Re Galaxy Media Pty Limited (Rec/Mgrs apptd.) (in liq) [2001] NSWSC 917 | Case summary | Zoe

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Re Galaxy Media Pty Limited (Rec/Mgrs apptd.) (in liq) [2001] NSWSC 917

[2001] NSWSC 917

Supreme Court of NSW|2001-10-18|Before: Santow J, Young CJ

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At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2001-10-18

Before

Santow J, Young CJ

Catchwords

s433
s513A
s554
s554A

Source

Original judgment source is linked above.

Catchwords

s433s513As554s554As556s1321s1322s1383s1399 Corporations Law and/or Corporations Regulation 5.6.55.6.43A Adams v Broke (1842) 1 Y & C 627

Judgment (85 paragraphs)

[1]

INTRODUCTION 1 The Receivers and Managers of the assets of Galaxy Media Pty Limited ("the Company" or "Galaxy") challenge the Liquidator's determination. He has determined in relation to several former senior employees, that their claims or proofs of debt for bonus payments are admitted in full. That challenge has some significance for the Receivers and Managers in relation to the interests of the two groups of secured creditors they represent. This is because of the statutory priority conferred on "wages", over and above that of secured creditors. Thus "wages" are defined in s9 of the Corporations Act 2001 so that they must be paid under an "industrial agreement", meaning in this context, under a contract of employment. Priority is thus conferred upon meeting the necessary statutory conditions in s433(3)(c) and s556(1)(e) of the Corporations Act applicable to "wages". 2 The essential issue is therefore whether, as the challengers contend, those conditions cannot be met. This is on the basis that there is no contractual entitlement to bonuses, in the absence of agreement as to performance criteria. The challengers contend there is no more than an unenforceable agreement to agree, devoid of contractual force, or void for uncertainty, though acknowledging the contracts of employment are otherwise enforceable. The Liquidator disputes that the agreement to pay bonuses is without contractual force, or void for uncertainty. He relies also upon the events that occurred, including part performance, as conferring sufficient content for the criteria for payment of bonuses as to give rise to an enforceable stipulation in that behalf. Quasi contract and the capacity to impute a term are also invoked. 3 Leaving to one side the partially disputed question of standing and whether any extension of time to bring such challenge is required and should be granted, this challenge is brought under s554A and in the alternative, or in addition, 1321 of the Corporations Law and/or Corporations Regulation 5.6.43A. It is brought by Originating Process filed in amended form on 16 November 2000. That challenge seeks both a review of the decision by the Liquidator and the reversal of that decision, accompanied by appropriate declarations which would deny priority to the relevant claims. The Plaintiffs make no submissions as regards any order that would instead vary the Liquidator's decision so as to render such claims ordinary unsecured non-contractual claims with no such priority. 4 I should mention here that though this challenge is brought under the corresponding provisions of the now repealed Corporations Law, they are, by force of the retroactive transitional provisions of ss1383 and 1399 of the Corporations Act 2001, to have such effect and to be dealt with as if "done by, under, or for the purposes of, the corresponding provision of the new corporations legislation."; see s1399(1) of the Corporations Act 2001. The new Commonwealth Corporations legislation in force pursuant to the States' referral of power (or more accurately of a defined corporations subject matter) must therefore govern these proceedings. That includes such implications, if any, as may follow for this Court in thereby having to exercise the judicial power of the Commonwealth. Nothing however turns upon that; see paras 15 and 25 below. 5 The questions raised by this case are to a degree novel and not without difficulty. This judgment proceeds to consider the questions raised under the following headings:

[48]

First Issue: Extension of Time 10 It is convenient to deal with the two issues of extension of time together, though it be the case that the first and therefore earliest admission of the claim or proof of debt under challenge was on 15 November 1999 and the second on 14 April 2000. 11 It is common ground that the time for bringing such applications is twenty-one days and that the Court may in its discretion allow a further period where the application is out of time; see Regulation 5.6.5 of the Corporations Regulations made under the Corporations Law, with its counterpart provision made under the Corporations Regulations pursuant to the Corporations Act 2001. Subject to the question of standing, the Liquidator offered no real contest to the Court, if satisfied as to standing, extending the relevant period to permit the present applications to be made out of time. 12 I have already noted that the present applications are made either pursuant to s554A or s1321 and are now to be taken to be made under the corresponding provisions of the Corporations Act 2001. If under s554A the Liquidator had admitted the relevant claimed debt as a debt as one which did not "bear a certain value", then the appeal is pursuant to s554A(3). There does not appear to be an explicit time limit in relation to that section. 13 So far as s1321 is concerned, it operates to permit an appeal to the Court in respect of "any act, omission or decision" of (relevantly) a liquidator. 14 Finally, s1322(4) of the Corporations Act 2001 permits the Court to make an order declaring that any act, matter or thing purporting to have been done under the Corporations Act 2001 in relation to a corporation "is not invalid by reason of any contravention of the provision of this Act". That provision is augmented by s1322(4)(d) permitting the extension of the period for doing any act, matter or thing or instituting or taking any proceeding under the Corporations Act 2001. 15 Under the Corporations Act 2001, the Court must not make any order under this section unless it is satisfied "that no substantial injustice has been or is likely to be caused to any person". Under s1322(6) of the Corporations Act 2001, where the order is made under s1322(4), then the order must be essentially procedural, or the persons concerned must have acted honestly, or it is "just and equitable" that the order be made. This latter substitutes the traditional test for a court in place of the earlier provision of the Corporations Law. It required that the order be "in the public interest" in order to avoid any argument that a non-judicial function is being impermissibly exercised by the court. 16 There is thus ample power to exercise the statutory discretion to permit an extension of time. I am satisfied that I may properly do so, for the purpose of permitting the present appeal to this Court from the Liquidator's admission of the relevant claimed debts, subject only to the question of standing to which I now turn.

[49]

Second Issue: Standing 17 As it is accepted that the Second Plaintiff, who is the second secured creditor of the Company, is "an aggrieved person" resolving the question of standing for the First Plaintiff appears of little consequence. As to the Second Plaintiff, the Liquidator rightly concedes that such a person with security whose debt will not be met in full must be a person aggrieved; that is in having "a real and direct interest in the decision" (see Denis v McMahon (1989) 7 ACLC 238). This is simply by reason of the fact that, if the Liquidator's decision stands, the amount available to meet the second secured creditor's unmet debt will be reduced by the amount that would thereby be paid in priority to the relevant employees. 18 Turning however to the probably inconsequential question of the First Plaintiffs' position, as first secured creditor represented by the Receivers, the Liquidator's contention is that they do not "have a real and direct interest in the decision". One may equally test the matter by reference to the formulation of the test for "aggrieved person" in DCT v Lanstel Pty Ltd (1996) 22 ACSR 314: "they have a genuine grievance because [the decision] has been made which prejudicially affects them." 19 The Liquidator's argument is that there is no suggestion that the Receivers, or the first secured creditors they represent, are likely to suffer a shortfall in respect of their remuneration. Nor that the funds held on account, apparently about $4.9 million after further payments to the first secured creditors (Sherman, 4.5.01, Annexure "A"), will be insufficient to cover their fees and expenses in respect of the second appointment. It is thus said that the Receivers have not demonstrated that they have standing according to either test. This is because the admission by the Liquidator of the claims of the employees, even if they were not true liabilities of the Company, would not prejudice the interests of the Receivers in the assets available for distribution; see, for example, the decision of the Full Supreme Court of Western Australia in Westpac Banking Corporation v Totterdell (1998) 29 ACSR 448 especially at 456-7 per Ipp J. 20 To this, the Liquidator answers that a person may be aggrieved, though not denied remuneration or suffering personal liability, if the effect of the decision is to impose a duty. In this case the duty imposed is to deal with the money in the hands of the receiver in a particular way, namely to recognise the bonus claims of the employees as having priority. Indeed, if for some reason the funds in the Receivers' hands were somehow lost, such that there would not be a surplus to pay the Receivers' fees and expenses, that then would directly satisfy any test based upon the personal interest of the Receiver. This is because there then would be a shortfall in the monies available to pay the Receivers, forcing the Receivers to call on any indemnity from the relevant secured creditors. 21 I assume that the Receivers in relation to the first secured creditors are an "aggrieved person" from the fact that a duty is thereby imposed on the receiver to deal with assets in a particular way. One may have an interest which is real and direct in the subject matter of a decision, though it not directly affect the pocket. Thus the Receivers are at risk of being called to account by the first secured creditors if the Receivers did not undertake the appeal, for failing to pursue the interests of those secured creditors. That alone must make the receiver an "aggrieved person".

[52]

26 More recently, in Lewis v Notrex Pty Ltd ([2001] NSWSC 610), Young CJ in Eq affirmed that the applicant has the onus "to establish the facts that would enable the proof of debt to be allowed" and "when one is trying a separate issue of fact, the same person bears the onus of proof as would have borne it had the question been tried with the rest of the questions at the final trial"; see para 15. 27 The High Court in Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 drew a distinction between the respective roles of the liquidator in determining whether to admit or reject a proof of debt and then his role in subsequently defending that decision. In the first role the liquidator acts "in a quasi-judicial capacity" (per Brennan and Dawson JJ at 338-9). But when the liquidator comes to defend his decision to reject a proof of debt, he "is no longer acting in a quasi-judicial capacity; he is cast in the role of an adversary, defending the assets available for distribution against a liability which, according to the view he formed when acting quasi-judicially, is not legally enforceable." (per Brennan and Dawson JJ at 341). 28 Here, however, the Liquidator is defending his decision to admit a claim not reject it. It might be questioned whether the rationale for treating a liquidator as acting in an adversary rather than quasi-judicial capacity applies in that differing context. Clearly enough, the decision to admit a proof diminishes the assets available for distribution. Ipp J, however, points out that, "the liquidator has no discretion to admit claims which are not legally enforceable; and has no discretion to reject claims which are legally enforceable (Westpac v Totterdell (supra) at 455). He contrasts that decision with a discretionary management decision. 29 It also might be suggested that the effect of a now Commonwealth Corporations Act calls into question the proposition that an administrative person or body may permissibly exercise a quasi-judicial function. Thus if it be the case that courts exercising jurisdiction under the now Commonwealth Corporations Act are exercising the judicial power of the Commonwealth with its requirement for strict division of powers, it may follow that the Commonwealth enactment is to be construed as embodying such a strict division. This may have the corollary that a liquidator could not exercise even quasi-judicial power without infringing that principle. 30 The answer is however to be found in the qualification "quasi". It does not follow at all that the requirement to act quasi-judicially means that the person or office-holder upon whom that obligation is imposed, is required actually to exercise a judicial function. Rather it draws on the judicial analogy, calling for an equivalent impartiality in the application of legal criteria as determine whether a proof of debt should be admitted or not. 31 Moreover, the quasi-judicial character of the role and the varying financial circumstances of each liquidation means that a liquidator is not required to replicate the judicial process in its full extent and rigour. But it must still be done with that impartiality one would expect of a judge, and by reference to legal principle rather than arbitrarily. 32 Thus I conclude the expression "quasi judicial" is to be understood not as imposing the full panoply of judicial function. Rather it operates by analogy in requiring the liquidator to do more than merely acting prudently or in good faith. That is why Ipp J correctly rejected the notion that the liquidator's task in admitting or rejecting a proof claim was merely a discretionary management decision. Review of a decision to reject (or accept) a claim or proof does not therefore invoke that deference to liquidator's decisions exemplified by the following remarks of Bowen CJ in Eq in Re Equity Funds of Australia (in liq) (1976) 2 ACLR 238 at 239): "Indeed, the courts consistently have been reluctant to interfere where the issue involved was whether in some business or commercial sense, a liquidator had acted prudently. The courts have used expressions in relation to this type of appeal indicating that they are reluctant to interfere and will do so only if it appears that the liquidator's decision is unreasonable. The court will not interfere simply because its opinion might differ from that of the liquidator."

[53]

33 Thus I agree with the submissions of the Plaintiffs that the Court's task in approaching the question de novo, is to bring to bear a proper rigour in reviewing all the relevant facts in their context, to determine whether indeed the debt should have been admitted or rejected, doing so by applying legal principle to those facts afresh. However, the onus still remains on the party challenging the liquidator's determination. The Court will not upset the liquidator's determination unless properly satisfied that that onus has been discharged, though there may well come a point where the onus shifts in an evidentiary sense. 34 In carrying out such a de novo review, I therefore so approach the matter, in determining whether the onus upon the parties challenging the liquidator's decision has been discharged. If I am unable to conclude either way (as to whether the proof should be admitted) then the liquidator's decision must stand. 35 I turn now to the particular issues raised by the Plaintiffs' contentions that the liquidator was indeed in error in accepting the relevant proofs of debt from each of the Third to Tenth Defendants. 36 I start with two preliminary points. For the reasons put by the Plaintiffs, I am satisfied that they sufficiently put to the Liquidator the considerations which are now agitated in this appeal; see, for example, Vol. 1 tab 5 and the affidavit of Mr Sherman of 7 August 2000, Annexures C to EE and exhibit "SJS 2-5" in tab 6. 37 The fact that only some of the Defendants have lodged proofs of debt while others have made submissions and foreshadowed now the filing of proofs of debt or belatedly have done so, does not provide a basis for reversing the decision of the Liquidator in those latter cases. The Regulations clearly permit a lack of formality; see Regulation 5.6.47 and the discussion in Ford, "Corporations Law", para 27.441. 38 The more substantive issue is whether, as the Plaintiffs contend, the liquidator was in error in concluding that there was an entitlement to the bonuses claimed by each of the relevant employees under a contract of employment, being such as to satisfy the statutory requirement in s556(1)(e) of the Corporations Act in order to rank for priority payment. 39 Section 556(1)(e) is in the following terms: "(e) subject to subsection (1A) - wages …. payable by the company in respect of services rendered to the company by employees before the relevant date;"

[54]

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."

[57]

62 Similarly in "Restitution Law in Australia" by Keith Mason and J W Carter (Butterworths, 1995) at 284 and 367-8 the authors identify the case where a term of the contract is incomplete or uncertain, yet contractual liability still follows. Where the Court is satisfied there is an intention to contract, then some standard, typically reasonableness, may be invoked to give content to an otherwise unspecified price or quality. The authors are careful to keep distinct that species of liability that derives from common law principles of restitution for an unjust enrichment. Those principles are thus applied where there is an ineffective contract. But in the present case there is an effective contract. It is not difficult to discern an intention to contract. There is moreover a principled basis for giving content to its imprecisely stated bonus clause. It is derived from the actual course of dealing and by reference to what is reasonable in the circumstances. 63 Thus there is here an effective contract, one which enables an implied term to be identified to the effect that a bonus will be paid to the extent reasonable, though it be by reference to such broad criteria as are there set out; an implication moreover which is supported by the course of dealing to which I later turn. Thus in "Restitution Law in Australia" (at 284), there is an apposite reminder that restitutionary principles have no place once an effective or enforceable contract has been established. " [913] Contractual claims. A claim for reasonable remuneration may be available in cases where there is an effective contract. There are two types of case.74 First, the contract may contain an express or implied promise to pay a reasonable sum (or price) for services rendered or work done under a contract.75 Rejection of the implied contract theory of quasi-contract clearly does not deny the validity of such contracts: restitutionary liability is relevant only if the transaction was ineffective. Thus, in Pavey & Matthews Pty Ltd v Paul 76 itself, the building contract contained an express promise to pay a reasonable sum calculated by reference to prevailing rates of payment in the building industry. It was because the contract was ineffective under statute that the builder framed the claim for a reasonable sum in restitution. Nor does the rejection of the implied contract theory impact on the implication of terms in contracts under accepted bases for contractual implication. However, this process must not be confused with the imposition of an obligation to pay reasonable remuneration as restitution for an unjust enrichment.

[69]

69 The employer here has taken the benefit of part performance by the employee of the employment contract. The employee now seeks that the employer fulfils the admittedly incompletely specified bonus stipulation in it. 70 I should add one important qualification, found in and illustrated by Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130. There the remuneration included "the option to participate in the Company's senior staff equity sharing scheme", the parties knowing no such scheme had been established by the employer. That was a bridge too far. It contained "too many elements which were uncertain" (per Kirby P at 137). As he rightly said, there "is no external standard" …. "in order to fix an 'appropriate' or 'reasonable' equity participation scheme …". A bonus employee scheme of the kind here in question however does not involve comparably difficult questions, as arise in a share scheme where shareholders' interests are directly affected by the quantum and issue price of a future issue of shares to employee. 71 Finally I turn to a case which illustrates these principles in the present context. In Powell v Braun [1954] 1 WLR 401 (followed in Woodhouse v A. D. A. Manufacturing Co Ltd [1954] SASR 263 by Reed J in the South Australian Supreme Court), an employee was promised a bonus, having been employed for some two years in the business. It was to be based on "the net trading profits" of the business and was in lieu of any increase in salary. Though the manner in which such bonus was to be assessed was never agreed, in fact the defendant did pay the plaintiff a bonus in subsequent years. However, it was not suggested that that payment by itself afforded the reason for its basis for calculation being sufficiently certain. 72 The Court of Appeal held that on the true construction of the relevant letters giving rise to their contract the parties did not intend that the payment of the bonus was purely in the discretion of the defendant. It was said that the principle of quantum meruit was no less applicable when the remuneration was additional remuneration over and above a fixed salary, than when it was the only remuneration. Accordingly, the plaintiff was held to be entitled to be paid the sum which the parties had agreed to be payable if the defendant were liable to pay a bonus, such sum being so determined by reference to what was reasonable in relation to profits. As Evershed MR said at 405: "Once it is concluded that there was not to be a reward in the discretion of the defendant, that then inevitably it must mean, according to its terms, that the sum to be paid - unless the parties chose from time to time to agree some other figure - would be a reasonable sum; that is a sum arrived at so as to bear a reasonable relationship to the trading profit. Of course if there were no trading profit, no doubt there would be no so-called bonus; but in any other event, then I think that the principle of quantum meruit or of reasonable remuneration (which comes to the same thing) is no less applicable where the remuneration in question is additional remuneration …"

[70]

73 I do not suggest that quantum meruit, following Pavey v Matthews (supra), could any longer, freed from its fictional implied contract basis, provide the necessary contractual basis for wages. What I do suggest, is that Powell v Braun should be understood as refuting contractual uncertainty where a standard of what is reasonable in the circumstances may be invoked. It is in the same line of authority as Foley v Classique Coaches (supra). It simply recognises that a partly performed contract may more readily invoke the Court's capacity to find a machinery or basis such as reasonableness, to give content to an otherwise unspecified criterion in a contract; compare Carter and Harland "Contract Law in Australia" (Butterworths, 1991) at 74-5. 74 There is a further principle which has potential bearing in the present circumstances. In Kymbo Pty Limited v Paxton Management Pty Ltd (supra) Young CJ in Eq refers to the situation where the parties have left the term of their agreement uncertain but have determined its content with sufficient certainty at the time when the action for specific performance has commenced. A series of cases have held that that is sufficient then to permit specific performance; see Adams v Broke (1842) 1 Y & C 627; 62 ER 1146, Shardlow v Cotterell (1881) 20 CHD 90. In Macauley v Greater Paramount Theatres Limited (1921) 22 SR 66 at 74, Harvey J held that where the uncertainty which might have precluded a decree for specific performance has been removed before the suit was instituted, a decree could be made, declining to follow authority to the contrary. As Young CJ in Eq records, that decision has been followed since; see, for example, Bradford v Zahra [1977] Qd R 24 and was endorsed by the English Court of Appeal in Price v Strange [1978] Ch 337. So subsequent events, in the form of a course of dealing, may be admissible to identify the things with which the contract deals (see SportsVision Australia Pty Ltd v Tallglen Pty Ltd (1998) 44 NSWLR 203 at 118). I do not here enter into the controversial area of resolving ambiguity by reference to later conduct or statements by the parties, where the weight of authority is against such admission; see most recently, McGill v National Australia Bank [2001] NSWCA 221 per Ipp AJA. 75 I turn now to that course of dealing relied upon by the Defendants. It is established by the following propositions and by reference to the following evidence, which I accept.

[80]

(j) There was, say the Defendants, nothing incongruous in Messrs Waldo and Maguire putting forward their own basis for receiving a bonus, given first that the process was, as contemplated by the bonus clauses, to be a two-way one and second, given that ultimate sign off was by Maguire in relation to Waldo, and by Rose in relation to Maguire. 76 The Defendants contend that though it be the case that seeking approval of the Receivers and Managers might be said to fall short of demonstrating a concluded agreement, that simply reflected the underlying reality that unless the Receivers agreed, no payment could be made as they held all the Company's money. True it was that he did not speak in terms of offer, acceptance and consideration. But this was not the customary language of business discourse and second simply reflected first that Maguire was not legally trained and was not speaking to lawyers; his language is clearly consistent with his concluding that there was an entitlement of the Managers to a bonus. 77 To this it may be said, as the Plaintiffs contend, that any authority in the board and thus a fortiori its senior executive officers to agree the relevant performance criteria upon which the bonus was paid was removed by the appointment of a receiver (see Hawkesbury Development Co Ltd v Landmark Finance Pty Limited (1970) 92 WN(NSW) 199 at 209 per Street J) and even more clearly by the appointment of a liquidator (see Lord Corporation Pty Limited v Green & Ors (1991) 22 NSWLR 532 at 541-544 per Cohen J. Moreover the receiver even after a liquidator is appointed retains residual powers, though not to incur liabilities enforceable against the company in liquidation or the assets, as Fitzgerald JA explains in Graeme Webb Investments Pty Ltd v St George Partnership Banking Ltd (2001) 38 ACSR 282 at 297. 78 Thus it is said by the Plaintiffs that even if Waldo's memo of 12 May 1998, though couched in language of recommendation, amounted to agreement that the bonuses were properly payable, the intervention of a receiver necessarily denied the necessary authority to make such a decision on behalf of the Company. 79 Similarly the Plaintiffs contend that when Rose signed off on Maguire's bonus entitlement, this followed not only the appointment of a receiver but also the appointment of a liquidator and thus Rose could not have had any authority to bind the Company to any such agreement. 80 To this several answers may be given. First, it is important to state exactly what Street J decided in Hawkesbury Development Co Ltd v Landmark Finance Pty Limited (supra) at 209: "Receivership and management may well dominate exclusively a company's affairs in its dealings and relations with the outside world. But it does not permeate the company's internal domestic structure. That structure continues to exist notwithstanding that the directors no longer have authority to exercise their ordinary business-management functions. A valid receivership and management will ordinarily supersede, but not destroy, the company's own organs through which it conducts its affairs. The capacity of those organs to function bears a direct inverse relationship to the validity and scope of the receivership and management."

[81]

81 I accept that Maguire, after the receiver was appointed but before the liquidator, clearly accepted the various claimed entitlements to bonus payments, not as a matter of discretion but as a matter of earned performance. Whilst there was an element of discretion in assessing that performance against those very broad and general criteria, nonetheless acceptance by Maguire clearly occurred within the sphere of the Company's internal domestic structure rather than in its external relations with the outside world. It was thus outside the domain of receivers and managers and within the continuous residual authority of the Company's senior officers in relation to the Company's internal domestic structure. Any agreement as to the entitlement to bonus was therefore based upon performance, by reference to the criteria in the Waldo memorandum. They were consistent with and pursuant to, the relevant employment contracts. I am satisfied such agreement could be reached by Maguire notwithstanding the appointment of the Receiver. 82 I accept that what here occurred was not entry into a fresh or new agreement; rather what occurred took place within the framework of the existing employment contract. There was already an effective contract in existence whose content, so far as bonus entitlement, could be eked out from that course of dealing and by reference to what was reasonable in the particular employment context. Thus it is legitimate to imply a term that a reasonable bonus would be paid, quantified by reference to the criteria in the Waldo memorandum in its recommendations which I am satisfied Maguire accepted. Such implication removes any uncertainty as might stand in the way of a decree for specific performance. The relevant course of dealing took place within the Company's internal structure and was not precluded by the appointment of a receiver. 83 But did the later appointment of a liquidator at least preclude the payment of a bonus for Maguire himself? Here I should refer to what Cohen J said in Lord Corporation Pty Limited & Ors v Green (supra). What he concluded was that directors were no longer subject to any fiduciary duty in circumstances where a liquidator has been appointed. He concludes (at 543), "Where a liquidator, acting as an officer of the court, has total responsibility in the company for the disposition of its assets, if possible the payment of its debts and the repayment of capital, all discretionary decisions in respect of those assets are reposed in him. The powers of the directors having ceased, so too have their fiduciary powers, that is their capacity to misuse their position which arises from their having control over the company's actions and the dealing with its assets."

[82]

84 For similar reasons to my conclusions concerning the other three Defendants in relation to Mr Maguire, I would accept that Mr Maguire obtained from Mr Rose the concurrence necessary to constitute a course of dealing providing sufficient certainty for Mr Maguire's bonus stipulation as to make it specifically enforceable, or to provide the basis for a quantum meruit in relation to the contractual stipulation to make a bonus payment. That conclusion is not precluded, for the reasons I have explained, by the appointment of either a receiver or liquidator. I do not however consider that Mr Rose (or Mr Maguire) thereby (impermissibly) caused the company to incur a liability. That liability already existed by virtue of the employment contract and part performance by the employee, who had done all that he needed to have done to earn his bonus. That final post-liquidation element in the course of dealing between Mr Maguire and the Company merely provided confirmation of that pre-existing liability. 85 There is also a principle of construction of contract that may also be called in aid. That is, the presumption that a party to a contract should not be permitted to take advantage of his or her own wrong against the other party; see, for example, Beneficial Finance Limited v Multiplex Constructions Pty Limited (1995) 36 NSWLR 510 at 534 and the authorities there cited. There was a clear implied obligation on the Company to agree bonus criteria. Indeed the term "agree" should in my view be construed as meaning that there would be a process of consultation, but that the Company was ultimately obliged to lay down reasonable bonus criteria after hearing input from the employee concerned. The Company having had the benefit of the employee's service could not be heard to say that, having neglected formally to provide a board promulgated set of performance criteria, could either disavow the course of dealing that did occur and which gave content to those criteria, or otherwise contend that it was for the board alone to lay down such criteria. There is nothing in the contract which so provides. There seems no good reason why either the Chief Executive Officer or another senior executive officer should not be able to sign off on such performance criteria. The assessment of whether they have been met was then an essentially mechanical matter, albeit with an element of discretion, though it be the case that Waldo had an interest in making his recommendation concerning himself to Maguire and Maguire in turn had interest in making his recommendation concerning himself to Rose. 86 Finally, I should turn to the criticism of the liquidator based on the treatment of Mr Stephens, who is in fact the Tenth Defendant. It was said that because Stephens only worked part of the relevant year, so that only five months out of the twelve months in relation to 1997-1998 could be the basis for bonus payments, that it was therefore wholly irrational for him to receive any bonus. 87 I agree with the Defendants that that criticism of the liquidator is misplaced. Mr Stephens was appointed as the Branch Manager for South Australia in about June or July 1996 (Vol 3 tab 15 affidavit Stephen, para 5). That is, he was employed as a branch manager for close on two years prior to the end of the fiscal year 1997-1998. 88 It is clear from the Waldo memorandum of 12 May 1998 that Stephens was a participant in the bonus scheme. There is no evidence that he was not entitled to a bonus prior to December 1997. The Plaintiffs point to Stephens' 1997 contract entered into in December of that year in his new role as General Manager NCSSC (National Customer Sales and Service Centre). They seek to draw the inference that Stephens was not therefore at any earlier time entitled to participate in the bonus scheme. That is wrong. 89 It is plain from the 1996-1997 bonus scheme that Stephens received a bonus as a branch manager for the financial year 1996-1997 (Vol 3 tab 10 affidavit Maguire, exhibit "KPM-18, p3 entitled "Executive Summary") where Stephens is shown as having been paid a $35,000 bonus. Thus his entitlement to participate really reflected the continuity of his employment though the area in which he was re-employed in December 1997 changed from Branch Manager to a more senior role as General Manager. It would be absurd to suppose that his promotion should lose him any entitlement to bonus. Moreover, his continuing entitlement to participate is reflected in the Waldo memorandum of 12 May 1998. 90 I come finally to the Liquidator's own reasoning process. While his reasoning process was fairly rough and ready, and while his explanations in cross-examination reflected the fact that he had not brought his file with him (T, 22-24), it was not at all unreasonable for the Liquidator, as he did, to have taken into account the information furnished to him in respect of the position of each of the relevant employees. I have already identified what that information would have been. The additional factors to which I have earlier made reference were not irrelevant but were properly capable of being taken into account by the Liquidator in assessing these claims or proofs of debt. In any event, this being a hearing de novo, any deficiency in the reasoning process of the Liquidator does not prevent this Court substituting a proper reasoning process.

[83]

OVERALL CONCLUSION 91 The Plaintiffs have not satisfied the onus upon them to upset the Liquidator's determination that there was a contractual entitlement on the Defendants' part to receive the relevant bonuses. I would myself be satisfied that there was such a contractual entitlement to pay the bonuses on the material before me, and not a mere unenforceable agreement to agree. This is so, based on an implied term of a partly performed effective contract, performed by the employee. That implication derives from the criterion of what was reasonable in setting such bonus, to which content is given derived from the course of dealing between the parties to the contract. The relevant officers of the company were able to carry out that course of dealing on behalf of the Company notwithstanding the receivership and ensuing liquidation and were not thereby incurring a liability. That is because the basis for the contractual liability essentially pre-existed both receivership and liquidation. Moreover, the executive officers of the Company were acting in the domestic sphere of the Company, not its external relations. It would be against conscience to deny specific performance to such a stipulation in an effective contract partly performed, because it would permit the Company to take advantage of its own wrong. In those circumstances unjust enrichment outside contract does not arise, nor notions of commercial morality, even were these otherwise able to be invoked. Cases such as Ex parte James (1874) 9 Ch at 609, said to be applicable to the Liquidator as an officer of the court, are not therefore relevant. 92 It also follows that the bonus must therefore be "wages" pursuant to an "industrial agreement", so that there is a contractual entitlement which meets the statutory requirements for priority payment pursuant to s556(1)(e) of the Corporations Act. To the extent that it could be said that the relevant debt or claim did not bear "a certain value" within the meaning of s554A of the Corporations Act, I would conclude that the Liquidator, as he was entitled to do, properly estimated it. Insofar as there was, in the alternative, an ascertained contractual entitlement, it was not of such uncertainty in value as to invoke s554A.

Cases Cited (14)

CITATION : Re Galaxy Media Pty Limited (Rec/Mgrs apptd.) (in liq) [2001] NSWSC 917 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 3491/00 HEARING DATE(S) : 28/08/01, 29/08/01 JUDGMENT DATE : 18 October 2001

C R Newlinds (Plaintiff) COUNSEL : G Seib (First and Second Defendants) A Ridley (Third, Fourth, Seventh and Ninth Defendants) Kemp Strang Lawyers (Plaintiff) SOLICITORS : Bowring Stone (First and Second Defendants) Somerville & Co (Third, Fourth, Seventh, Ninth Defendants) CATCHWORDS : CORPORATIONS - Bonus payment - Standing of receiver to challenge liquidator's determination of claim or proof of debt - Is it "wages" for purposes of the statutory priority under ss433(3)(c) and 556(1)(e) of the Corporations Act - Meaning of industrial agreement - Relevance of appointment of receiver and later liquidator to course of dealing relied upon to refute mere agreement to agree. - CONTRACT - Interpretation - Principles of interpretation - Agreement to agree or otherwise void for uncertainty - Scope for implication of term - Part performance - Relevance of principle that party not to take advantage of own wrong - Course of dealing - Agreement to agree - Specific performance and relevance of subsequent events. LEGISLATION CITED : Corporations Act 2001 s9; s433; s513A; s554; s554A; s556; s1321; s1322; s1383; s1399 Corporations Law and/or Corporations Regulation 5.6.5; 5.6.43A Adams v Broke (1842) 1 Y & C 627; 62 ER 1146 Beneficial Finance Limited v Multiplex Constructions Pty Limited (1995) 36 NSWLR 510 Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 BP Refinery Pty Limited v Hastings Shire Council (1977) 52 ALJR 20 Bradford v Zahra [1977] Qd R 24 DCT v Lanstel Pty Ltd (1996) 22 ACSR 314 Denis v McMahon (1989) 7 ACLC 238 Re Equity Funds of Australia (in liq) (1976) 2 ACLR 238 Foley v Classique Coaches Ltd [1934] 3 KB 1 Graeme Webb Investments Pty Ltd v St George Partnership Banking Ltd (2001) 38 ACSR 282 Hawkins v Clayton (1988) 164 CLR 539 Hawkesbury Development Co Ltd v Landmark Finance Pty Limited (1970) 92 WN(NSW) 199 Horton v Jones (1934) 34 SR(NSW) 359 Ex parte James (1874) 9 Ch at 609 Re Kentwood Constructions Ltd [1960] 2 All ER 655 Kymbo Pty Limited v Paxton Management Pty Limited (Young CJ in Eq, NSWSC, 20 July 2001, unreported) CASES CITED : Lewis v Notrex Pty Ltd ([2001] NSWSC 610 Lord Corporation Pty Limited v Green & Ors (1991) 22 NSWLR 532 Macauley v Greater Paramount Theatres Limited (1921) 22 SR 66 McGill v National Australia Bank [2001] NSWCA 221 May & Butcher Ltd v The King [1934] 2 KB 17 Pavey & Mathews Pty Limited v Paul [1986?1987] 162 CLR 221 Price v Strange [1978] Ch 337 Powell v Braun [1954] 1 WLR 401 Ridgway v Wharton (1857) 6 HLC 238 Shardlow v Cotterell (1881) 20 CHD 90 SportsVision Australia Pty Ltd v Tallglen Pty Ltd (1998) 44 NSWLR 203 Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 Upper Hunter District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429 Westpac Banking Corporation v Totterdell (1998) 29 ACSR 448 Woodhouse v A. D. A. Manufacturing Co Ltd [1954] SASR 263 York Air Conditioning and Refrigeration (A'sea) Pty Ltd v The Commonwealth (1949) 80 CLR 11 Zucchiatti v Ferrara (1976) 1 BPR 9199 DECISION : Receivers' challenge fails.

(1995) 36 NSWLR 510

(1988) 15 NSWLR 130

(1977) 52 ALJR 20

(1988) 164 CLR 539

(1991) 22 NSWLR 532

(1998) 44 NSWLR 203

(1990) 169 CLR 332

(1968) 118 CLR 429

(1949) 80 CLR 11

(1990) 3 WAR 322

(1987) 162 CLR 221

[2001] NSWCA 221