conversation Bunton sent an email to Pepe attaching the employment letter and the revised form of the executive employment agreement. Pepe forwarded copies of these documents to his solicitors for the purposes of obtaining legal advice.

48 Later that evening Pepe emailed Bunton. He referred to the fact that the agreement said that all parties had the opportunity to obtain legal advice prior to signing and that he wanted to get some advice but that his initial feedback was as follows:

"I'd prefer the package to be re-stated as a salary of $250,000 plus super at the minimum SGC level of XXX. This will make it more transparent in the event of a change in the SGC rate.

The information around the equity is very vague and needs clearing up. As it stands at the moment, it is too open to interpretation and I'd need a lot more certainly before I could accept the offer. By certainty I mean regarding things like timing, vesting, purchase price (ie nil?) etc, etc and the removal of words like 'up to'. I'd prefer words like 'minimum of'.

The same applies to the wording of the bonus pool ie. 'up to' etc.

In respect of the notice period, I'm not sure 6 months is reasonable, but I am seeking advice on this. Further, I'm not sure the asymmetry is reasonable. Also checking on this.

Anyway I'll need more time to review it and to seek advice where appropriate."

49 The following day Bunton sent an email to Pepe and suggested it would be useful for Pepe to discuss with Bryant the rationale behind some of the issues, such as equity construction and bonus pools. Bunton also telephoned Bryant and advised him that Pepe had sought legal advice. Bunton also forwarded to Bryant a copy of Pepe's email from the previous day with Pepe's initial feedback.

50 Later that morning Pepe telephoned Bunton. According to Pepe, he said that while there were "no deal breakers", he "needed more certainty and clarity surrounding the equity clause". Bunton's file note is to the same effect except that it suggests Pepe wanted clarity on the equity and the bonus clauses. Later that day, Pepe received an email from his lawyers attaching "Memo 10 March 2006". This memorandum set out his lawyer's observations generally and in particular relating to the employment letter and employment agreement. In relation to the employment letter the memorandum states:

"4. Bonuses:

There is no commitment to pay a bonus. Was there any discussion about the bonus scheme, and were any promises made? If so, and they differ to what is referred to in the letter, then this should be confirmed in writing.

5. Equity Participation:

Again, there is no commitment, merely a statement of intention. Note, that in any event, to qualify for equity participation scheme, Phil must be employed for a period of 12 months. Was there any discussion concerning equity participation, and were there any promises made? I would envisage that once the equity participation scheme has been finalised, appropriate documentation would be issued to Phil (and other employees) setting out the basis of the participation. Before Phil takes up the offer for equity participation, the documentation should be reviewed."

51 In the memorandum there were also numerous suggested wording changes and observations about the draft employment agreement including the schedule. Bunton suggested to Bryant that it might be easier if Bryant spoke to Pepe directly and during the afternoon of Friday 10 March 2006, Bryant and Pepe spoke by telephone and arranged to meet the next day at Australian Unity headquarters in South Melbourne to discuss Pepe's concerns and his legal advice.

52 Later in the afternoon on 10 March 2006, Pepe emailed Bunton advising that his lawyer had suggested a number of trivial and non-trivial changes and that to save time he had asked him to make the suggested changes to the contract for the non-trivial issues and that he should have a draft that day and would forward it as soon as he had it.

53 Late in the afternoon of 10 March 2006, Pepe's lawyers sent a "List of Concerns and Amendments" for Pepe "to submit to Platypus". This was an abridged version of the memorandum of 10 March 2006. It omitted commentary on the paragraphs relating to bonuses or equity participation. Bryant said he did not receive the List of Concerns and Amendments and did not recall having ever seen it before. I accept this evidence. It appears that the List of Concerns and Amendments was sent by email to Bunton at 5.05pm on 10 March 2006. Bunton did not think he had sent it on to Bryant because it came in late.

Employment Contract Negotiations Meeting on 11 March 2006

54 It is common ground that a meeting occurred at the headquarters of Australian Unity in South Melbourne in the afternoon of Saturday 11 March 2006. According to Pepe, the meeting lasted approximately one and a half to two hours during which he raised a number of matters with Bryant about the contract documents. It is also common ground that the employment letter and the executive employment agreement are contractual documents which are to be read together.[1]

55 Pepe gave evidence that there were three main topics discussed, namely, the issue of a variation in the notice of termination periods, the bonuses paragraph and the equity participation paragraph. Bryant gave evidence that Pepe told him he had legal advice relating to the letter and the employment contract and he wanted to discuss some matters more generally around the bonus scheme and the equity scheme. Bryant suggested that they deal with the minor drafting or wording issues first and leave the more substantial discussion around the bonus and equity schemes for later discussion. They then talked about the minor issues. There were about six or ten minor issues. Bryant could not recall any of them in particular save that all of them related to the employment agreement.

56 In relation to the notice of termination periods, Pepe said he asked Bryant why he was required to give six months' notice of termination whereas PAM was required to give only three months notice of termination. According to Pepe, Bryant said that Pepe leaving PAM would be a greater issue for PAM than for Pepe in terms of finding a replacement. Bryant did not have a strong recollection of this point but agreed that early on they discussed the differential notice periods in the employment contract.

57 Bryant gave evidence that there was a brief discussion concerning superannuation, specifically why the proposed superannuation figure was 9% of the proposed salary of $250,000. Bryant said once this had been discussed there was no need to make any changes. Pepe denies this conversation occurred and gave as his explanation that he was an actuary and was aware that there was a cap at which superannuation ceases and he already knew the answer to the question. Counsel for the plaintiff submitted, in effect, that Pepe had by email dated 9 March 2006 already raised the issue with Bunton and would not have needed to have raised it with Bryant. However, I note that in Pepe's lawyer's memorandum dated 10 March 2006 his lawyer advises Pepe to seek clarification of the amount of superannuation and the amount of the cash salary. Having regard to the fact that the conversation on 11 March was in the context of discussing matters raised by Pepe's lawyer in the memorandum of 10 March 2006, I am inclined to the view on the balance of probabilities that superannuation was mentioned albeit briefly. There seems to me to be no reason why Bryant would say there had been a discussion relating to superannuation if it had not occurred. There is no advantage to the defendant to refer to that subject matter. Though nothing turns on this in relation to the issues in the proceeding, it does bear upon the accuracy of Pepe's recollection.

58 The next topic discussed was the paragraph in the employment letter relating to bonuses.

"PAM intends to establish a bonus scheme where an amount of up to 20% of the Profit Before Tax may be set aside each year, to be allocated amongst staff based on their performance and contribution. As discussed with you, this aspect is less relevant at this early stage of PAM's development, however full details will be communicated to staff as PAM's development progresses."

59 Pepe said he asked Bryant how the bonus pool worked and that Bryant said that as the profits were currently zero the bonus pool is zero and that it was PAM's intention that 20% of the profits would be allocated to staff but hurdles would need to be discussed with Williams. Pepe said he responded that he understood bonuses would be negligible for a few years, that he was not a salary and bonus person anyway and was joining PAM for the equity, that it was the most important component of the remuneration for him. Pepe accepted that by leaving the words "intends to" in the paragraph relating to bonuses that there was not a binding commitment to pay bonuses to him. On this topic, Bryant said that Pepe wanted to understand what PAM's intentions were regarding the bonus scheme and during the discussion Bryant said he reconfirmed to Pepe that the plan was to establish a scheme for the benefit of all staff up to 20% of the profit of the business before tax. He said that Pepe only asked for one change in regard to the scheme, whether the words "up to" could be removed and that he told Pepe that they could not.

60 In cross-examination Pepe was taken to an email he had sent to Bunton on 9 March 2006 expressing concern about the words "up to" in the bonus paragraph and stating that he preferred the words "minimum of". Pepe denied he requested any amendment with respect to the bonus paragraph.

61 Having raised the issue of his preferred wording of the bonus paragraph a couple of days prior to the meeting and in light of Bryant's recollection that Pepe requested removal of the words "up to" during the discussion on the bonus paragraph, in my view, on the balance of probabilities, Bryant's version is to be preferred. Bryant had no motive to fabricate this conversation. It neither advances nor detracts from the defendant's case.

62 Pepe and Bryant then had a preliminary discussion about the equity participation paragraph.

63 Pepe gave evidence that he told Bryant that the paragraph was merely a statement of intention, since it was too vague and contained no commitment. He said that he needed something concrete if he was to leave his current employer and join PAM and that this was by far the most important component of the remuneration for him. He said that he already had a 5% equity interest in a profitable funds management company and that he would only leave that firm and join Platypus if he had a 5% equity interest from day one. Pepe said Bryant responded, "That's fine. We can clarify the wording but we need protection from giving you the shares on day one and then you resigning on day two with the shares." Pepe responded that he had no intention of resigning from PAM and that his intention was to join the firm and help it grow.

64 Bryant gave evidence that in this preliminary discussion, Pepe asked him to explain what PAM's intention was with regard to the equity participation scheme and Bryant confirmed to Pepe that it was a scheme that PAM was looking to establish over the year ahead, that it would be designed to make available equity opportunities for all staff and in total over the life of the scheme would be between 15 and 20 percent of the issued capital of PAM. Pepe then said that he wanted more certainty around what would be proposed.

65 Bryant said he told Pepe that could not be done and the reasons for that. He explained to Pepe that other than the principles that PAM was looking to apply, they had not thought through how the scheme might operate, they were not totally clear on what the target outcomes would be for staff, they had not thought about tax issues, had not valued the business or worked out what the shares might be worth or how they might be paid for. When Bryant had completed this explanation, Pepe acknowledged that he accepted the explanation but said he felt that PAM could still provide more clarity than was currently in the letter. Bryant then asked Pepe to give him some examples or to take him through some of the concerns and then they started to work through the paragraph. Bryant said it then became clear to him that Pepe wanted to talk through the paragraph line by line. At that point he suggested to Pepe that if they were going to have a detailed discussion about how the paragraph was written it would be best to record it as they went.

66 Bryant gave evidence that the parties had the preliminary discussion seated opposite each other around a round table in Bryant's office but when it became clear that Pepe wanted to talk through the paragraph line by line, Bryant got up from where he had been sitting and went to his desk. He sat behind his desk in front of his computer and asked Pepe to pull up a chair next to him so that they could make the changes as they went along.

67 Pepe agreed that the meeting started with him sitting in chairs opposite Bryant but said that the discussion took place at Bryant's desk and that the computer was turned towards them when they went to address the employment letter. Bryant said he did not believe it was feasible to turn his computer around and, in effect, operate it from a seated position where Pepe said they had been sitting. According to Bryant the keyboard was and had always been located in front of the computer in a position which would make it impracticable to operate from the other side of the desk. The differences in the evidence about where the preliminary discussion took place and whether the computer could be turned around and operated are not of any intrinsic significance however they do bear upon my assessment of the accuracy of the recollection of the respective witnesses. In my view it is more plausible that the parties initially sat opposite each other at the round table. On this issue I prefer Bryant's evidence.

68 After the preliminary discussion there was a detailed discussion about the equity participation paragraph.

First Sentence - Equity Participation Paragraph

69 First, Pepe and Bryant discussed changes to the first sentence of the draft employment letter which read:

"Subject to a qualifying period of 12 months, and mutual agreement, Platypus Asset Management ("PAM") intends to make available to you an equity participation opportunity". (emphasis added)

"Subject to a qualifying period of twelve months, PAM will make available to you an equity participation opportunity." (emphasis added)

71 Pepe gave evidence that he said he wanted the phrase "subject to a qualifying period of 12 months" removed but that Bryant had said the phrase needed to stay in to protect PAM from Pepe "getting the shares on day one and then resigning on day two with the shares". Pepe then said that he was happy to leave that clause in as long as he also got protection that he would still financially benefit from the growth in the shares from day one despite not owning the shares. Bryant allegedly said, "We can clarify that paragraph to give you that protection".

72 Bryant denied there was any discussion about Pepe getting equity from day one or PAM needing protection from Pepe resigning and taking the equity on day two. Bryant accepted that there was a discussion in relation to the 12 month period but that this discussion occurred in the context that before an offer would be made PAM would need time to develop the scheme. Bryant said the qualifying period was to complete the work that was required to consider and design the scheme and to enable an assessment to be made of Pepe.

73 There is no dispute that Bryant agreed to remove the words "and mutual agreement". Pepe gave evidence that he asked Bryant, "Why do we need the words 'mutual agreement'. You know I want shares. The only other party is you."

74 Bryant disputed that Pepe used words or words to the effect that he wanted shares. According to Bryant, Pepe made the point that he had been told that PAM was setting up the scheme and he did not want to have that subject to mutual agreement later on. Bryant said he thought it was a reasonable point and was happy to make the change requested. Under cross-examination Bryant said the purpose of the deletion was to confirm that a scheme would be offered and setting up a scheme was an acknowledged prerequisite.

75 There is no dispute that Bryant agreed to remove the words "intends to" and replaced them with "will". How that change came about is disputed.

76 Pepe gave evidence that he said to Bryant he was not happy with the words "PAM intends to make available to you" and stated that "I will only join if PAM will give me an equity stake after 12 months." According to Pepe, Bryant said, "Let's change the words 'intends to' to make it clear that PAM will give ... an equity stake."

77 Bryant denied that there was any discussion about "giving" Pepe equity. He gave evidence that Pepe noted that the expression "intends to" did not mean that PAM would make an equity participation opportunity available to him. Bryant said, "He asked me to change that to 'will'. Again I was happy to make the change because it confirmed - Phil noted it confirmed for him that we would make an opportunity available and that was what we were intending to do."

78 On the disputed issue of whether Pepe or Bryant initiated the removal of the word "intends to" I prefer Bryant's evidence. First, Bryant specifically recalled Pepe requesting the change (in contrast to his inability to recall the discussion about the words "it is our intention" in the following sentence). Secondly, the change had been suggested by Pepe's solicitor in his memorandum of the previous day in terms which noted that the equity participation paragraph was, in its original form, "merely a statement of intention". Having regard to the context, in my view, it is more likely that, Pepe being cognisant of his legal advice would have suggested the change from "intends to" to "will".

79 Generally, I prefer Bryant's evidence on the detail of this discussion. It is clear there was substantial agreement between the parties on the rationale for removal of the requirement for "mutual agreement" and the expression "intends to". Pepe's version has the additional components being the reference to "shares" and the notion of "giving him an equity stake". But this does not sit comfortably with the wording finally agreed upon. The agreed changes do add a degree of certainty. Under the reformulated version PAM is required to make available an equity participation opportunity. But the reformulated version makes no reference to giving shares to Pepe. In reaching this conclusion I am guided by the considered language chosen by the parties at the time. In my assessment, Bryant's version of the discussion is more accurately reflected in that language.

80 In addition, it is noteworthy that the words "make available" were not changed in this sentence. Pepe reluctantly agreed that to "make available" an equity participation opportunity is consistent with the possibility of being required to purchase equity. Pepe's reluctance to readily concede the obvious reflected his consciousness that the admission undermined his case.

81 Furthermore, under cross-examination Pepe's evidence was inconsistent on the issue of where the notion of "giving" shares had arisen. Initially Pepe said he used the word "give". Later he said Bryant suggested the word "give". In my view it is extremely unlikely that Bryant would have volunteered the word "give" in this context, particularly having regard to Wright's previously expressed reluctance for any commitment to made in relation to equity.

82 Pepe and Bryant then discussed changes to the second sentence of the equity participation paragraph which read:

"Whilst the details of this opportunity remain to be finalised (the operating structure of this arrangement, taxation consequences, and our need to have a scheme which can be extended to other key staff are important design considerations) it is our intention to make available to you an equity opportunity via options or shares or both) of up to 5% of PAM." (emphasis added)

"Whilst the details of this opportunity remain to be finalised (the operating structure of this arrangement, taxation consequences, and our need to have a scheme which can be extended to other key staff are important design considerations) we intend to make available to you an equity stake (likely via shares however it may be via options, shares or both) 5% of the then-issued capital of PAM (as either voting or non-voting shares)." (emphasis added)

84 Pepe gave evidence that he asked Bryant what he meant by taxation consequences and a scheme that could be extended to other key staff. Bryant responded that PAM was in the process of setting up a scheme that would be appropriate for employees and said Platypus had not yet had a chance to think through the tax consequences of giving its employees shares. It expected to do so within the first 12 months of Pepe's employment. Bryant said it could be shares or options, whichever is the most tax effective for the individual.

85 Further, Pepe said to Bryant he was not happy with the words "equity opportunity" and he would only join if he was to be given shares in Platypus, not merely for the opportunity to be granted shares at a later date. Bryant said, "Let's change those words to read 'equity stake' to make it clear that you will be given an equity stake after 12 months". Pepe said he was not happy with the words "up to 5% of PAM". He said that he already had 5% of the shares in a profitable funds management company and he was not going to move to a firm the size of Platypus if he did not get at least 5% equity allocation from day one for joining that firm. Bryant said, "That's fine, you will get a minimum of 5% equity in the firm." He also said that a total of 20% of shares will be allocated to new employees and that Pepe would be given at least a 5% equity stake and a potential greater share of the 20% pool subject to his performance in the first 12 months. As a result of this discussion Bryant deleted the words "up to" before 5%.

86 Bryant gave evidence that Pepe initiated discussion about potential changes to the expression "it is our intention" though Bryant could not recall the substance of the discussion. This phrase was changed to "we intend". Bryant said Pepe then asked him to change the word "opportunity" to "stake" giving as an example a phantom equity scheme which acts like equity but is not really shares in the business. Bryant agreed to make that change.

87 Further, Bryant said Pepe then asked him to confirm that the stake would be made available via shares and Bryant said whether it would be shares or options was something to be determined in the future. Pepe pressed Bryant on this issue and asked him whether he would have a preference or what it would likely be. Bryant responded that shares on balance at that point would be more likely but that it could well be shares or options. It could not be said with any certainty which way it would be. As a result of that discussion the words "likely via shares however it may be via options, shares or both" were inserted to replace the words in brackets. Bryant said that Pepe raised a concern with the words "up to". They had a general discussion around Pepe's desire to be given an opportunity that allowed him to replace what he had with his then current employer. In this discussion Pepe told Bryant he would need to sell the shares that he then held and wanted to know that he would have the potential to acquire a holding of a similar magnitude in Platypus over time. Bryant said he was not uncomfortable with providing certainty around 5% as a target and deleted the words "up to".

88 Bryant denied that Pepe had said that he would only join PAM if he had at least 5% equity from the beginning or that he would not join merely for the opportunity to be granted equity at a later date. Bryant also denied having any discussion with Pepe to the effect that Pepe could get more than 5% or a minimum of 5%.

Third Sentence - Equity Participation Paragraph

89 Pepe and Bryant then discussed changes to the third sentence of the equity participation paragraph which read:

"The extent of any offer will be driven by your performance during this initial 12-month period. Any offer will also be subject to appropriate vesting conditions and may involve non-voting shares." (emphasis added)

"The ultimate extent of any offer will be subject to your performance during this initial 12-month period, and a vesting period of up to three years may be applied (noting however that you will be entitled to the full economic benefit of the shares and/or options during the vesting period)." (emphasis added)

91 Pepe gave evidence that he told Bryant in effect that the phrase in the last sentence "subject to appropriate vesting conditions" was too vague and that vesting periods were normally defined and rarely exceeded three years in the industry. Pepe said he was not going to work for three years and not share in the economic benefits of the growth in the firm over that time. Bryant then changed the paragraph to "a vesting period of up to three years may be applied".

92 In response to this change, Pepe gave the following evidence:

"That's fine, but I still need some protection. I said to Mr Bryant that I was happy to give you the protection of me getting the shares on day one, but then resigning on day two, but I also wanted to be protected that I would be still benefit from any growth in the value of Platypus from the date that I joined and I also wanted to be protected against any adverse changes during the vesting period. I said I was happy to give you the protection in the event that I resigned, but in the event that I leave for any other reason, and I gave the example that I gave earlier about the person from Australian Unity who had been forced to leave due to ill health. I said to Mr Bryant if I left for any reason other than for resignation I'd get the value of the shares.

He said,

"That's fine, what would you like me to write in?"

I said

"I want it written in that I get the full value of 5% in Platypus."

I said,

"Let's not debate the different definitions of value. Let's use the phrase 'full economic benefit' because it includes all things of value; dividends, capital gains, everything."

I said,

"I would like it written in that I get the full economic benefit of the shares over the vesting period"

He said, "That's fine", turned to his computer and wrote in that "you are entitled to the full economic benefit of the shares during the vesting period" and also added in the words "and or/options."

It was then I said to him,

"You also need to change the '5% of PAM' to read 'the 5% of the then issued capital of PAM.'"

93 Bryant denied key parts of Pepe's version of this conversation. In particular he denied that Pepe said he was happy to give PAM the protection for Pepe getting shares on day one and then resigning on day two; or that he was happy to give PAM protection in the event that he resigned but that if he left for any other reason he would get the value of the shares.

94 Bryant gave evidence that it was agreed that the ultimate extent of any offer that would be made would be based on Pepe's performance. He suggested putting the word "ultimate" before "extent" as a way to make that point and that Pepe agreed to this. Then Pepe raised a concern with the words "driven by" because he said "driven by" did not mean it related exclusively to his performance. He asked if those words could be replaced with the words "subject to". Bryant said it being subject to performance was actually his intention so he was comfortable with that.

95 According to Bryant, Pepe then expressed a concern around the vesting conditions in that there was not a maximum vesting period stated. There was a discussion about the need for vesting in more general terms, that the purpose for vesting, given it was a long term incentive, was to limit or preclude the availability of equity until the end of the relevant period. Bryant suggested that a maximum of three years would be applied as the vesting period. Pepe then raised the matter of who received entitlements during the vesting period. He gave an example where he might be asked to pay for shares in a year's time but would not be entitled to the dividends potentially for another three years. Bryant advised Pepe that that was not PAM's intention and suggested that he could put words in that addressed the receipt of dividends and that dividends could be held in escrow until vesting was completed and he became entitled to the shares. Bryant said Pepe was comfortable with that.

96 Bryant then asked Pepe whether he had any concern if the scheme was based around options. Pepe gave an example where it would be open to PAM to "make a strike price for the options ... at some point way off into the future". Bryant explained to Pepe that that was not his thinking or intention. Arising from that discussion, Bryant suggested to Pepe that it could be noted that during the vesting period that Pepe would be entitled to the economic benefit during that period, be it an increase in value or dividends as the case may be, and words were drafted to that effect. For drafting purposes, the reference to non-voting shares was shifted back to the end of the preceding sentence.

97 One other example raised by Pepe was that it would be open to PAM to do a capital restructuring of the business and as a consequence render 5% effectively a smaller percentage. Bryant suggested that the words were inserted to reflect that the equity opportunity would be based on the capital of the company on issue at the time PAM made the offer. According to Bryant, Pepe was comfortable with that suggestion.

98 It was Bryant's recollection that changes were made to the executive employment agreement during the meeting. There was a conflict of evidence on this point. Pepe said there were no changes made to the executive employment agreement and that Bryant had said to him that his version of the agreement was signed by all PAM employees upon the commencement of the joint venture and that it was the same version of the agreement that Williams had signed. It was Pepe's position that the only changes made on the computer during the meeting were changes to the employment letter. Pepe was then taken through changes which had been made to the employment agreement and he accepted changes had been made. However, he did not accept that the changes were made during the meeting, again making the point that Bryant said in substance that the employment agreement was a standard form agreement. After further questioning Pepe then said he did not recall Bryant making changes to the employment agreement, even though Pepe said he made available to Bryant during the meeting his lawyer's "List of Concerns and Amendments" which suggested many changes to the employment agreement. Pepe said he did not know when Bryant made the changes.

99 According to the Bryant, at the end of the meeting he printed out a copy of the letter and the executive employment agreement for Pepe who said he wanted an opportunity to review or to have legal advice on the letter and the agreement. Likewise, Bryant sent an email to Wright attaching a final version of the executive employment agreement at 3.57pm on 11 March 2006. When Pepe was shown this email he conceded he may have forgotten that the changes were made to the employment agreement. Soon afterwards, Pepe said positively there were no changes made to the employment agreement while he was in Bryant's office and that upon reflection he denied that he may have forgotten about any changes. When asked what caused him to shift his position, he said he had no specific reason.

100 I prefer Bryant's version of the evidence on this issue. Bryant had a positive recollection of making the changes during the meeting and giving a copy to Pepe. This is consistent with the computer records which show that the employment agreement was last modified two minutes prior to the employment letter. Pepe said Bryant printed off the employment letter prior to him leaving the Saturday meeting, but disputed that he was given a copy of the executive employment agreement at that time.

101 In my view it is likely that Bryant printed off both the employment letter and the letter of employment at that time so that Pepe could take advice on the documents. Bryant then showed Pepe out of the building.

102 In my view, Bryant was by far the more impressive witness generally and particularly as to what transpired at the meeting on 11 March 2006. He had a relatively good recollection of discussions. When he could not recall something he said so. He was responsive to questioning and was not reluctant to concede ground, admitting to incorrect expression where appropriate. Bryant withstood sustained and searching cross-examination on the important issues.

103 Pepe was less than impressive. In my view he overstated his salary at his then current employer JFCP, grossly exaggerated the amount of his last bonus at JFCP and wrongly claimed to have a final stage meeting on 10 March 2006 with senior executives in Melbourne in relation to another job opportunity. Presumably he did so to improve his chances of securing a higher offer of remuneration and in order to apply pressure on PAM to employ him.

104 Pepe was inconsistent. For example, he was very reluctant to admit any link between his alleged 5% equity interest with the 5% equity interest he was seeking to procure from PAM, but ultimately did concede there was a link. He conceded the possibility that he had forgotten changes were made to the executive employment agreement and then denied that he may have forgotten about changes being made. He was evasive on key issues such as whether equity would be in the form of shares or options. He was at times overly careful, with long pauses before giving answers.

105 Under cross-examination Pepe gave evidence that he told Bryant he had a 5% equity interest in his employer. He admitted that this was incorrect, that he knew it was incorrect at the time he told Bryant and that he deliberately lied. He then said there was no reason for lying to Bryant. Pepe then recanted his earlier evidence and said he did not lie to Bryant but did not correct what may have been a misunderstanding. He then admitted he did lie to Bryant but could give no reason for doing so. In re-examination Pepe said he did not intend to mislead Bryant on this issue.

106 I found Pepe's evidence on this issue very unsatisfactory, particularly the last gloss in re-examination where he disputed his earlier admission. In my view Pepe did intend to mislead Bryant and lied to him in order to bolster his chances of successfully negotiating a more favourable equity allocation in PAM.

107 Further, in my opinion there are major difficulties with Pepe's version of what took place in relation to the equity participation paragraph. Principal amongst these is Pepe's assertion that he said he would only join PAM if he was given shares. Yet the word "give" or its conceptual equivalent has not found its way into the redrafted formulation.

108 Secondly, Pepe asserts that it was agreed he would receive a minimum of 5% of the then issued capital of PAM. The words "up to" 5% were not replaced with the words "at least" or a "minimum of" notwithstanding Pepe's email to Bryant on 10 March 2006 the day before the meeting when Pepe wrote that he would prefer the words "minimum" to "up to". I am not persuaded by Pepe's evidence to the effect that there was a discussion to the effect that the words "the ultimate extent of any offer" related only to the extent to which any offer exceeds the minimum 5 percent.

109 Thirdly, I reject Pepe's assertion that Bryant's reference to the discussion about the "strike price" of options was false. I find that the discussion about options did occur and that the discussion included reference to the exercise price of options.

110 Fourthly, Pepe's assertion that he was entitled to the full economic benefit of the shares during the twelve month qualifying period is unable to be satisfactorily reconciled with the language of the last line of the equity participation paragraph which refers only to giving the full economic benefit during the vesting period. But the phrasing is consistent with Bryant's version of the discussion to the effect that shares or options were to be allocated after the scheme had been developed and after Pepe had performed as an employee for one year.

111 Fifthly, no words were inserted in the equity participation paragraph to differentiate between Pepe's entitlement should he cease employment with PAM for any reason other than resignation. If that had been discussed and agreed upon, in my view it would have been reflected in the drafting.

112 Sixthly, Pepe's case as presented at trial was that he required 5% equity in PAM at no cost to move from JFCP and that he would not have joined PAM otherwise. I do not accept this. In particular I did not believe Pepe when he gave evidence to this effect. Some of his evidence sounded to me like a prepared speech especially when he said with heavy emphasis that he wanted to benefit from growth "from day one" and that he wanted to make sure he "would get it [equity] at no cost". Further this emphasis did not match the tenor of contemporaneous communications in the days immediately preceding the 11 March meeting. For example, Bunton's notes on 7 March state "comfortable with potential for equity and bonus... he has no particular number on the equity share... If he was offered 250K plus super he would accept readily". In an email to Bunton of 9 March, Pepe notes in reference to the equity participation paragraph that it is very vague and states he would need a lot more certainty before he could accept the offer, "By certainty I mean regarding things like timing, vesting, purchase price (i.e nil?) etc, etc and the removal of words like 'up to'. I'd prefer words like 'minimum of'". On 10 March Pepe told Bunton in relation to the impending meeting with Bryant on 11 March that "there were no deal breakers" and that he "just needed some certainty surrounding the equity clause". Bunton's note is slightly different but to the same effect "No deal breakers - just wants clarity on equity and bonus". Certainly the indications are that Pepe wanted more certainty and clarity on the issue of equity, but nowhere is there a contemporaneous note to the effect that Pepe will not accept the position unless he receives 5% equity at no cost.

113 For all of the above reasons, I accept Bryant's version of the discussion on 11 March meeting in preference to Pepe's version.

114 On Tuesday 14 March 2006 Pepe signed the executive employment agreement and the employment letter in Bunton's office. On 10 April 2006 Pepe commenced working at PAM.

115 On 28 March 2007 Pepe attended an off-site meeting in the Hunter Valley for PAM employees. Wright made a presentation concerning the proposed employee share option plan. According to Adamson, Wright advised employees that they should expect an ESOP and for that to take place there would be a company valuation. As Wright was presenting the details of the proposed ESOP, Adamson remarked that the viability of the ESOP came down to the valuation. This comment was made with the key personnel in the Platypus team at the presentation, namely Bonouvrie, Pepe, Williams, Best and Adamson. Pepe did not dispute that Wright gave a presentation on the topic of the proposed ESOP. Pepe said there was a question and answer session after the presentation. He gave no evidence about the content of the presentation and did not recall the specifics of the question and answer session. In about May 2007, BDO Kendalls Corporate Finance (Vic) Pty Ltd was retained to prepare a report on the fair market value of a non-voting share in PAM. Pepe denied knowing that a valuation was being prepared in connection with the ESOP until Williams made him aware of the valuation around late June 2007.

116 Williams gave evidence of conversations he had had with Pepe about the impending introduction of the ESOP during which he informed Pepe that a valuation that was being prepared for that purpose. According to Williams, the first of those conversations took place in May or early June 2007 and related to the valuation of PAM. Williams said that Pepe had found out that PAM was getting the valuation of the company but Williams could not recall how he found that out. Pepe asked Williams why PAM or specifically Pepe was not involved in doing that valuation given the "skill set" inside the investment team at PAM. Williams responded that it would be inappropriate for someone who was a beneficiary of the scheme to be involved in the valuation of the business. Further, Williams said he pointed out that even though he was not a beneficiary in the first round of the ESOP, he was not and had no desire to be involved in the valuation process. Williams could not recall any specific response from Pepe.

117 Williams gave evidence that he made a commitment to have a discussion with Pepe on the matters raised in the previous conversation following the board meeting. During that discussion he gave Pepe more detail about the ESOP. He recalled telling Pepe that initially he was likely to be allocated an initial 2.5% in the first round of the ESOP and that as the preliminary valuation of the business was a bit high there would be a second valuation done. During that discussion Pepe said that the detail discussed with him seemed inconsistent with what he had agreed when he signed up to join PAM.

118 Pepe denied having had any discussions with Williams prior to late June 2007 about the valuation that was being prepared. Pepe gave evidence that the first time he became aware of the valuation was in around late June 2007 in a discussion with Williams after a board meeting. He said that he asked Williams how the share scheme was coming along and when it would be finalised and that Williams had replied in substance that the valuation was too high. Pepe claims he then asked Williams why the valuation was relevant, to which Williams replied in substance that employees could not be expected to pay that much for the shares. This gave rise to a discussion about what Pepe's expectations were and Pepe said he was expecting at least 5% allocation at no cost. According to Pepe, Williams said he would speak to the board.

119 Under cross-examination Pepe was referred to his original outline of evidence which he agreed he had reviewed for accuracy before it was finalised. In that outline Pepe refers to a discussion he had with Williams in June 2007 regarding his equity. The original outline records the matters discussed including the fact that PAM had received a valuation of the business, that there was some issues with that valuation and the board was going to discuss those issues at that month's board meeting.

120 In the following paragraph Pepe refers to a conversation with Williams directly after the June board meeting referred to above during which Pepe said he expected at least 5% equity allocation at no cost.

121 It is clear the original outline refers to two conversations, one prior to the board meeting and one afterwards, whereas the amended outline refers to one conversation only after the board meeting.

122 Pepe's explanation was that the paragraph had been reworded for clarity and that the two paragraphs refer to the same meeting and the same conversation. I found this explanation perplexing. Pepe failed to grapple squarely with the question. For example, he did not say there was a mistake made in the first outline. His reference to rewording for clarity did not clarify how it was that he originally referred to one meeting before the late June board meeting and one meeting afterwards.

123 I am satisfied that Williams' account that there were two meetings, one prior to the June board meeting and one afterwards is to be preferred.

124 I am fortified in that view having regard to Williams' demeanour. Williams impressed me overall as a witness who was unwilling to overstate his evidence. He was responsive to questioning both in-chief and under cross-examination and was clearly only prepared to say what he actually recalled. During cross-examination he willingly said he did not recall matters and differentiated between matters which though he did not recall possibly had occurred and those where he would not admit were a possibility. In my assessment he did not attempt to embellish his evidence. Williams also withstood cross-examination to the effect that he would not have disclosed to Pepe that he had an allocation of 2.5% equity in late June 2007 in light of the fact that the ESOP had not been finalised at that time. Williams said he believed the words that he used to Pepe were that it was likely that he would be allocated an initial 2.5% in the first round of the ESOP and that he had no reason to believe that the preliminary numbers would not end up being the final numbers.

125 In my opinion, Pepe was eager to deny the earlier discussion about valuation in the context of the ESOP because the notion of valuation for the purposes of the scheme implies that a price needed to be determined and is therefore inconsistent with the proposition that Pepe was to be given the equity at no cost. Williams did not agree that it was possible that Pepe had asked why the valuation was relevant. He said he would have remembered that. Williams also denied that he said that employees cannot be expected to pay that much for the shares. He did not recall Pepe saying, "Why would we be expecting to pay anything for the shares?" He did not think that was possible; he thought that he would have remembered that. Williams admitted that Pepe made a comment that he expected to get the 5% for no cost occurred at a meeting in August but not after the June meeting.

126 The tenor of Williams' evidence was that Pepe's complaint about having to pay for the equity arose in August 2007 rather than at an earlier time. In substance the difference between the evidence of the plaintiff and defendant on this issue was the plaintiff's contention that there was a spontaneous complaint about the relevance of valuation and having to pay for the shares, whereas the defendant's case was that the complaint arose well after Pepe first became aware of the valuation and had found out that his allocation of equity was likely to be 2.5%.

127 On 27 June 2007, Pepe sent an email to Bryant requesting a meeting to discuss "a potential increase in the amount of Platypus equity I am to be allocated". Bryant gave evidence that he discussed the email with Williams, and then Bryant spoke to Pepe during July and August 2007 on several occasions on a balcony at the Platypus offices which was a private area. In substance, Bryant said Pepe raised concerns about the valuation that was being applied to the share option plan that was in development. Pepe expressed a view that the value that was being applied was too high, that Platypus was worthless as a business before his arrival and would be worthless without him. He expressed resentment at what he saw as a suggestion that he pay for the value that he had brought, which he felt was the substantive part of the valuation that he had heard about. Bryant said in effect that he was offended by that suggestion and whilst Pepe had done some good work, to suggest the value of the business had wholly been created by him was offensive to his colleagues and had no justification. Pepe said that he deserved a 5% allocation under the ESOP and that he was aware that a 2.5% allocation was being discussed as an outcome. Pepe also expressed the view that any vesting period that would be applied should be as short as possible and suggested that the shares should be voting shares as opposed to non-voting shares.

128 There is a clear divergence on the evidence in relation to this matter in key respects. First, Pepe said that his email request to Bryant to discuss a potential increase in the amount of Platypus equity arose because he wanted to discuss the potential for getting more than an allocation of the 5% minimum, potentially around 10% and not because he had been told he was to be allocated 2.5% under the ESOP. Pepe also denied that he discussed his concerns about the ESOP with Bryant in July or August 2007 prior to a lunch with Bryant on 19 September 2007. Pepe said Bryant's evidence on this issue was false.

129 I do not accept that Bryant fabricated his evidence of these conversations with Pepe.

130 In an email dated 27 June 2007 from Pepe to Williams referring to the conversation they had had after the board meeting the previous day, Pepe foreshadows having a discussion with Bryant the following week. Pepe wrote:

"Just FYI, I thought more about our conversation last night. I'm going to ask David Bryant for a catch up some time next week to discuss increasing my equity allocation and his thoughts on my remuneration."

131 I accept Bryant's evidence that discussions did occur and his account of the content of those discussions set out above. It follows that I reject Pepe's evidence that he had no dialogue with Bryant on the issue until nearly three months later and that Pepe had not been told that his allocation of equity was likely to be 2.5%.

132 It is common ground that Pepe and Williams met during July 2007 at a café underneath the KPMG building, though Williams could not recall the details or the exact date of the conversation. Pepe gave evidence that Williams was holding some documents one of which looked like Pepe's letter of appointment and that Williams said he was not aware that the equity participation paragraph was in Pepe's letter of appointment. Pepe asserted that, "It's pretty clear that I get 5% of the shares in Platypus and I get the full economic benefit of those shares". Pepe said he told Williams, "It's not logical for Platypus to expect me to work my backside off for three years and then not share in a benefit of that hard work and then pay a higher amount for my shares because of that hard work". Williams said he would have to discuss the matter with Bryant.

133 On 31 August 2007 Pepe's performance review was conducted at a meeting with Williams and Mead. He was informed that he was to receive a pay rise of $25,000, a short term incentive bonus of $200,000 and he was invited to participate in the Platypus Employee Share Option Plan by accepting the invitation of a grant of 25,000 options. Under the plan the options vested on 1 October 2008 subject to continued employment at PAM. The options were exercisable upon payment of the exercise price of $20.58 per option. There were four optional exercise dates: 1 October 2008, 1 October 2009, 1 October 2010 or 1 October 2011. Participants of the plan could therefore defer payment of the exercise price for up to four years.

134 Pepe gave evidence that during the performance review meeting, Mead told Pepe that his performance was very strong and thanked him for his contribution to Platypus' results. He gave Pepe a summary of the ESOP documentation and told him that there would be a strike price of around $20 which equated to a 20% premium above the valuation. Pepe said in response that he needed time to process the documentation and that at first glance some of the items appeared inconsistent with agreements he had in place, but he needed time to go through them before he could comment.

135 Senior counsel for the defendant contended this was a vague response seeking to draw an adverse inference from this response. I do not draw an adverse inference. In my view, Pepe was entitled to have a reasonable opportunity to consider the documentation before responding. Indeed, on the same day Pepe asserted to Williams that what had been offered was not consistent with what he had signed up for and had said he was not expecting to pay for the shares under the ESOP.

136 Pepe volunteered to draft comments on the ESOP. He circulated this document to other employees for comments and further input with a view to taking the matter up with PAM. On 12 September 2007 a meeting was held in Sydney with Mead and Bryant to discuss the reaction to the ESOP. During the meeting Pepe expressed unhappiness with the ESOP and the way it was structured. In effect, Pepe said in some cases it was inconsistent with expectations and in other cases it was inconsistent with agreements already in place. Pepe expressed concern that the exercise price was 20% above fair value of the business and that the employees were being asked to pay for value they had helped create.

137 Senior counsel for the defendant contended that in the comments on the ESOP, Pepe reflected a concern about paying 20% over market price which is inconsistent with Pepe believing he should get equity at no cost. I accept Pepe's evidence that it was a document prepared on behalf of all employees. Pepe was clearly expressing general concerns not necessarily tailored to his own circumstances. In my view, Pepe's remarks were sufficiently qualified so as not to be inconsistent with his position.

Discussion between Pepe and Bryant on 19 September 2007

138 Pepe gave evidence that on 19 September 2007, he had a lunch with Bryant to discuss his concerns over the inconsistency between the ESOP and his contract. He said to Bryant that his main concern was the inconsistency with what had been agreed before he joined PAM and that it was never intended that he would pay for the shares. He pointed out that the harder he worked the more he had to pay for the shares. Bryant had suggested, as a solution, a way where he would never have to pay for the shares by a non-recourse loan that would only have to be repaid if he resigned from PAM and any payment that might be deducted from any payout he would get at that time. Pepe said he would be happy to consider any proposal where he did not have to pay for the shares but he would also like an adjustment in salary to compensate for any loss of benefit. He said that Bryant asked him to sign the ESOP and he would get back to him with a proposal. Pepe said he would not sign the ESOP in its current form but would review any proposal put to him. After the lunch, Pepe sent Bryant an email which set out the equity participation paragraph.

139 Bryant gave evidence that he was becoming concerned with Pepe's relationship with his colleagues, his attitude at work, his lack of engagement and lack of interest. Bryant said he could sense quite a bit of tension in the office and asked Pepe to come to lunch because of the discussions that occurred regarding the share scheme. He said that Pepe was clearly unhappy and he wanted to get to the bottom of the issue. According to Bryant, during the meeting Pepe expressed his view that he "made" PAM and that it had no value without him, that he felt he had contributed significantly to the business and did not want to be asked to pay for that by virtue of the ESOP scheme that had been put to him. Bryant said he advised Pepe that he thought his view of himself was inflated, he was being very unfair to Williams and his colleagues and to Australian Unity for the role everyone had played. Pepe then asked whether Bryant would consider offering him a special price to participate in the ESOP. Bryant said that any arrangement for Pepe would have to be the same as that offered to all Platypus staff. They then discussed Pepe's concern that having received the offer how he was going to pay for it. Bryant asked Pepe whether this was actually the issue; Pepe replied that it was. Bryant said he would be happy to take the matter up with Wright and Mead who were members of the HR Committee to see whether it was possible to reach some arrangement. They spoke about the potential of providing a loan to help pay for the scheme.

140 Under cross-examination Bryant disagreed with Pepe's version except that he agreed he did raise the idea of a non-recourse loan and he agreed that it was possible that Pepe had said that he was not going to sign the ESOP in its current form. In essence Bryant's evidence is that Pepe complained that the ESOP was unfair given the contribution he had made to the business rather than a complaining because of an inconsistency with his contract. When it was put to him that following the lunch Pepe had sent the email setting out the equity participation paragraph and that this conduct suggested in fact that the contract had been discussed at the lunch, Bryant said it had not been discussed in that context but did not elaborate on the context of the discussion.

141 In my view, the email indicates that there was a reference to the equity participation paragraph during the lunch discussion. The precise content of the reference is unclear. However, it is clear from an email from Williams to Wright sent on 24 September 2007 that Williams had a conversation with Pepe after the lunch during which Pepe asserted that his contract stated that he was to receive 5% within three years of commencing employment subject to satisfactory performance. Whether Pepe made his position precisely clear during the lunch or after the lunch is of no material significance.

142 Pepe was on annual leave from 8 October to 22 October 2007. Pepe alleges that on his return from leave he had a conversation with Bryant at PAM's offices on 23 October 2007 during which he discussed whether there were any developments and discussed the meaning of the expression "full economic benefit" under the equity participation paragraph and the extent of the contribution made to the growth of the business by Williams and Bryant. Bryant denies that this conversation took place. He said the substantive decision to terminate Pepe's employment had been made on 14 October 2007. Bryant gave evidence that he was very conscious from that point forward of not having any discussions with Pepe.

143 There is no contemporaneous note or other record which would suggest one way or another whether this conversation occurred. Based on an overall assessment of the reliability of the respective witnesses I prefer Bryant's evidence on this issue.

144 The principles applicable for ascertaining the proper construction of a contract are well established.

145 In construing a term of a contract, the Court may examine the whole of the contract document to determine what a reasonable person would understand by the language used by the parties to express their agreement.

146 In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd,[2] the High Court said:

"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."

147 In the case of an ambiguous term, prior negotiations may be admissible to establish the objective background facts known to the parties, but they are not admissible to the extent that they reflect the subjective intentions or expectations of the parties. [3]

148 The underlying principle is stated by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales ("Codelfa")[4] as follows:

"The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification."

149 In the present case, the relevant surrounding circumstances known to the parties and the purpose of the transaction can be shortly stated.

150 As at February 2006, PAM had been recently incorporated as a result of the joint venture between PAM Holdings Pty Ltd and Australian Unity Funds Management Limited. PAM carried on the business of equities funds management. At the time of the joint venture the underlying business contributed by the Platypus interests was small by industry standards, was growing slowly and was not profitable. With the benefit of the resources to be contributed by the Australian Unity interests including provision of additional funds under management it was anticipated that PAM would grow and become profitable. It was in this context that PAM required to fill the position of senior analyst. Pepe had qualifications suited to the proposed role, and was approached and asked whether he was interested. At the time Pepe worked in Melbourne but wanted to move to Sydney for family and professional reasons. He applied for the position. At the relevant time, PAM did not have an equity participation scheme in place for its employees, but it intended to establish a scheme to allocate up to 20% of the issued capital of PAM to employees. On about 9 March 2006, Pepe was provided with the proposed employment letter and the proposed executive employment agreement.

151 Pepe sought and obtained legal advice in respect of these documents. On 11 March 2006, Pepe and Bryant, neither of whom were lawyers, met to discuss the proposed terms of Pepe's employment in an endeavour to finalise those terms. One issue of concern to Pepe at the time of the meeting was the issue of certainty in relation to the equity participation paragraph in the employment letter.

The proper construction of the equity participation paragraph

152 The first question of construction is whether, under the contract, Pepe became entitled to 5% of the then issued capital of PAM at the expiration of 12 months from the date of commencement of his employment.

153 Counsel for the plaintiff submitted that the equity participation paragraph contained a binding obligation on PAM to allocate to Pepe shares or options equal to 5% of the then issued capital in PAM at a nil or nominal price, once Pepe completed a twelve month qualifying period. It was contended that the equity stake could not be lost by Pepe after the qualifying period had elapsed. PAM was at liberty to impose a vesting period and thereby set a time frame before which Pepe could not deal with the equity stake as owner. However PAM was not lawfully entitled to deny Pepe the benefit of that equity stake during the vesting period by, for example, terminating Pepe's employment during the vesting period or by imposing a price to take up the equity stake.

154 Senior counsel for the defendant, submitted that on its proper construction the equity participation paragraph contained mere statements of intention which did not have contractual force. In addition it was submitted that the equity participation paragraph was incomplete, illusory and uncertain and that the construction contended for by the plaintiff cannot be implied.

155 The provisions which are relevant to the plaintiff's entitlements and termination of the plaintiff's employment are found in the executive employment agreement ("EEA") but there are also paragraphs of key significance in the employment letter. Dealing first with the EEA. Clause 3.0 of the EEA deals with employee benefits and relevantly provides as follows:

"3.1. Salary and Benefits

In consideration of the Employee carrying out the Duties, the Company shall provide the Employee with the remuneration package at the TEC and other benefits (including variable payments) as set out in Schedule 1.

During the Employment the TEC and the amounts identified in Item 6 in Schedule 1 shall not be reduced.

3.2 Additional Benefits

The employee agrees that the provision of any benefit in addition to those in Schedule 1 is totally and absolutely at the discretion of the Company, and any such additional benefit does not form part of the Employee's TEC. Furthermore, the Employee acknowledges that any communication to the Employee regarding the goals to be met to achieve an additional benefit, and any subsequent achievement of these goals, or efforts to meet these goals, shall not mean that the Employee is entitled to any or all of the additional benefit which at all times remains in the discretion of the Company regardless of the performance or conduct of the employee. This clause applies regardless of whether the Employee is in employment or has been terminated for any reason, and for the avoidance of doubt (and without limitation) may only be modified in accordance with clause 9.4."

156 Clause 5 deals with termination of employment and relevantly provides as follows:

"5.2 The Company may terminate this Agreement at any time other than for reasons specified in clause 5.1 with the provision of three months written notice.

...

5.7 No Compensation

In the event of Termination under clauses 5.1, 5.2, or 5.5, the Employee will not be entitled to any compensation or damages other than as specifically provided for in this Agreement.

5.8 Entitlements on Termination

In addition to any termination benefit under clause 5.2 (where applicable), on Termination of this Agreement for any reason, the Employee will be paid outstanding salary, accrued annual leave, long service leave and other statutory entitlements."

"(7) "TEC" means the dollar amount of the Total Employment Cost identified in Schedule 1 and includes:

(a) gross salary;

(b) superannuation including contributions by the Company required by statute; and

(c) the monetary value of any non-cash benefits provided to or on behalf of the Employee including any statutory charges or taxes (including fringe benefits tax) on these benefits."

158 Schedule 1 of the EEA insofar as it is relevant provides:

"Item 4 Remuneration Package The commencing TEC for the Employee of $262,139 per annum comprises the following components:

Item 4.1 Annual base salary - $250,000 per annum

Item 4.2 Superannuation at the minimum rate required in order to satisfy the Employer's obligations under the Superannuation Guarantee (Administration) Act 1992 being, as at the date of this agreement, $12,139.

...

Item 5 Non-Salary Benefits By agreement of the parties."

"Please find attached an Executive Employment Agreement covering the terms and conditions of your employment. Whilst this Agreement sets out the specific terms of your employment, I have outlined below our agreed intentions in regards to key aspects of your employment, particularly concerning proposed bonus and equity participation opportunities. This letter should therefore be read in conjunction with the Executive Employment Agreement ("EEA").

...

2. Remuneration

As noted in your EEA, your Full Time Equivalent (FTE) remuneration package will be A$262,139 per annum. This is known as your Total Employment Costs (TEC). This remuneration is for all hours worked including all hours in excess of your standard hours of work and includes annual leave loading.

...

4. Bonuses

PAM intends to establish a bonus scheme where an amount of up to 20% of the Profit Before Tax may be set aside each year, to be allocated amongst staff based on their performance and contribution. As discussed with you, this aspect is less relevant at this early stage of PAM's development, however full details will be communicated to staff as PAM's development progresses.

5. Equity Participation

Subject to a qualifying period of twelve months PAM will make available to you an equity participation opportunity. Whilst the details of this opportunity remain to be finalised (the operating structure of this arrangement taxation consequences, and our need to have a scheme which can be extended to other key staff are important design considerations) we intend to make available to you an equity stake (likely via shares however it may be via options, shares or both) 5% of the then issued capital of PAM (as either voting or non-voting shares). The ultimate extent of any offer will be subject to your performance during this initial twelve-month period, and a vesting period of up to three years may be applied (noting however that you will be entitled to the full economic benefit of the shares and/or options during this vesting period."

160 I accept the plaintiff's submission that in construing the equity participation paragraph, I am entitled to look at the original draft so that I am in a position to consider the changes made to the text. This is part of the objective framework of facts within which the contract came into existence.[5]

161 For ease of analysis, an annotated version of the equity participation paragraph is reproduced to show deletions (interlined) and additions (in bold):

"Subject to a qualifying period of twelve months, and mutual agreement, PAM intends to will make available to you an equity participation opportunity. Whilst the details of this opportunity remain to be finalised (the operating structure of this arrangement, taxation consequences, and our need to have a scheme which can be extended to other key staff are important design considerations) it is our intention we intend to make available to you an equity opportunity stake (likely via shares however it may be via options or, shares or both) of up to [of] 5% of the then-issued capital of PAM (as either voting or non-voting shares). The ultimate extent of any offer will be driven by subject to your performance during this initial twelve month period**, and a vesting period of up to three years may be applied (noting however that you will be entitled to the full economic benefit of the shares and/or options during this vesting period)**. Any offer will also be subject to appropriate vesting conditions and may involve non-voting shares."

162 In my opinion, a reasonable person would understand that by using the word "will" in the first sentence of the equity participation paragraph, PAM was obliged to make available to Pepe an equity participation opportunity after the expiration of 12 months of commencement of Pepe's employment. The words "intends to" were deleted from the original date and replaced with the word "will". The parties also deleted the words "and mutual agreement" from the first sentence. A reasonable person would understand that both these changes were made to ensure that the sentence was promissory in nature not merely aspirational.[6]

163 This is to be contrasted with the second sentence. In my opinion, as a corollary, a reasonable person would understand that by using the words "we intend " (not "we will") that PAM intends to make available an equity stake of 5% of its issued capital to Pepe, but is not obliged to do so. Any question over whether there may have been an inadvertent failure to align the first sentence with the second can be discounted after consideration of the original draft. It is clear from the original draft (apparent from the annotated version set out above) that the parties have deliberately removed words expressing intention in the first sentence and have deliberately retained words expressing intention in the second sentence after making minor textual changes.

164 There were other changes made to the second sentence, including the replacement of the word "opportunity" by the word "stake", and deletion of the words "of up to" before "5%". These and other changes refine the description of the proposed equity participation opportunity and the content of the statement of present intention. None of these changes make the second sentence promissory.

165 In my view, the third sentence qualifies what has gone before. PAM has expressed an intention to make available an equity stake of 5% of its issued capital and the parties have agreed that the "ultimate extent of any offer will be subject to ... performance during this initial twelve month period". In my view, these words would make it clear to a reasonable person, if it is not already, that any offer of equity (i.e. the making available of an equity participation opportunity) has yet to occur and the extent of any equity offered will be determined after the expiration of the twelve month qualifying period and after taking into account Pepe's performance during the qualifying period. It follows as a matter of construction that PAM is not obliged to make available an offer of an equity stake of 5% but may offer a greater or lesser percentage after taking Pepe's performance into account.

166 Furthermore, the parties have agreed that "a vesting period of up to three years may be applied". In my view this further reflects the fact that the equity participation opportunity has yet to be made available. It is self-evident that the conditions as to the time of vesting of any equity which might attach to any offer have yet to be determined or applied.

167 Counsel for the plaintiff submitted that the first sentence "establishes the one condition attached to the granting of an equity interest being a qualifying period of twelve months" and "on the twelve month anniversary of Pepe's commencement of employment ... the entitlement to the equity interest crystallises". It was contended that the objective intention of the parties was that the equity component be provided to Pepe in consideration of his agreement to work for PAM and meeting the condition as to the qualifying period. The plaintiff submitted that the changes made to the first sentence demonstrate the binding nature of PAM's obligation and the enforceability of the entitlement.

168 As I have indicated above, I agree that the changes made in the first sentence require PAM to make available to Pepe an equity participation opportunity at the expiration of 12 months of Pepe's employment.

169 In my view counsel for the plaintiff overstated the nature of that binding obligation by seeking to characterise this as "the granting of an equity interest".

170 Counsel for the plaintiff submitted that the second sentence, after taking account of the changes made to the text, created a clearly identifiable obligation on PAM to allocate 5% of its equity (whether in shares or options) to Pepe. I disagree. Again in my view, the plaintiff overstated the position and failed to adequately reconcile the fact that the second sentence manifestly expresses intention in contrast with the first sentence.

171 Counsel for the plaintiff submitted that the reference in the third sentence to the "ultimate extent of [any] offer" being "subject to performance" conveyed the concept that Pepe was guaranteed a 5% equity stake in PAM upon serving the qualifying period and the size of the equity stake ultimately granted could be greater than 5%, depending on Pepe's performance.

172 In my view, for the reasons previously advanced, the plaintiff's argument was based on the false premise that Pepe was guaranteed a 5% equity stake. Pepe was not "guaranteed" a 5% equity stake. The obligation on PAM was only to make available an equity participation opportunity.

173 I agree with the submission by counsel for the plaintiff that the reference in the third sentence to the ultimate extent of any offer comprehends the possibility that Pepe would be offered more than a 5% equity stake. But that possibility does not carry with it an obligation to do so. Further, it also comprehends the possibility that Pepe would be offered less than a 5% equity value.

174 In my view, the surrounding circumstances tend to support to the construction of the clause contended for by the defendant. There was a mutual interest in Pepe working for PAM. Pepe had qualifications suitable for the role of senior analyst which suited PAM's interests. Pepe desired to move from Melbourne to Sydney for family reasons. The joint venture between PAM Holdings Pty Ltd and Australian Unity Funds Management Limited which led to the incorporation of PAM had only recently occurred. PAM had not, at the relevant time, established an equity participation scheme for employees though it intended to do so. Obviously PAM had not yet had the opportunity to assess the performance of Pepe in the new role.

175 In any event, I do not discern from the language of the equity participation paragraph (or within the employment letter or the EEA) any objective intention to support the proposition that the plaintiff had agreed to give, at no cost to Pepe, an equity stake of 5% of its issued capital.

Whether there was an entitlement to the monetary value of the equity

176 Counsel for the plaintiff contended that on the proper construction of the equity participation paragraph Pepe was entitled to the monetary value of the equity in the event of termination of his employment after the expiration of 12 months from the date of commencement of his employment.

177 Pepe's construction depends upon the meaning to be attributed the phrase to "you will be entitled to the full economic benefit of the shares and/or options during the vesting period". Counsel for Pepe contended that the words "full economic benefit" include the whole of the capital value of the equity as well as dividends and increases in value from the date of commencement of Pepe's employment.

178 The words "full economic benefit" must be understood in the context of a proposed equity participation scheme which contemplates that equity may not vest in the scheme participant until the end of any applicable vesting period.

179 Mr Morrow, who is a partner of KPMG and practises in the area of equity based compensation and executive remuneration, prepared a report on incentive plans available to employees. In this report Morrow said that vesting in this context refers to the time when the employee has earned the award under the plan rules and means the date when the employee has indefeasible right to the instrument. It is at this point that any risk of forfeiture of the shares lapses. According to Morrow, most equity based plans incorporate tenure as a vesting condition, along with other hurdles. Some plans contemplate circumstances where employment is lawfully terminated before the vesting of shares or options and will allow all, some or none of the employee's award to vest under certain circumstances. Clearly it all depends on the relevant plan rules.

180 Senior counsel for the defendant relied on Morrow's report and contended that in this context, vesting of the equity, whether it be shares or options, refers to the moment the employee has indefeasible title to the shares or options and as a corollary prior to vesting an employee does not have title to the equity. Under the terms of the Platypus ESOP continued tenure was a vesting condition.

181 The plaintiff's expert, Mr Culleton, a director and owner of Culleton Partnership which was a specialist recruitment services firm, gave evidence that the expression "full economic benefit" was used in the investment and funds management sector and that to receive the full economic benefit means an entitlement to "the broadest possible financial value of the relevant benefit". Although Culleton had heard the expression used in the context of prospective employment he was unable to refer to a specific instance in conversation or to a specific document. He said it was not a phrase he would have typically used.

182 Morrow gave evidence that the term "full economic benefit" is not commonly used and could not recall seeing the term in remuneration documentation. In his report he said it would be difficult to explain or define the term without knowing the context within which it was being used. Neither expert witness seriously contended that the expression had a technical meaning in the recruitment industry.

183 In my view, the expression confers on Pepe an equal entitlement to any economic benefit of equity which might accrue to equity holders during the vesting period, notwithstanding that in Pepe's case, equity which might have been allocated had not vested. This would cover dividends, any share issues and conversions, capital reductions or buybacks of shares held by the holders of vested equity. In my view it does not mean that the holder of unvested equity is entitled to the value of the equity itself. This would in its effect be equivalent to vesting the equity prior to the vesting date. In my view the language only contemplates an entitlement to an economic benefit equal to the economic benefit which arises to holders of vested equity during the vesting period. If the parties had intended that Pepe was entitled to the full value of the shares or options during the vesting period it would have been easy to say so in simple terms.

184 On Pepe's version of the agreement, Pepe drew a clear distinction between his entitlements on cessation of employment due to resignation and cessation of his employment for any other reason. According to Pepe, it was agreed that if he left for any reason other than for resignation he would get the value of the shares. Yet that critical distinction is not evident in the equity participation paragraph or any other part of the employment letter, nor is it found in the EEA. In my view it is inherently unlikely that a person with Bryant's experience and evident astuteness would have failed to address this if it had had been agreed that Pepe would not be entitled to the monetary value of the shares on resignation.

185 Further, in my view the construction contended for by the plaintiff could produce unreasonable outcomes. For example, on Pepe's construction Pepe would be entitled to the monetary value of the equity on lawful termination of his employment even if he was terminated for wilful neglect of his duties or gross misconduct or dishonesty.

186 Furthermore, the terms of the EEA expressly provide for entitlements on termination. These entitlements were outstanding salary, accrued annual leave, long service leave and other statutory entitlements. No reference was made to the monetary value of the equity on termination. The defendant relies on clause 5.7 which provides that in the event of termination the employee would not be entitled to any compensation or damages other than as specifically provided for in the agreement. There is no specific provision entitling Pepe to payment of the monetary value of the equity in the event of termination under clause 5.7 nor is there any other provision to this effect in the contract documents.

187 For all of the above reasons I reject the plaintiff's contention that full economic benefit includes the full monetary value of unvested equity.

Whether equity was to be allocated at nil or nominal cost

188 The plaintiff contends that on its proper construction the equity participation paragraph provided for the allocation of the equity stake at nil or nominal cost. There is no reference in the equity participation paragraph to the equity participation opportunity being at no cost or at nominal cost to Pepe. Counsel for Pepe submitted that the equity formed part of the plaintiff's remuneration package, the consideration for which was Pepe "signing on" to work with PAM and satisfying the twelve month qualifying period.

189 In my view the language of the equity participation paragraph cannot sustain this construction.

190 The words "PAM will make available to you an equity participation opportunity" in the first sentence would suggest to a reasonable person that Pepe will have a choice, an opportunity if he sees fit, to take up equity. This is consistent with the word "offer" in the third sentence which is also suggestive of choice, being an offer which Pepe may or may not choose to accept. If Pepe is given equity in the form of shares there would be no need for him to consider whether to avail himself of any opportunity or make a decision whether or not to accept an offer. Further, the proposition that PAM intended to "give" an equity stake to Pepe as part of his remuneration is in my view not easily reconciled with the reference to options which in this context in ordinary usage, implies a right to acquire shares in the future at a specified exercise price on or before a specified date.[7] Finally, in my view the expression "we intend to make available to you an equity stake...." does not connote an intention to "give" the proposed equity stake to Pepe.

191 Pepe is clearly an intelligent and resourceful person who had obtained legal advice on the relevant documents prior to meeting with Bryant to finalise the terms of his employment. It can be inferred from the numerous changes made to the equity participation paragraph during the discussions at the meeting on 11 March 2006 that the parties deliberated carefully about the language to be used. In the circumstances, the Court can rely with confidence on the words finally agreed upon to ascertain the objective intention of the parties.

192 In reaching this conclusion on the construction argument, I have had regard to the other paragraphs of the employment letter and the terms of the EEA.

193 The third paragraph of the employment letter, reproduced above, draws a distinction between the "specific terms" in the EEA and "agreed intentions ... particularly concerning proposed bonus and equity participation opportunities" (emphasis added). This language is consistent with an intention to differentiate between obligations and intentions.

194 Counsel for the plaintiff relied upon the following statements in the employment letter in support of the proposition that the equity opportunity paragraph was not merely a statement of intention:

"This letter should therefore be read in conjunction with the Executive Employment Agreement ...

I acknowledge that I have read and understood and accept the employment conditions and policies outlined in this letter and the attachments".[8]

195 I accept that the statements, particularly the acknowledgement, suggest that the employment letter does contain conditions of employment which are of contractual force, but this does not preclude the conclusion that it also contains statements of intention which do not have contractual force. For this reason, in my view, the statements in the employment letter neither advance nor detract from the plaintiff's argument on construction.

196 Having regard to the conclusion I have reached on the construction argument, I shall deal briefly with the other arguments put by the defendant in support of the proposition that the equity participation paragraph falls short of being a contractual term.

197 Neither clause 3.1 of the EEA which sets out Salary and Benefits nor Schedule 1 which sets out the Remuneration Package and Non-Salary Benefits make any reference to the provision of equity to Pepe. In particular Item 5 which provides for Non-Salary Benefits states that these are to be "by agreement of the parties". Counsel for the plaintiff submitted that the "equity term" is a Non-Salary Benefit agreed to in the employment letter.

198 Senior counsel for the defendant submitted to the contrary, relying on the fact that Item 5 makes no reference to the equity participation paragraph in the employment letter. I prefer the plaintiff's submissions on this point. Clearly, in my view, the expression in Item 5 "by agreement of the parties" is generic in that it does not identify a specific agreement. However the failure to identify a specific agreement does not determine the question of fact, namely whether an agreement to provide a Non-Salary Benefit has been made. If as a matter of fact there was an agreement to provide a Non-Salary Benefit, even if it is not specified explicitly in Schedule 1, in my opinion this will be sufficient for the purposes of Item 5. A question would then arise as to what were the terms of the agreement. But as I have previously indicated, the only agreement in this case is the "making available of an equity participation opportunity" and although PAM expressed an intention that this opportunity would be an equity stake of 5% in PAM, as I have found this had not been agreed. In my view this is not a case of complete agreement with the prospect of refinement later. Here on the face of the equity participation paragraph there was an incomplete agreement to an extent which would require a future agreement for the bargain to be enforceable.[9]

199 In Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd,[10] Barwick CJ said:

"But a contract of which there can be more than one possible meaning or which when construed can produce in its application more than one result is not therefore void for uncertainty. As long it is capable of a meaning, it will ultimately bear that meaning which the courts, or in an appropriate case, an arbitrator, decides its proper construction: and the court or arbitrator will decide its application. The question becomes one of construction, of ascertaining the intention of the parties, and of applying it...in the search for that intention, no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements. Thus will uncertainty of meaning, as distinct from absence of meaning or of intention, be resolved."[11]

"But an agreement is not void for uncertainty because it leaves one party or group of parties a latitude of choice as to the manner in which agreed stipulations shall be carried into effect, nor does it for that reason fall short of being a concluded contract."[12]

201 In Eastern Health v MIA Victoria Pty Ltd, Judd J said:

"The modern approach by the courts to the problem of incompleteness and uncertainty in contractual dealings is sympathetic to the lack of precision often found in commercial documents:

The reality of commercial dealings, where fluidity and adjustment rather than precise documentation are the working methods of business people, has now made its mark on the law. It is generally recognised that a court should do all in its power to uphold the arrangement that the parties have made, even if it is defective. The cases are now unusual, although nevertheless still found, where a court will declare a contract void for uncertainty. The Courts use their interpretive powers to make sense of difficult or ambiguous language and, at times, are prepared to resort to the implied term to fill a gap."[13]

202 There are however limits. These were expressed in Biotechnology Australia Ltd v Pace by Kirby P as follows:

"But the Court will not do so, where, in effect, it is asked to spell out to an unacceptable extent, that to which the parties have themselves failed to agree. Nor will the court clarify that which is irremediably obscure. Most particularly, the Court will not accept for itself a discretion which the parties have, by their agreement, reserved to one or other of them. To do so would not be to effect the contract but to change it..."[14]

203 In this case I have found that PAM did agree to provide an "equity participation opportunity" to Pepe. The question is whether that agreement was so uncertain in its content, even after taking into account admissible surrounding circumstances, that it is too uncertain to be enforced. In my opinion the equity participation paragraph is too uncertain in its content to be enforced.

204 The following elements were uncertain. First the extent of the allocation of equity was undefined and undefinable. Although PAM had expressed an intention to make available a 5% equity stake, as I have previously found, the "ultimate extent of any offer" did not mean the ultimate extent of any offer in excess of a 5% minimum. It was dependent upon the unknowable factor of Pepe's performance. This meant that a greater or lesser percentage might be offered.

205 Secondly, there is no price stated nor was a defined mechanism or formula agreed between the parties which would enable the purchase price of shares (if shares were ultimately offered) or the exercise price of options (if options were ultimately offered) to be ascertained.

206 Thirdly, if options were offered, the terms which would attach to them were unknown.

207 Fourthly, the design of the equity participation scheme had not been finalised and there was a need for any scheme to be able to be extended to other key staff. Expert evidence was led by the defendant through Morrow of incentive plans available to employees.

208 In his report Morrow gave evidence of a diverse range of equity based schemes and plans that were commonly offered by companies to their employees at the relevant time. These included deferred shared plans, restricted share plans, performance rights plans, exempt employee share plans, salary sacrifice plans, matching plans, discounted share plans, market value option plans, target value exercise price option plans, performance hurdle plans and indeterminate rights plans.

209 Depending on the scheme or plan, once it had been established PAM would likely need to consider other elements including plan rules, vesting and expiry dates, performance hurdles, conditions of forfeiture and conditions applicable on termination.

210 In Biotechnology Australia an employee was offered "a salary package of $AUD36,000 per annum, a fully maintained company car and the option to participate in the company's senior staff equity sharing scheme..." which to the employee's knowledge had not yet been established (emphasis added). The scheme was not established prior to the employee's resignation four years later. The employee claimed that the employer's failure to establish a scheme within a reasonable time, and to give him the option to acquire shares in it, constituted a breach of his employment contract. The majority of New South Wales Court of Appeal considered the term to be unenforceable.

211 Kirby P found that the term was "void for uncertainty because the challenged term contained within it too many elements which are uncertain".[15] Uncertain elements included the number of shares to be devoted to the participation scheme, the class of shares to be held by the relevant employee, the terms of the options upon which the shares would issue, whether there was to be any differentiation between employees and if so where the relevant employee would stand, the rights attaching to the shares, the terms upon which they were to be acquired and the terms upon which they were to be disposed of by employees.[16] His Honour said that "in the end... the Court must draw back from filing the gaps which the parties did not themselves fill."[17]

212 The plaintiff relied on Ipex Software Services Pty Ltd v Hosking ("Ipex Software") in support of the proposition that issues of detail in respect of the provision of equity have been held not to prevent an award of damages. In particular the plaintiff relied on the observations of Eames AJA who said:

"Insofar as the equity was to be represented by shares or units a problem was identified in that there was no agreement as to the nature of the shares which should be received, or the terms on which any units were to be granted. These difficulties were not insurmountable, in my view, had specific performance been the remedy which was sought, and they are certainly not insurmountable when the relief sought is by way of damages."[18]

213 In Ipex Software the plaintiff, who conducted a computer software business, entered into a joint venture with the defendants who produced computer software. Several years later a consolidated company was proposed and the parties entered into a written agreement. I adopt the defendant's shorthand summary of the relevant terms as follows:

"[the Plaintiff is] to become entitled to the following % of the equity in the group:...5%",

"The above [entitlement is] unconditional and effective immediately...",

"...the agreement is intended to be as legally and commercially binding as if a restructure had been completed",

"In the event of resignation or termination the following procedures are to apply: (a) The departing party is entitled to the equity percentage..."

214 The defendants in that case argued unsuccessfully before the trial judge that the term relating to 5% equity in the group was unenforceable because it was too uncertain. On appeal Eames AJA (Batt JA agreeing, Callaway JA dissenting) held that whilst there may have been a range of options as to how the equity would be provided, the matters which were not known were not in his opinion so essential as to render impossible the task of applying the agreement.[19] His Honour specifically referred to Biotechnology Australia noting, among other things, that every case must turn on its own facts and that in Biotechnology Australia the share scheme did not exist and may never have existed.[20]

215 The facts in Ipex Software are significantly different to the present case. In that case the plaintiff gave up his business, facilitated the transfer of all of his clients into the group and worked for wages at a rate lower than industry rates in return for a promise of 5% equity in the group. There is also a fundamental distinction in characterisation between Ipex Software and the present case. In Ipex Software, the relevant agreement indicated in emphatic and express terms that the plaintiff was entitled to 5% of the equity in the group. This entitlement was expressed to be "unconditional and effective immediately". In the present case as I have found, there was no objective intention to support the alleged entitlement, namely that the plaintiff had agreed to give at no cost to Pepe an equity stake of 5% of its issued capital. Further, I agree with the submission of the defendant that the wide variety of alternatives available to PAM in respect of the provision of the equity opportunity tends to support PAM's position that it merely intended to make a statement of its future intentions, rather than to bind itself by contractual obligations.

216 Senior counsel for the defendant submitted that if a promissor makes a promise but retains the discretion to carry it out at all, it will be regarded as illusory and will not have contractual force.

217 In support of this argument senior counsel for the defendant referred to cl 3.2 of the EEA which provides that the provision of any benefit in addition to those specified in Schedule 1 is "totally and absolutely at the discretion" of PAM. It was submitted by the defendant that it followed that any equity participation opportunity lay in the total and absolute discretion of PAM and it was therefore an illusory promise. Pepe's position was that the agreement in the employment letter was a Non-Salary Benefit specified in Schedule 1 and was not therefore totally and absolutely at the discretion of PAM. For the reasons previously given, I accept the plaintiff's submissions on this point.

218 PAM was obliged to make available an equity participation opportunity. In my view, the agreement to do so was not illusory. However the content of the equity participation opportunity to be made available by PAM is unclear. It is heavily dependent upon the initiatives of PAM and on certain events which had not occurred for its implementation. The parties had not reached agreement on critical matters. In my opinion this is a case like Biotechnology Australia where the Court must draw back from filling the gaps which the parties did not themselves fill.[21]

219 As an alternative argument Pepe submits that if cl 3.2 of the EEA was applicable to confer a discretion on PAM for this purpose, PAM was obliged to exercise the discretion in good faith and in a fair and reasonable manner and in a manner consistent with the equity participation paragraph.[22]

220 Senior counsel for the defendant submitted that a term of good faith and fair dealing is not implied into employment contracts and cited authority in support of that proposition. Having regard to my finding that cl 3.2 is not applicable it is not necessary to determine the question in this case.[23]

221 However even if a term of good faith and fair dealing were to be implied it would not provide any additional clarity, certainty or basis for enforceability. The plaintiff's claim for redress on the basis of good faith and fair dealing is premised upon there being a concluded bargain in the terms alleged by Pepe.[24] This has already been rejected for the reasons previously given.

222 The plaintiff alleges that the construction of the equity participation paragraph is partly to be implied from the equity term itself,[25] the changes made during the 11 March meeting, from the surrounding circumstances and the need to give business efficacy to the equity terms. Senior counsel for the defendant submitted there was no proper basis for the implication of Pepe's construction of the clause. It is well settled that for a term to be implied into a contract it must be reasonable and equitable, it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it, it must be so obvious that it 'goes without saying', it must be capable of clear expression and it must not contradict any express term of the contract.[26]

223 In my view the equity participation paragraph construction contended for by Pepe cannot be implied. It is not so obvious that it goes without saying. On the facts which I have found, the parties did turn their minds to the matters they were able to agree upon and the matters they were not able to agree upon. As Mason J said in Codelfa, in the case of the implied term, the deficiency in the expression of the consensual agreement is caused by the failure of the parties to direct their minds to a particular eventuality and to make explicit provision for it.[27] In this case there was no failure of the parties to direct their minds to a particular eventuality and to make explicit provision for it. They simply reached a limit upon the matters they were able to agree upon in relation to equity participation.

224 Secondly, the alleged equity term was not necessary to give business efficacy to the employment contract. It was effective without it. Pepe was entitled to a substantial annual base salary of $262,139 and would have been eligible to benefit under the bonus scheme once it had been established and from an offer of equity participation once the equity participation scheme had been designed and implemented. Culleton, the plaintiff's expert, gave evidence to the effect that equity participation tends to be limited when someone is in the early stages of their tenure.

225 Thirdly, the plaintiff did not in my view establish that it was either reasonable and equitable for Pepe to receive 5% of the issued capital of PAM at no cost (or its monetary equivalent upon termination after the qualifying period) without any regard being had to his performance during the qualifying period.

Whether there was inconsistency and a breach of promise

226 In my view, the invitation to participate in the ESOP was not inconsistent with the equity participation paragraph. I find that there was no breach of the promise made in the equity participation paragraph. An equity participation opportunity was made available to Pepe in the form of the ESOP offer within six months of Pepe qualifying for the opportunity. In my view this was not an unreasonable delay having regard to the fact that the equity scheme was only at a conceptual stage at the time Pepe was employed and had to be designed, then implemented. The offer of 25,000 options represented 2.5% of the issued shares in PAM. According to Bryant's evidence, which I accept, the 2.5% represented an assessment of Pepe's performance determined after discussions in recognition that he was "halfway there".

227 Counsel for the plaintiff contended that the exercise price of $20.58 was exorbitant representing, as it did, a premium of 20% over the market value of PAM. This was in support of the submission that PAM was in effect unjustly depriving Pepe of the benefit of the promise and that the equity opportunity was no opportunity at all. I am not persuaded by this argument.

228 First the shares in PAM were accessible by employees through the ESOP but were not otherwise available. In this sense the ESOP provided an exclusive opportunity to purchase equity.

229 Secondly, whether the pricing was excessive is a matter of commercial judgment and depends to a large extent on the point of view taken about PAM's likely success and rate of growth as a developing funds manager and the time of exercise of the options. As PAM grew the pricing would become progressively more attractive. If PAM grew rapidly the pricing would become rapidly more attractive.

230 Further the holders of options did not have to outlay any funds to acquire the options. Under the ESOP options were allocated at no cost to the participating employee who was able to postpone exercising the options for up to four years and to defer payment of the exercise price until the chosen exercise date. In the meantime the option holder had both an opportunity and an incentive to help PAM grow.

231 In view of my earlier findings, the plaintiff's claims for rectification cannot succeed. The plaintiff failed to establish that there was a subjective common intention in, or to the effect, of the proposed equity participation paragraph as rectified.

Whether there was misleading and deceptive conduct

232 The plaintiff alleges that PAM engaged in misleading and deceptive conduct in contravention of s 52 and s 53B of the Trade Practices Act 1994 (Cth) by representing that (a) the alleged equity term would have legal effect; (b) that if Pepe accepted employment with PAM he would be allocated 5% of the issued equity in PAM subject to the 12 month qualifying period; and (c) that should PAM terminate Pepe's employment after the completion of the 12 month qualifying period but before the vesting of the alleged equity to Pepe, Pepe was entitled to the monetary value of the alleged equity at the time of termination.

233 The defendant denied making the alleged representations.

234 In essence, Pepe alleges that the changes made to the equity participation paragraph and the conversation between Pepe and Bryant during the 11 March 2006 meeting which led to those changes constitutes the representations. Pepe alleges that the 11 March negotiations were at all times conducted on the basis that the employment letter would legally bind the parties.

235 The submission on behalf of Pepe to the effect that the equity term has legal effect is intertwined with and cannot be separated from the construction argument. I have already found that the parties did not have the relevant contractual intention in relation to this question. In my view, to the extent that the equity participation paragraph contains a statement of intention only, it would if anything constitute a representation that it does not have legal effect.

236 It is not clear from the pleading whether the plaintiff contends that there was an explicit oral representation that the equity term would have legal effect. Pepe did not say so in his evidence, nor was any representation in those terms referred to in his answers to interrogatories.

237 Bryant's evidence was to the effect that to his mind the employment letter outlined some things that PAM committed to and its intentions on various matters, in particular the bonus and equity scheme matters. In relation to the latter, Bryant said that he and Pepe endeavoured to take out some of the layers of uncertainty. In my view, these discussions do not support the allegation that Bryant represented that the alleged equity term would have legal effect.

238 Pepe also relies on the redrafting process as constituting the representation. I agree with the defendant's submission that the redrafting of the document of itself did not constitute a representation by Bryant that Pepe's construction of it would have legal effect.

239 In my view, the plaintiff has failed to establish that a representation was made as to a legal effect of the alleged equity term. Even if representation to this effect had been made it would amount to an opinion of law by a person without legal expertise. This would not constitute misleading or deceptive conduct unless it was established that the represented opinion was not in fact held by the representor.[28]

240 In effect, Pepe alleges that the written representation as to 5% was constituted by the amendments to the original draft equity participation paragraph.

241 In my view, after having regard to the amendments, on the proper construction of the equity participation paragraph, this alleged written representation is not made out.

242 In so far as the alleged representation was oral, the plaintiff relies on the conversation between himself and Bryant on 11 March 2006. Proof of this alleged oral representation depends on my acceptance of Pepe's version of this conversation. As I have previously indicated I prefer Bryant's version. Bryant denied making statements to the effect of the representation alleged. I accept his evidence. Accordingly, Pepe has failed to establish the oral misrepresentations.

243 In so far as the alleged representations were implied, the plaintiff seeks to rely on discussion between himself and Bunton in early 2006 to the effect that he advised Bunton that he required a minimum of 5% equity in PAM to take up employment with PAM. It is difficult to see how this alleged statement of Pepe's to Bunton can constitute an implied representation of PAM. In any event, Bunton denied that Pepe had made the statement and I have accepted Bunton's evidence.

244 Pepe also relied on the candidate report prepared by Bunton which relevantly stated "for a move to Sydney, Philip would need to be offered a minimum base of $250K plus bonus, plus equity potential that would provide at least similar earnings ... ". It is also difficult to see how the report of Bunton can constitute a representation by PAM during the 11 March meeting. It has not been alleged or suggested that Bunton or his firm was PAM's agent. Putting that aside, the statement does not, it seems to me, support the alleged 5% equity representation. Pepe also sought to rely on Bryant's knowledge that Pepe held a 5% equity stake in Capital Partners Group as part of his employment package with his then current employer, JFCP. For this purpose I put aside the fact that during the trial it became evident that Pepe had falsely represented that he held a 5% equity stake in JFCP. It is difficult to see how Bryant's knowledge that Pepe held a 5% equity stake can constitute a representation by Bryant during the 11 March meeting. Finally, Pepe also relied on statement allegedly made to Bryant that he required a minimum of 5% equity in PAM. Bryant denies that Pepe made this statement. As previously indicated, I accept Bryant's evidence in this regard. Further, it is difficult to see how Pepe's statement can constitute a representation made by Bryant during the 11 March meeting.

245 For the foregoing reasons Pepe has failed to establish the alleged 5% equity representation.

246 In relation to the alleged representation as to the economic benefit of the equity term Pepe alleges in effect that it was constituted in writing by the equity participation paragraph in the employment letter as amended. To the extent that it was oral, Pepe alleges it was constituted by a discussion during the 11 March meeting to the effect that on completion of the 12 month qualifying period Pepe would accrue the full economic benefit of the equity whether or not it had vested at the time and that should PAM terminate Pepe's employment after the completion of the 12 month qualifying period before vesting, Pepe would be entitled to the monetary value of the equity at the time of termination. To the extent that it was implied, Pepe alleges that the addition of the words relating to the full economic benefit in the final version of the employment letter and the discussion with Bryant during the 11 March meeting.

247 For reasons previously advanced I do not accept Pepe's version of the discussion with Bryant on this issue during the 11 March meeting. Furthermore, in my view, on the proper construction of the employment letter as amended, these alleged representations are not made out expressly or by implication. Accordingly, the plaintiff has failed to establish the alleged representation as to the economic benefit of the equity term.

248 The plaintiff relies upon the defendant's alleged misleading and deceptive conduct as the foundation of its estoppel claims.[29] I have found that the defendants did not engage in the alleged misleading and deceptive conduct. In the circumstances the asserted estoppel must fail.

249 In view of my findings in this matter, the plaintiff's claim is dismissed. I will hear counsel on the question of costs.

[2] [2004] HCA 52; (2004) 219 CLR 165, [40].

[3] Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337, 352.

[4] Ibid; Guthrie v News Limited [2010] VSC 196, [30]; Eastern Health v MIA Victoria Pty Ltd [2009] VSC 105; (2009) 22 VR 502, [61].

[5] Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337, 352.

[6] Van Efferen v CMA Corporation Ltd [2009] FCA 597; (2009) 183 IR 319, [42], [45].

[7] I accept that theoretically the exercise price of the options could be nil.

[8] Plaintiff's Further Amended Reply, paragraph 2. The EEA was attached to the employment letter.

[9] ANZ Banking Group Limited v Frost Holdings Pty Ltd [1989] VR 695, 700-1 (per Kaye, Marks and Teague JJ agreeing); Tasman Capital Pty Ltd v Sinclair & Anor [2008] NSWCA 248, [27], [31] (per Giles, McColl JJA and Young CJ agreeing).

[10] [1968] HCA 8; (1968) 118 CLR 429.

[12] [1964] HCA 41; (1964) 112 CLR 597, 605; Ipex Software Services Pty Ltd v Hosking [2000] VSCA 239, [56].

[13] [2009] VSC 105; (2009) 22 VR 502, [60] which included an extract from Davis (ed), Contract: General Principles - The Laws of Australia, [7.1.1340].

[14] (1988) 15 NSWLR 130, 135 citing Kofi-Sunkersette Obu v A Strauss & Co Ltd [1951] AC 243, 250 (PC).

[15] Biotechnology Australia Ltd v Pace (1988) 15 NSWLR 130, 137.

[17] Ibid 138; see also 153-154, 156 (McHugh JA).

[18] Ipex Software Services Pty Ltd v Hosking [2000] VSCA 239, [67].

[21] Biotechnology Australia v Pace (1988) 15 NSWLR 130, 138.

[22] Plaintiff's Further Amended Reply, paragraph 25.

[23] Merrill Lynch International v Commissioner of Taxation [2001] FCA 1127, [95] (Lingren J), Walker v Citigroup Global Markets [2005] FCA 1678; (2005) 226 ALR 114, 156-7 (Kenny J); the Full Court did not express a view on the finding, Walker v Citigroup Global Markets [2006] FCAFC 101; (2006) 233 ALR 687 at [86]; Van Efferen v CMA Corporation Limited [2009] FCA 597; (2009) 183 IR 319, [84]-[85] (Tracey J); Yousif v Commonwealth Bank of Australia (No. 2) [2009] FCA 656; (2009) 185 IR 414, [103] (North J); Poniatowska v Hickenbotham [2009] FCA 680, [321] (Mansfield J).

[24] Plaintiff's Third Further Amended Statement of Claim, paragraph 3.

[26] Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337, 347, 404 (Mason and Brennan JJ).

[28] Inn Leisure Industries Pty Ltd v DF McClure Pty Ltd (No 2) (1991) 28 FCR 151, 164-165, 167; cited with approval in Heydon v NRMA Limited [2000] NSWCA 374; (2000) 51 NSWLR 1 (CA), [329].

[29] Plaintiff's Further Amended Statement of Claim, paragraph 4, 13, 23, 30 and 41.