40 By s9 of the Corporations Act, the "relevant date" in relation to a winding-up "means the day on which the winding-up is taken … to have begun". Section 513A then relevantly provides in subsection (a) that winding-up begins when the relevant order for winding-up was made, namely in the present case 18 May 1998.
41 The other critical definition is that of "wages". "Wages" by s9, in relation to a company "means amounts payable to or in respect of an employee of the company (whether the employee is remunerated by salary, wages, commission or otherwise) under an industrial instrument, including amounts payable by way of allowance for reimbursement but excluding amounts payable in respect of leave of absence."
42 "Industrial instrument" is in turn defined by s9 to mean "(a) a contract of employment; or (b) a law, award, determination or agreement relating to terms or conditions of employment."
43 Thus is could not be doubted that if under the relevant employment contract, being the industrial instrument in respect of each employee, there were a contractual entitlement to a bonus, such bonus would constitute "wages" for the purposes of the priority payments regime in s556(1)(e). While it would still be necessary to determine that such bonus was "in respect of services rendered to the company" by the relevant employees before the relevant date, on the material before me the Plaintiffs have not demonstrated otherwise.
44 The real question turns upon whether each of the relevant amounts determined by the liquidator to constitute each employee's entitlement to a bonus payment, was in law a contractual entitlement under a contract of employment.
45 I have earlier noted that the Plaintiffs do not dispute that there is in each case a binding contract of employment. I have also set out what both parties agree can be taken to be the relevant employee bonus provisions of their employment contract. It will be seen that these vary in their particularity. Thus Mr Maguire's contract is relatively specific in that the performance bonus is said to be "targeted to earn 50% of your base salary" and to be "based on performance criteria such as number of subscribers achieved and in future years, profitability criteria. The criteria for the bonus will be consistent with those adopted for other senior executives. The performance based bonus amounts will be paid within 90 days of fiscal year end."
46 Whereas, Mr Waldo's entitlement is expressed in more general terms, namely "earn a 50% bonus based on goals to be agreed within two months after your commencement of services."
47 That again may be contrasted with Mr Zuravle. Instead of his bonus being expressed so specifically, it is said to be a "50% bonus potential with 25% of the 50% guaranteed for the first year."
48 In the case of Heyward reference is made to a bonus plan "designed to generate a bonus of $15,000 based on achievement of pre-set parameters, which will be agreed between us during the next three months."
49 In Mr Orrick's case, reference is made to a bonus plan "for 1996-97" which "will be submitted to the board targeted to pay management on measurable key performance indicators which will be discussed with you."
50 Finally in the case of Messrs Pascoe, Burns and Stephen, the criteria is "a bonus based on company performance and consistent with other branch managers". There is a slight variation in the case of Stephen where it is said that "you are eligible for a bonus programme payable to a maximum of 30% of base salary based on performance criteria consistent with other senior managers within the company …".
51 Significantly, in fact bonuses were paid for 1996-97, though at no point did the board itself expressly articulate a "bonus plan" nor "profitability criteria", nor "key performance indicators".
52 Essentially the Plaintiffs' contention is that, in the absence of any director approval or board approval of the relevant performance criteria or profitability criteria, what is here provided is no more than an unenforceable agreement to agree so it is said that the bonuses are therefore completely discretionary and in no way guaranteed. Furthermore, in denying that the events that happened gave the necessary content to these bonus criteria, the Plaintiffs' contention is that what was said on the topic by the various senior executives, namely Messrs Maguire and Rose and possibly Waldo, was merely by way of recommendation. Moreover, it is said that Maguire and Waldo had a vitiating self-interest, in conflict with their duty to the company, insofar as their own bonuses were concerned. The Plaintiffs also point to the fact that the company has during the relevant period suffered major losses such that no bonus could have been deserved, as no profit criteria could possibly have been met based on the actual performance of the company. This is even if it were the case that merely deserving a bonus could equate with contractual entitlement to a bonus.
53 Finally, the Plaintiffs contend that the First Defendant, as liquidator of the company, has not exercised any independent review or consideration of the alleged entitlements of the Defendants. Rather it said that he passively accepted as determinative, the self-recommendation of Messrs Maguire and Waldo, notwithstanding the absence of corporate approval, justification by any independent thought, and independent exercise of discretion; see T, 22 - 24 where the performance criteria applied were said to be the information "furnished by the relevant employee".
54 For completeness, I should refer here to the factors identified by the Liquidator in response to a request from the Receivers dated 24 October 2000, see Vol. 1, pp198 - 204. I will comment further on that when dealing with the response of the employee Defendants.
55 However, before turning to the factual position dealt with in the submissions of the employee Defendants (see written submissions of 29 August 2001), it is important that I deal with an initial issue of principle. It is true that, as the Plaintiffs contend, a contract whether of employment or otherwise, insofar as it contains a stipulation which amounts to no more than an agreement to agree must, as regards at least that stipulation, be unenforceable. I say "at least" because if such term constituted an essential term of the employment agreement, that agreement would be vitiated as a whole. That, significantly, is not said to be the case here; the Plaintiffs accept that the employment agreements are nonetheless binding, though contend the bonus stipulation is not. The phrase "agreement to agree" refers to that category of agreements where the parties have purported to make a legally binding contract but have expressly left some matter, not of unimportant detail, to be agreed between them at a later stage.
56 An example of a case where the whole contract is vitiated can be found in the statement of Lord Wensleydale in Ridgway v Wharton (1857) 6 HLC 238 at 305; 10 ER 1287 at 1313: "… an agreement to enter to enter into an agreement upon terms to be afterwards settled between the parties is a contradiction in terms. It is absurd to say that a man enters into an agreement till the terms of that agreement are settled. Until those terms are settled he is perfectly at liberty to retire from the bargain." Similarly in May & Butcher Ltd v The King [1934] 2 KB 17 an agreement for the sale of the goods provided that the price, dates of payment and manner of delivery should be agreed from time to time. The House of Lords held that the agreement was not enforceable as a contract, having left vital matters to be agreed between the parties.
57 Nonetheless it is important to observe that such contract had not been performed by the party seeking to enforce, nor was it associated with a performed contract. In contrast, consider Foley v Classique Coaches Ltd [1934] 3 KB 1, decided in the same year. There enforcement of a second agreement, clearly an agreement to agree, was allowed, the first agreement having been already performed. The court invoked reasonableness as the criterion to give certainty to terms of price and quality in the case of the second agreement, despite their lack of specificity.
58 Then it is contended that contractual terms could not be implied to provide an escape from unenforceability. Leaving aside the implications of terms by law as may arise from the very existence of the employer/employee relationship, where implications of fact are relied upon arising from the particular facts and circumstances of the parties, there are stringent requirements to be met before a contractual term may be implied. The most authoritative modern statement of the approach taken by the courts is to be found in BP Refinery Pty Limited v Hastings Shire Council (1977) 52 ALJR 20 at 26 where the Privy Council said:
"Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express. In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) 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; (3) it must be so obvious that 'it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract."