Robyn Alice Lindley v Silverbrook Research Pty Limited

LEGISLATION CITED: Civil Liability Act 2002 (NSW) Civil Procedure Act 2005 (NSW)

Sellars v Adelaide Petroleum N.L. and Others (1992-1994) 179 CLR 332 Chaplin v Hicks [1911] 2 KB 786 Lime Telecom Pty Limited v Powertel Limited [2009] NSWSC 590 Hoyts Pty Ltd v Burns [2003] HCA 61 C.G.U. Workers Compensation (NSW) Ltd v Garcia (2007) 14 ANZ Ins Cas 61-746 Intico v Walmsley [2004] VCSA 90 Rankin v Marine Power International (2001) 107 IR 117 Lavarack v Woods of Colchester [1967] 1 QB 278 Reda v Flag [2002] 1 I.R.L.R. 747 Saddington v Bevin (1993) 42 IR 323 Ellis v Wallsend District Hospital (1989) 17 NSWLR 553 Dyke v McLeish Estates Ltd (1927) 27 SR (NSW) 74 Howe v Teefy (1927) 27 SR (NSW) 301 CASES CITED: Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 283 Fink v Fink (1946) 74 CLR 127 The Commonwealth v Amann Aviation Pty Ltd (1991)174 CLR 64 The Mihalis Angelos [1971] 1 QB 164 McDonald v Parnell Laboratories (Aust) Pty Ltd (2007) 168 I.R. 375 Walker v Citigroup Global Markets Pty Ltd (2005) 226 ALR 114 Van Efferen v CMA Corporation Ltd [2009] FCA 597 Ellis v Wallsend Hospital (1989) 17 NSWLR 553 Chappel v Hart (1998) 195 CLR 232 Rosenberg v Percival (2001) 205 CLR 434 Culligan & Anor v ACO Pty Ltd [2009] NSWCA 290 Commercial Union Assurance Ltd v Ferrcom (1991) 22 NSWLR 389 Saddington v Builders Workers Industrial Union of Australia and Anor (1993) 49 IR 323 Hussain v New Taplow Paper Mills Ltd [1987] 1 All ER 417

J W Carter and E Peden, "Good Faith in Australian Contract Law", (2003) 19 Journal of Contract Law 155 TEXTS CITED: E Peden, "When Common Law Trumps Equity; The Rise of Good Faith and Reasonableness and the Demise of Unconscionability" (2005) 21 Journal of Contract Law 226 D Hamer, 'Chance Would Be A Fine Thing: Proof Of Causation And Quantum In An Unpredictable World' (1999) 23 Melbourne University Law Review 557

PARTIES: Plaintiff - Robyn Alice Lindley Defendant - Silverbrook Research Pty Limited

COUNSEL: Plaintiff - Mr J Sheller Defendant - Mr P Newall

SOLICITORS: Plaintiff - DGB Lawyers Defendant - Truman Hoyle Lawyers

1. The issues to be decided in this case are (a) Whether the defendant (Silverbrook) was in breach of its contract of employment with the plaintiff (Dr Lindley); and (b) If so, whether it is liable to pay any and if so what damages to her.

The background 2. Dr Lindley has impressive qualifications. She has an academic background in physics, and a doctorate in new technology innovation. She spent three years with Vodaphone Australia Pty Limited from 2000 - 2003, as manager of its business intelligence team. By the end of that time she had acquired considerable experience in the field of telecommunications.

3. In 2003, while still with Vodaphone, and in receipt of a financial package worth annually about $222,000, she was approached by a head-hunter and asked to consider working for Silverbrook. She allowed her curriculum vitae to go forward. There were two interviews with Silverbrook's personnel. At the second meeting those present agreed Dr Lindley would be employed by Silverbrook on certain terms. A written contract was later prepared by Silverbrook and provided by it to Dr Lindley for her signature. According to her evidence, which I accept, she read, understood, and signed it. It is necessary to go to that document to understand the disputes between the parties.

4. The contract is called a 'Service Agreement'. On the front page there is a summary of significant matters. The position is described as 'Business Development Strategist'. The commencement date is 8 September 2003. . Annual salary is said to be $210,000, including superannuation. Annual performance bonus is said to be $40,000, 'subject to achievement of set quarterly objectives and payable at the end of each quarter'. There is no termination date. The notice period is two months by either party.

5. Recital B of the agreement says: "Silverbrook has agreed to employ Lindley on the terms and conditions set out in this Agreement and Lindley has agreed to serve Silverbrook on that basis". Operative part 1.1 says: "Silverbrook appoints Lindley to the Position on the terms and conditions of this Agreement and Lindley accepts that appointment". Under the heading 'Duties of Executive', 2.1 provides: "Lindley must: (a) devote the whole of her time, attention and skill during normal business hours, and at other times as reasonably necessary, to the duties of the Position; (b) faithfully and diligently perform the duties with reasonable care and skill and exercise the powers consistent with the Position; (c) comply with all reasonable directions given to Lindley by each of the directors of Silverbrook (d) promote the interests of Silverbrook; and (e) at all times act to a high standard of professional behaviour." Under the heading 'Remuneration', the following appears: "3.1 Silverbrook will pay to Lindley each fortnight one twenty sixth of the Annual Salary exclusive of superannuation contributions. Lindley may sacrifice a proportion of her remuneration to non-cash benefits as agreed to by Silverbrook from time to time. 3.2 Lindley's remuneration will be reviewed annually by Silverbrook on each anniversary of the Commencement Date or in accordance with the policy of Silverbrook for annual review of salaries, whichever is the later. Silverbrook shall not be obliged to increase Lindley's salary at any time." Under the heading 'Annual Performance Bonus' the following appears: "4.1 Lindley will be eligible to receive the Annual Performance Bonus subject to clause 4.2 and 4.3. 4.2 Silverbrook will assess Lindley's performance against set objectives at the end of each quarter commencing from the date of her employment. Provided her performance satisfies the set objectives and subject to clause 4.3, one quarter of the Annual Performance Bonus will be paid to Lindley within 21 days of the end of the quarter. 4.3.1 The decision as to whether Lindley should receive the Performance Bonus is entirely within the discretion of Silverbrook. Lindley must be in the employ of Silverbrook at the time bonuses are determined to be eligible to receive the Annual Performance bonus". (Emphases added)

Some history 6. Dr Lindley, the only witness called in her case, commenced working for Silverbrook on 8 September 2003. Before me both parties treated that as the 'Commencement Date'. On 7 May 2008 she resigned, giving two months notice. On 15 May 2008 she sent an email to one of Silverbrook's directors, saying she had sought legal advice regarding her contract. On 17 June 2008, by email to one of its directors, Mr Silverbrook, she noted she had had no response to her "correspondence" of 16 May 2008 and considered a "legal solution" to be her only option. (These emails were neither tendered nor referred to in oral evidence, and summaries were introduced into evidence at the conclusion of the trial as agreed facts in a chronology tendered by Silverbrook.)

Dr Lindley ceased working for Silverbrook on 15 July 2008. In the course of her work with Silverbrook over the period of almost 5 years, she worked long hours, including, when required, at weekends.

In the course of her work with Silverbrook, Dr Lindley twice accompanied its two directors to the USA. According to her evidence, on which she was not cross-examined, on both occasions Silverbrook had been attempting to raise investment capital, and on both occasions Dr Lindley had helped it to succeed in that endeavour. On one of those journeys, Mr Silverbrook told her the relevant client had told him he should be pleased to have her on board. In her time with Silverbrook, she had had meetings, at times weekly, at others fortnightly, and sometimes less often, with Mr Silverbrook. She had however had very few meetings with Ms Lee, Mr Silverbrook's fellow director.

While with Silverbrook, Dr Lindley had helped Silverbrook employ personnel at senior levels. In the course of her time with Silverbrook, employee numbers grew from 110 to over 500. Dr Lindley told me (and this was not the subject of any cross-examination) that in her time with Silverbrook she had never once been criticised for the quality of her work, or for not working hard enough. There was a document in evidence, apparently from the business records of Silverbrook, in which Silverbrook is recorded as having held out Dr Lindley to its clients as a highly valued employee. In the course of the hearing, counsel for Silverbrook never made the slightest suggestion that Dr Lindley had been anything other than a diligent, dedicated, talented and loyal employee.

Despite her apparently exemplary record, in the whole of her time with Silverbrook, Dr Lindley's salary was never once increased. Nor was she ever paid a bonus. It was an agreed fact that on 5 April 2007 she had written to Silverbrook's two directors requesting a salary increase, and that the letter had led to no increase. As it turns out, in the whole of her time with Silverbrook, although required by its agreement with her to do so, Silverbrook had never once conducted a review of her salary.

As to the annual performance bonus, Dr Lindley was never made aware of any objectives Silverbrook had set for her to assess her performance by. Nor was it ever suggested to her that insofar as there had been any such objectives, she had not achieved them. As it turns out, Silverbrook had never once got around to setting any such objectives for her.

Another agreed fact was that on 15 August 2008, a few weeks after she had left, Silverbrook paid Dr Lindley an ex gratia amount of three months remuneration. There was no evidence from either party about the reason for that payment, or any principles applied in its calculation.

The only evidence of any salary increases given by Silverbrook to any other employee in the period of Dr Lindley's employment, concerned Ms Lee. Her income more than doubled, rising from $150,000 in 2003, to $325,000 in 2009. There was no evidence about what salaries or bonuses were paid to any other employee. Nor was there any evidence about Silverbrook's ability to pay any salary increases or bonuses. There was no evidence about whether the contracts of any of Silverbrook's other employees provided for salary reviews or bonuses. There was no evidence about salary levels paid by any competitors of Silverbrook.

The claim made 14. In her statement of claim Dr Lindley pleaded that Silverbrook had been in breach of its contract by not reviewing her remuneration annually or at all, by not formulating a set of objectives against which her performance could be judged for determining her entitlement to performance bonuses, and by failing to review her performance against any such set of objectives. She claimed damages for the opportunities she says were lost to her by Silverbrook's alleged breaches.

15. Dr Lindley claimed in the alternative, certain breaches of the Trade Practices Act, but those claims were not pressed before me, and Mr Sheller, who appeared for Dr Lindley, expressly relied only on the contract count.

The defence pleaded 16. By its defence Silverbrook, inter alia, admitted: (a) It had been a term of the contract that Dr Lindley's remuneration be reviewed annually by Silverbrook to determine her entitlement to increased remuneration; (b) It had been a term of the contract that Dr Lindley's performance be reviewed by Silverbrook against set objectives at the end of each quarter to determine her entitlement to a performance bonus; (c) It had been a term of the contract that Silverbrook would formulate a set of objectives, and provide them to Dr Lindley to enable her to receive a performance bonus; (d) It had been a term of the contract that if Dr Lindley's performance satisfied the set objectives Dr Lindley would be paid a bonus within 21 days of the end of each quarter, subject to Silverbrook's discretion not to award a bonus.

17. Also by its defence, Silverbrook denied it had been in breach of its obligations to review Dr Lindley's salary annually or 'had failed to formulate' a set of objectives, or review her performance against any such objectives to determine her entitlement if any to a performance bonus. Further, it denied it had failed to provide Dr Lindley with a set of objectives. As I have noted, Silverbrook did not try to justify its position by reference to any shortcoming in Dr Lindley's performance. The essence of its defence was that salary increases and bonuses had been entirely at its discretion, no matter how well she had performed, and that she had been well aware of this discretion when she had signed the contract. It had merely exercised the discretion it had, not to pay any more than her starting salary.

Evidence for the defendant 18. Ms Lee was the only witness called for Silverbrook. Although I took Mr Newall for Silverbrook to agree initially that Silverbrook had not carried out any annual salary reviews, prepared any objectives, or assessed Dr Lindley's performance against any such objectives, Ms Lee suggested something to the contrary. She owns half of the shares in Silverbrook. She was the decision maker on matters concerning salaries. She said she was aware of the nature and quality of Dr Lindley's work. She told me she had made a deliberate decision not to increase Dr Lindley's salary in her time there. She also said she had made a deliberate decision not to pay bonuses. She said she knew the relevant parts of the contract which provided for such matters. As to the salary, she said there had been no 'formal review'. She did not elaborate on that, and was not asked to. She said (over objection) that had she carried out such a review, her mind would not have been changed: no increase in remuneration would have been given. As to bonuses, she agreed no objectives had been set, but said (again over objection) that Silverbrook would not have paid any bonuses, even if there had been objectives, and (I took it) had Dr Lindley's performance met them.

19. In cross-examination Ms Lee said Silverbrook had entered the contract in good faith, and that Silverbrook had intended to act honestly when entering it. She conceded that at no time had Dr Lindley ever had a discussion with anyone in Silverbrook's organisation about a review of her salary, that Dr Lindley had never been notified of the outcome of any salary review if conducted, and had never been asked to participate in any performance assessment in connection with bonuses. She agreed no set objectives had ever been set against which to measure Dr Lindley's performance for the purpose of bonuses. When her attention was drawn to the fact that Silverbrook's pleading conceded Silverbrook had had an obligation to create a set of objectives, Ms Lee said she did not accept that that had been an obligation of Silverbrook, and its pleading, to that extent, must have been in error (However no application was ever made to amend the pleading.)

20. Ms Lee suggested the obligation to define objectives had been with Dr Lindley. This was because when she was questioned on the topic, she referred to an annexure to the contract which defined Dr Lindley's duties. However nothing on the face of that document discloses any such an obligation, and Mr Newall never later suggested there was one. Ms Lee said that though there had been no formal salary reviews, she had regularly "looked" at salaries and had decided not to increase Dr Lindley's salary. This, she said, had been because of her "performance". However, as I have noted, there was no evidence to the effect that her performance was other than excellent. Ms Lee did not elaborate on what she meant by "performance" in that context. When making such decisions, Ms Lee said she had consulted and learnt of the views of her co-director. However, there was no evidence of what his views were. She agreed she had never passed on to Dr Lindley the fact of such consultations, or considerations of salary and said she had never made any record of these matters.

21. It was put to Ms Lee that by not imparting that information to Dr Lindley, she had failed to give Dr Lindley any opportunity to say why she should receive an increase. She responded that Dr Lindley had never approached her and asked for one. But then she added that that was not why Dr Lindley had not received an increase. When asked how then one could have succeeded in achieving a pay increase, she responded, again with no elaboration, that an employee would have needed to "perform".

Plaintiff's arguments 22. Mr Sheller contended that Silverbrook had breached clauses 3.2 and 4.2 and by reason of Silverbrook's breaches, although Silverbrook, had it gone through the processes envisaged by the contract, may not have granted pay increases or bonuses, we shall never know, because Dr Lindley had lost the opportunity to have those increases and bonuses. This lost opportunity was more than negligible, and is compensable, and ought to be assessed in the way the High Court considered appropriate for lost commercial opportunities in Sellars v Adelaide Petroleum N.L. and Others (1992-1994) 179 CLR 332 at 355 (Mason CJ, Dawson, Toohey and Gaudron JJ). Mr Sheller also referred me in this context to Chaplin v Hicks [1911] 2 KB 786 and Lime Telecom Pty Limited v Powertel Limited [2009] NSWSC 590 at [56]- 69]. He submitted that the starting point for the damages assessment is the calculation of the benefits which Dr Lindley would have received had there been reviews of salary, objectives set, and a judgment of performance against objectives. He submitted I should find any review of performance, had it occurred, would have been favourable; any objectives set would have been readily achievable. Considering Silverbrook's discretion not to give salary increases or bonuses, Mr Sheller submitted the only way Dr Lindley could fail in these proceedings was if I were to find on the balance of probabilities that the discretion would always have been exercised against her. He invited me to find at the worst that it would only have been exercised adversely to her from time to time, but that even that finding was not available. Mr Sheller submitted that if I find Dr Lindley would have achieved the objectives had they been set, and performed favourably on reviews of her performance, it was not now open to Silverbrook to deny her pay increases and bonuses just because the discretion could have been exercised against her. He invited me to reject Ms Lee's evidence that she would have exercised her discretion against Dr Lindley regardless of whether performance assessments had occurred, and regardless of whether objectives had been set and she had achieved them all. He referred me to Hoyts Pty Ltd v Burns [2003] HCA 61 at [54], where an injured plaintiff had given evidence at trial of what she would have done if appropriately warned of a tortious risk, and where the Court (at [54]) said: "[E]vidence of what a claimant would have done if a non-existent warning had been given by a hypothetical sign is so hypothetical, self serving and speculative as to deserve little (if any) weight, at least in most circumstances." 23. He also referred me to C.G.U. Workers Compensation (NSW) Ltd v Garcia (2007) 14 ANZ Ins Cas 61-746 at 76-366 to 76-367 [130]-[138], especially at [134] where Mason P (Hodgson and Santow JJA agreeing) said a duty of good faith may be implied in specific classes of contracts to give business efficacy. Whether it could be implied, depended inter alia on "whether the enjoyment of the rights expressly confirmed would or could be rendered nugatory, worthless or perhaps be seriously undermined" [136]. Mr Sheller referred me to [168] where Santow JA (with whom Hodgson, JA, agreed) said: "Thus while the duty to act in good faith may be implied in certain contractual contracts, such as employment, there is as yet, as the law currently stands, no general contractual term, implied in law, requiring the exercise of good faith on contractual performance". Mr Sheller also referred me to an article called " Good Faith in Australian Contract Law ", (2003) 19 J Con L 155 at 157 (J W Carter and E Peden), and another called " When Common Law Trumps Equity; The Rise of Good Faith and Reasonableness and the Demise of Unconscionability " (2005) 21 J Con L 226 at 238-9 (E Peden). 24. Mr Sheller calculated the sum of money Dr Lindley would have been paid had her salary been increased by 5% per annum for the term of the contract, was $110,382.56. He calculated that a payment of a $40,000 bonus per annum for the term of the contract would have amounted to $190,000. As at the date of trial he calculated interest (I assume at rates allowed under the Civil Procedure Act, 2005) at $28,817.57 for salary and $62,126.56 for bonuses. The grand total for all sums was, to the time of trial, $391.321.69.

Defendant's contractual arguments 25. For Silverbrook, Mr Newall, referring to the fact that the onus is on Dr Lindley to prove a causal connection between any breaches and any damage said to have flowed from the loss of a chance, contended: (a) It had not been a breach of contract not to pay salary increases or bonuses; (b) Dr Lindley had been well aware when entering the contract that Silverbrook might exercise its right not to pay salary increases and bonuses; (c) There can have been no assumption any such payments would have been made; (d) It does not follow from a contractual right to review that a lack of such reviews led to a loss of salary; (e) Absence of any criticism of Dr Lindley as an employee is irrelevant to any asserted rights; (f) Dr Lindley had accepted in cross-examination that the contract provided that a nil salary increase had been an available outcome; both parties recognised from the way they each treated it, how the contract stood in practical terms and affect; (g) Dr Lindley herself had never asked for a bonus while employed by Silverbrook, and had never asked for a salary increase until 2007. It was implicit from the fact that Dr Lindley was not a shrinking violet, that she had not thought she ought to have been paid a salary increase until 2007, or a bonus - ever. He conceded however that Silverbrook did not rely on any concept of acquiescence or waiver in this context; (h) It would be wrong for the Court to assume any bonus would have been paid had assessments occurred. It would also be wrong for the Court to assume any salary increases would have been awarded had there been reviews; (i) Dr Lindley had not proved her asserted loss of chance had value: nor could she, given the terms of the contract: she received what she had contracted to receive for doing no more than she had contracted to do: this was a "wages work bargain".

26. Mr Newall conceded Silverbrook: (i) had not formally reviewed Dr Lindley's remuneration annually; and (ii) had not assessed her performance against any set objectives.

But insofar as that conduct amounted to contractual breaches, he contended they were simply "procedural breaches" and had no causal affect. He submitted further: (a) Ms Lee had said in evidence she had decided not to pay any increases in remuneration; or any bonuses. That was the end of the matter. (b) The court should not speculate about how the discretion to pay increases or bonuses might have been exercised had the preconditions to its exercise taken place. (c) The discretion was not one akin to that a trustee exercises towards potential beneficiaries. Unlike a trustee, an employer, at common law, may act 'unreasonably or capriciously' if it so chooses: Intico v Walmsley [2004] VCSA 90. (d) There has to be meaning given to the contractual term that Silverbrook 'shall not be obliged to increase Lindley's salary at any time'. As to the discretion concerning the payment of bonuses, this was absolute and to be exercised by Silverbrook. (e) Thus it must be accepted that the discretion could within the contract have been exercised to derive a nil result as to both salary increases and bonuses. (f) It follows that there was no identifiable loss of a chance.

Defendant's arguments on loss of opportunity damages in employment contracts 27. Mr Newall further argued that: (a) The approach to damages in commercial contracts is not necessarily the same as in contracts of personal service. (b) Where damages for wrongful termination are assessed, they do not include damages for loss of opportunity to achieve a bonus where the bonus lies within the employer's discretion: Rankin v Marine Power International (2001) 107 IR 117: Lavarack v Woods of Colchester [1967] 1 QB 278 at 294. Nor should they for what are, here, (if proved) necessarily less serious breaches. (c) Since an absolute and lawful discretion stood between Dr Lindley and any benefit, there can be no assumption made that there would have been any value in or benefit from any lost chance: a fortiori when one notes the outcome of Dr Lindley's one request for a salary increase in 2007. (d) No damages for loss of a chance can be awarded where there is no realistic possibility the chance would have resulted in a benefit: Reda v Flag [2002] 1 I.R.L.R. 747, an employment contract case. (e) Finally if, contrary to the above, any damages are found payable, Dr Lindley must give credit for the $55,575 ex gratia payment made when she left Silverbrook's employment: Saddington v Bevin (1993) 42 IR 323 at 343.

Credit 28. Issues of credit do not play a large part in this case. However they do have some significance, given Ms Lee's assertions about what Silverbrook would have done in certain hypothetical events, and Mr Newall's submission that her evidence on those issues should be accepted at face value.

Dr Lindley 29. Mr Newell attacked Dr Lindley's credit but did not ultimately submit that if I rejected her evidence the outcome of the case should be in any way affected. He did put to her she had 'gilded the lily' with her curriculum vitae. For example, in it, she had claimed to have led one of Silverbrook's projects and to have had involvement in many of Silverbrook's patent developments. Mr Newall challenged these claims. However, I accept her explanation on the first issue that as someone who had led a project, she had not inaccurately described her position as someone managing the team where she had employed others to do that and where for a time she had held the responsibility for management. And as to patent applications, her evidence that she had had considerable involvement was not contradicted. To the extent to which it is relevant, I accept her as a witness of truth.

Ms Lee 30. To my observation Ms Lee was not inclined to answer simple questions in a straight forward way. For example at T54 there was this evidence: "Q. Did you, Ms Lee, read this document in any detail before its execution as far as you can recall? A. I remember there was a special annexure A, so as that refers, is referred to internally within the document for it to be attached I read it. Q. You read the whole document? A. To of course to reference where the attachment would be"

31. She said this in cross examination (T55) "Q. There was no discussion with Doctor Lindley about annual review of her performance was there? A. No there wasn't. Q. There was no notification to Doctor Lindley about the outcomes of any review? A. No there wasn't Q. No opportunity for Doctor Lindley to have any input into an annual review? A. The capacity to have input is always there. Q. Well you didn't ask her did you? A. The capacity remains. Q. Would you just answer my question, you didn't ask her did you? A. Ask her what Q. To participate in an annual review of her performance? A. No I did not." (and at T58) "Q. By not dealing with Doctor Lindley in relation to this process that you describe, you didn't give her any opportunity to tell you why she should get a pay rise did you? A. There's always, at any time someone can approach me and say, offer those questions and at no time was I approached by Robyn Lindley to ask for a pay rise. Q. I see. Was that part of the reason why she didn't get one? A. No"

32. Ms Lee was not cross examined on her evidence that if objectives had been set and met, bonuses would not have been paid, and that she had made a deliberate decision not to pay bonuses. Mr Newall pointed to this fact. In Ellis v Wallsend District Hospital (1989) 17 NSWLR 553 a patient who had not been warned a catastrophic injury might be the outcome of forthcoming surgery, giving evidence after the catastrophe had occurred, said that if warned, she would not have had the surgery. She was not cross-examined on that evidence but the trial judge rejected it. At 588 Samuels JA said:

"[I]n Cross on Evidence 3 rd Aust ed (1986) at 436 and following… the view is expressed that it is not "Australian law" that evidence unchallenged by cross examination must be accepted, [and that is] an opinion in which I respectfully agree ." Samuels JA, then dealing with an argument that the trial judge had been wrong in rejecting the unchallenged evidence, said:

"The question which the trial judge had to decide, which, to me, is a very difficult one, did not only depend upon his view of the [patient's] truthfulness, but also upon her incapacity, assuming that she was endeavouring to be honest, to restore herself in recollection to the situation in which she stood when the crucial decision had to be made."

Thus I consider it is open to me to accept or reject, Ms Lee's evidence, although, apparently, not challenged.

33. Bearing in mind my observations of her when cross-examined, and her disinclination to answer straight forward questions in a straight forward way, I treat Ms Lee's evidence with reserve.

Were there contractual breaches? 34. In my view there were contractual breaches. Although Ms Lee said no 'formal' review had occurred, I took her to concede no review had occurred of the type contemplated by clause 3.2 of the contract. Despite that faint suggestion to the contrary in Ms Lee's evidence, Mr Newall did not argue any review had occurred. I find the defendant was in breach of its contractual obligation to review Dr Lindley's remuneration annually on each anniversary of the "Commencement Date". I am also satisfied that (and I so find) Silverbrook was in breach of its contractual obligations under clause 4.2. First, as it conceded, it did not prepare formulate or set, any objectives. Secondly, it follows that at no time did it ever assess Dr Lindley's performance against any such objectives. Despite the (again faint) suggestion by Ms Lee that Dr Lindley had an obligation to prepare her own objectives, I construe the agreement as imposing that obligation only on Silverbrook. It would be somewhat odd for an employee to be required to create those objectives, especially since, in theory at least, the way Dr Lindley measured up against them was to be a significant part of the process of determining whether she had an entitlement from Silverbrook to bonuses. Further, as I have observed, Silverbrook, by its pleading, admitted it had that obligation. Mr Newall never argued that Dr Lindley had no entitlement to bonuses because she had omitted to create the "set objectives". Further, Silverbrook conceded it had never assessed Dr Lindley's performance against any objectives, let alone the "set objectives" referred to in clause 4.2. Finally, Silverbrook, through its counsel, conceded the person to be satisfied she had reached the set objectives, had been Silverbrook.

35. As to Silverbrook's arguments in [25] to [27] above: (a) Although I am satisfied Dr Lindley was well aware of the discretions Silverbrook had under the contract, it does not follow that Silverbrook was not obliged to perform its side of the bargain, and conduct salary reviews and prepare the set of objectives for bonus payment purposes (25); (b) It is true there could have been no assumptions such payments would have been made. But it was open to Dr Lindley to assume there would be salary reviews and the setting of objectives (25); (c) It is true there could not be said necessarily to have been a loss of salary, absent reviews, but that is a matter which I consider is relevant to the value of any loss of chance ([25] (d)) (d) Whilst it may be true that an absence of criticism of Dr Lindley is irrelevant to any asserted rights, as appears below, it is not irrelevant when it comes to assessing the value of a lost chance (25); (e) As appears below, Dr Lindley's failure to ask for bonuses, and her failure before 2007 to ask for a salary increase, is in my view relevant to the value of the lost chance, but does not amount to any acknowledgment she had no entitlements to them, or to a waiver of Silverbrook's obligations ([25] (f),(g)); (f) As appears below, for the reasons which I give, I have considered the prospect of payment of salary increases and bonuses had Silverbrook complied with its obligations as and when required, and concluded the lost chance had value, and that Dr Lindley did not receive what she had contracted to receive, though she did what she had contracted to do. The breaches show she did not receive what she bargained for ([25] (h), (i)); (g) For the reasons which appear above and below, I do not accept that I am bound to accept Ms Lee's evidence that Silverbrook would not have paid salary increases had reviews been conducted, or bonuses, had objectives been set. Further, as appears below, the breaches I have found are more than "procedural", and have had a significant causal affect ([26] (a)); (h) I reject the argument that I should not speculate about what would have happened had breaches not occurred. A certain amount of speculation is involved in the process of assessment of what the position would have been, absent breaches (26); see also 'Chance Would Be A Fine Thing: Proof Of Causation And Quantum In An Unpredictable World' (David Hamer, (1999) 23 Melb U L Rev 557 at 567, 574, 575; (i) I accept the contention that an employer may act unreasonably or capriciously. But it must still comply with the employment contract ([26] (c)); (j) I agree that meaning must be given to the contractual terms which bestow a discretion, and, as appears below, I have given meaning to those terms. But it does not follow that it should be assumed the discretions, if exercised, would always have been exercised against the interests of Dr Lindley ([26] (e)); (k) To the extent to which it is relevant that contracts of personal service are to be approached differently from "commercial" contracts, I have so approached this one ([27] (a)); (l) The extent to which discretionary factors operate in an assessment may be seen below ([27] (b), (c)); Rankin is in my view distinguishable. As appears at p.160 of the report, the loss there was assessed as having no value, because a discretion lay in the hands of a third party, and the third party would not have exercised its discretion in the employee's favour without a positive recommendation by the employer to the discretion holder; that recommendation would not have been given, because of the employee's misconduct; in Lavarack Diplock L.J. said at 294:

"[I]f the contract is broken …. The first task of the assessor of damages is to estimate as best he can what the plaintiff would have gained in money or money's worth if the defendant had fulfilled his legal obligations and had done no more." As I see it, that describes exactly what the court did there, and what I am obliged to do here; (m) For the reasons which appear below, I have rejected the contention that there was no realistic possibility the lost chance would have resulted in a benefit ([27] (d)) (n) For the reasons which appear below, I have rejected the contention that the ex gratia payment should be taken into account ([27] (e)) . 36. Although I have found contractual breaches, it does not follow that any damages other than nominal damages should be awarded. I shall now however consider relevant principles.

Damages 37. A plaintiff's ability to claim damages for breach of contract does not depend on showing loss or damage has been suffered by reason of the breach: Dyke v McLeish Estates Ltd (1927) 27 SR (NSW) 74 at 76 (per Street, CJ): "[A] breach of contract always gives the injured party a right of action for damages without proof of actual damage. If he cannot prove any actual loss he recovers nominal damages only….." 38. Substantial damages may be awarded where a breach is established although calculation is "not only difficult but incapable of being correctly carried out with certainty or precision.": Chaplin at791.

39. For more than nominal damages to be awarded, the injured party must prove 'assessable loss': Howe v Teefy (1927) 27 SR (NSW) 301 at 306-6 (Street, CJ); or 'actual damage': Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 283 at 311 (Dixon, J).

40. Where the loss said to have been suffered is so dependant on the exercise of a person's discretion in the plaintiff's favour that it is impossible to say there has been any assessable loss or actual damage, only nominal damages will be awarded: Fink v Fink (1946) 74 CLR 127 at 134-5 (Latham CJ; Williams, J); Chaplin at 792-3 (Vaughan Williams, LJ); The Commonwealth v Amann Aviation Pty Ltd (1991)174 CLR 64 at 93 (Mason CJ, and Dawson,J). In Lavarack, the English Court of Appeal (Diplock and Russell LJJ, Lord Denning M.R. dissenting), rejected a submission that damages for wrongful dismissal could include extra benefits the contract did not oblige the employer to confer on the employee but which he might reasonably have expected the employer to have conferred on him otherwise than in performance of the contract.

41. In Amann Aviation, Gaudron J explained the part played in a damages assessment by a contractual discretion in the party in breach. Explaining The Mihalis Angelos [1971] 1 QB 164, her Honour said: (at 150) "[C]ontractual rights should be valued having regard to the known facts and, if the facts allow, it may be assumed that the contract would have been performed in the manner which most reduces the damages payable."

Relevance of the 'good faith' argument 42. I am not persuaded the authorities concerning obligations of good faith assist in the resolution of this dispute. In single judgments of the Federal Court of Australia it has been doubted that a term requiring mutual trust and confidence could be implied in employment contracts: McDonald v Parnell Laboratories (Aust) Pty Ltd (2007) 168 I.R. 375 at (398-400), per Buchanan J; Walker v Citigroup Global Markets Pty Ltd (2005) 226 ALR 114 at 156-157 (Kenny J) (the appeal, at (2006) 233 ALR 687 at [86] did not consider the point); and Van Efferen v CMA Corporation Ltd [2009] FCA 597 at [85] (Tracey J). On the other hand, as I have noted, the Court of Appeal, (by way of obiter), put forward the contrary position in C.G.U. Workers Compensation (NSW) Ltd. Here I see resolution of the case arising from construing the written contract: no implied terms of trust and confidence are necessary in its construction. Nor were any pleaded.

Method of damages calculation 43. Mr Sheller argued that the assessment of damages should be conducted in the way the trial judge (French J) assessed damages in Sellars. It is to be observed that Sellars was a claim arising from breaches of the Trade Practices Act, and damages for loss of chance were assessed on that basis. French J (at 98 ALR 431 at 535, 536) dealt only generally with the principles in a loss of chance assessment after a contractual breach.

44. However the High Court at p.355 (Mason CJ, Dawson, Toohey and Gaudron JJ), held that any deprivation of a commercial opportunity, whether arising from contractual breach, tort or contravention of s.52(1) Trade Practices Act, should be ascertained by reference to the court's assessment of the prospects of success of that opportunity had it been pursued.

45. Their honours then noted: "[T]he general standard of proof in civil actions will ordinarily govern the issue of causation and the issue whether the [plaintiff] has sustained loss or damage. Hence the [plaintiff] must prove on the balance of probabilities that he or she has sustained some loss or damage…..[I]n a case such as the present, the [plaintiff] shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which has some value (not being a negligible value), value being ascertained by relevance to the degree of probabilities or possibilities. It is no answer to that way of viewing [a] case to say that the commercial opportunity was valueless on the balance of probabilities because to say that is to value the commercial opportunity by reference to a standard of proof which is inapplicable."

46. At 364, Brennan J noted: "Although the loss of a valuable opportunity and the assessment of its amount are concepts that can be logically separated, in practice it will usually be the same body of evidence that tends to establish both existence of a loss and the amount to be recovered."
47. I have formed the view that Silverbrook's breaches, on the balance of probabilities, caused Dr Lindley to lose a valuable opportunity. I shall now explain why, and give my reasons for my assessment of the worth of that lost opportunity. I shall deal first with the salary review issue, and then the bonus issue.

No salary reviews 48. In assessing whether the breach of clause 3.2 led to the loss of a valuable opportunity and if so its value, I take into account:

On the positive side (a) Dr Lindley's salary remained the same for almost five years; (b) At the same time, Ms Lee's salary more than doubled; (c) Ms Lee is the only other employee of Silverbrook about whose salary levels there is any evidence; (d) There is no evidence other than that Silverbrook regarded Dr Lindley's work highly, and never complained about the quality or quantity of her work; (e) Dr Lindley performed significant tasks for Silverbrook; (f) The parties must be assumed to have wanted meaning to be given to the provisions allowing for salary reviews. As the party responsible for drafting the contract, Silverbrook made available the provisions for its then new employee: as the newly employed employee, Dr Lindley accepted them;

On the negative side (g) Although Ms Lee's salary more than doubled between 2003 and 2009, she began from a lower level than Dr Lindley ($150,000 vs $210,000) and she owned half of the enterprise; (h) On the one occasion when Dr Lindley requested a salary increase, in 2007, her request failed to achieve one; (i) When that request was made, Dr Lindley had worked for Silverbrook for almost four years; (j) Silverbrook had a discretion not to increase her salary, regardless of her ability and output; (k) There is the evidence of Ms Lee to the effect that: (i) She had been in charge of staff salaries; (ii) She had considered salary levels from time to time, and had consulted her fellow director about them; (iii) Though she had never carried out any 'formal' salary reviews, she had considered Dr Lindley's salary level from time to time; (iv) Even if she had conducted salary reviews, she would not have increased Dr Lindley's salary. (Of course, that is by no means the end of the matter. Ms Lee necessarily gave evidence about a hypothetical event, and, as a 50% owner of the company, with a self-interest. As I have observed, although she was not cross-examined on that evidence, that does not mean I should accept it. There are difficulties about evidence concerning hypothetical events: Ellis v Wallsend Hospital (1989) 17 NSWLR 553at 582 (per Samuels JA) Chappel v Hart (1998) 195 CLR 232 at [272] and Rosenberg v Percival (2001) 205 CLR 434 at [158];[214]. They were cases concerning patients who had sued doctors or dentists for failing to warn. Their evidence of what they would have done if warned of relevant risks is I think in a similar class to that of Ms Lee, in that it is hypothetical, and based on an assumption of something which never occurred. Whilst the evidence is admissible, it may not have great weight: Hoyts at [54]. In Culligan & Anor v ACO Pty Ltd [2009] NSWCA 290 (a claim for damages for misleading and deceptive conduct) the Court of Appeal recently said (at [81]):

"Even in the absence of direct evidence from a representee as to what he or she would have done in full knowledge of the facts, the objective evidence in a given case might support a finding that a certain course of conduct would have been taken by the representee. (Compare Civil Liability Act 2002 (NSW), s.5D(3)(b) which applies, where it is relevant to determine what the plaintiff would have done if the negligent person had not been negligent. The provision renders inadmissible any statement by the plaintiff as to what he or she would have done, except to the extent that the statement is against interest.) However, the present is not such a case.")

In the end, the question of whether any salary increase would have been paid had there been reviews must, I consider, be looked at by reference to all the surrounding circumstances: Hoyts at [56].

I have regard for the total sum Mr Sheller calculated Dr Lindley would have been paid had salary reviews and 5% increases been given and all bonuses paid in full. Although Mr Sheller invited me to apply the Sellars approach, and find that at a minimum there was a very high chance that if there had been performance reviews Dr Lindley would have received increases, application of the Sellars approach does not assist Dr Lindley in my view. Dr Lindley worked for Silverbrook for 3½ years without being paid any bonuses or receiving or demanding any salary increases and did not resign. I infer from the outcome of her one request for a salary increase in 2007, that had Silverbrook reviewed her salary in that or the following years, there was a negligible chance she would have received any increase. Although there were no reasons given for Silverbrook's response to her request, I infer from its response that by 2007 Silverbrook had become indifferent to whether Dr Lindley stayed or left, or at least was prepared to face the risk she would leave. Whether that was because it felt it could replace her easily, or with someone on a lesser salary, or had financial difficulties, I am unable to conclude, since there was no evidence on these issues.

I accept Ms Lee's evidence that she considered Dr Lindley's salary at that time, (since the request was made) and, having considered it, decided not to increase Ms Lindley's salary.

I conclude that because Ms Lindley's base salary on commencement was considerably higher with Silverbrook than it had been with Vodafone, and because she had commenced with Silverbrook on a considerably higher salary than that of Ms Lee, there was a negligible chance that if her salary had been reviewed in 2004, 2005 and 2006, the review would have led to any salary increase.

Thus, although there was a breach of clause 3.2, I am not persuaded on the balance of probabilities that this breach on its own led to the loss of any commercial opportunity of any value.

Bonuses 54. In assessing whether the breach of clause 4.2 led to the loss of a valuable opportunity and if so its value, I take into account:

On the positive side (a) Dr Lindley's financial package when with Vodafone, had been $222,000. Her base salary had been $148,000. The remainder had been made up of $14,000 for superannuation, $20,000 for a car, and an annual bonus of $40,000. Thus when head-hunted, she had given up a financial package of $222,000, for a base salary of $210,000 with discretionary salary reviews and discretionary annual bonuses; (b) There was no suggestion Ms Lindley's work with Silverbrook had involved less hours or complexity than her work with Vodafone; (c) The parties must be assumed to have wanted meaning to be given to the provisions allowing for bonuses. As the party responsible for drafting the contract, Silverbrook made available the provisions for its then new employee; as the newly employed employee, Dr Lindley accepted them; (d) The matters in [48] (a) to (e) above; (e) When Ms Lee gave evidence she would not have paid bonuses, she did not explain why; Mr Sheller invited me to draw a Jones v Dunkel inference and find that such an explanation would not have assisted Silverbrook's case: Commercial Union Assurance Ltd v Ferrcom (1991) 22 NSWLR 389 at 418-419 . She was the only person called by Silverbrook. She was the person best placed to have given that evidence. I infer her reasons would not have assisted Silverbrook's case had she been asked to provide them.

On the negative side (f) Dr Lindley was, to my observation, a person with significant business acumen and, as Mr Newall submitted, no shrinking violet. Yet there is no evidence she ever asked anyone at Silverbrook where her bonus was, or why it had not been paid, what the objectives were, or why objectives had not been set. (g) Her commencing salary had been significantly greater than Ms Lee's when she was appointed, although Ms Lee was half owner of the business. (h) The matters in 48 (g) to (k) above. (noting the discretion as to payment of bonuses in 4.3.1)

I consider bonuses are to be viewed differently from salary reviews and increases. I give limited weight to Ms Lee's evidence that bonuses would not have been paid had objectives been set. She is self interested. She necessarily gave evidence with the perspective of hindsight. Her evidence was hypothetical, because objectives were never set, and Dr Lindley's performance was never measured against the hypothetical objectives.

In performing this exercise, (as with the salary issue) a comparison is to be drawn between the actual sequence of pre-trial events, and that which would have occurred had there been no breach. I find it probable that had Silverbrook set objectives, Dr Lindley would have met them for the whole of the period of the contract. It is of course very easy to look at the history of the contract and conclude that since the parties seem not to have discussed bonuses at all, no objectives would have made any difference, no matter how well she had measured up against them. But if Silverbrook had applied its corporate mind to bonus arrangements, its obligations to set objectives, and to assess her performance against them, from a time commencing at the end of the first quarter from the commencement date, the contractual atmosphere would I find have been different. At the end of that first quarter, Dr Lindley had only just commenced with Silverbrook. She had come with good references and work history. She had taken the step of leaving one employer and moving, after being approached, to join a new one. Though her starting salary was significant, her overall salary package was less than the one she had relinquished. She had been accustomed to receiving bonuses from her previous employer. I infer Dr Lindley would have been in a far stronger bargaining position in the early part of her contract than she was in later years. Silverbrook had incurred time and (I infer) some expense in employing her. At least in that early period of the contract, I infer Silverbrook would have been concerned to try to keep her on its staff.

I am persuaded on the balance of probabilities that Dr Lindley lost a commercial opportunity of some value: (Sellars at 355) by reason of the breach of clause 4.2. I find that in the first employment year, there was a 75% chance had Silverbrook set appropriate objectives it would have exercised its discretion to pay $40,000. For the second year, to 7 September 2005, I find there was a 60% chance Silverbrook would have exercised its discretion to pay $40,000. For the third year, to 7 September 2006, I find there was a 50% chance of this occurring. Once Silverbrook had begun paying bonuses, I consider it would have continued to pay them for several years, although having a discretion not to. The fact that no salary increases would have been paid, I think, adds weight to this conclusion. In other words, Silverbrook would at that time have found it more difficult in dealing with Dr Lindley on the bonuses issue, to avoid paying bonuses, given it was not increasing salary.

As I have noted above, I infer that by 2007, when it rejected her one request for a salary increase, Silverbrook's initial enthusiasm for having her services had waned. I consider the chances are negligible that even if objectives had been set and Silverbrook had paid bonuses from 2003 onwards, after 5 April 2007 (the date of her letter requesting a salary increase) she would have been paid any further bonuses.

Based on the above findings, the value of the lost chance of a bonus for the first year would be $30,000, for the second, $24,000, and for the third $20,000, making a total of $74,000. Subject to what I say below, I assess damages which I find were caused by Silverbrook's breaches, at that sum, which should carry interest at Civil Procedure Act rates, as to $30,000 from 7 September 2004, (a year from commencement) $24,000 from 7 September 2005, (two years from commencement) and $20,000 from 7 September 2006 (three years from commencement).

I should say that at one point in his submissions Mr Sheller suggested that in performing the assessment, the court should put itself in the position of the employer. But the extent to which that should occur is limited to dealing with the possibilities and probabilities that certain events would have occurred had certain other events (such as setting of objectives) occurred. There can be no suggestion that a court in assessing the value of a lost chance is to consider what proper or appropriate exercise of discretion ought to have occurred. Nor do any questions of fairness arise. This is, as Mr Newall submitted, simply a case about what the contract says, and whether any proved loss of chance had value. And although Mr Newall said in argument that Dr Lindley's argument amounted to saying what should have been paid, that is not what her counsel argued. He merely invited me to make findings about what I consider would have happened had Silvebrook performed its obligations under clauses 3.2 and 4.2.

The ex gratia payment 61. Although no set off was pleaded, Mr Newall argued that as a matter of fairness I should give Silverbrook credit for the ex gratia payment, and set it off against any damages otherwise payable. Since the ex gratia payment was $55,575, that would (subject to interest) leave a net sum payable by Silverbrook of $18,425. However, I reject that argument. There was no evidence of the reasons the ex gratia sum was paid or by reference to what criteria. It was agreed that it represented three months salary, but otherwise the evidence was silent about it. In support of his submission Mr Newall referred to and relied on Saddington v Builders Workers Industrial Union of Australia and Anor (1993) 49 IR 323. However that case is distinguishable on its facts. It concerned a claim for loss of wages after repudiation of a contract of employment. Although breach was found, because the former employer had paid the employee a sum for a certain period from a date he was found to have accepted the repudiation, the employee was not found to have proved loss, and so was found to have had no claim even to nominal damages. I accept Mr Sheller's submission that although not completely on point, the better analogy is to be found in tort law. In Hussain v New Taplow Paper Mills Ltd [1987] 1 All ER 417, the English Court of Appeal held that an ex gratia payment by an employer to an employee who had suffered injuries in his employment could be taken into account in his damages claim against the employer. At 428, Lloyd LJ, speaking for the court, said:

"If an employee is injured in the course of his employment and the employer makes him an immediate ex gratia payment, as any good employer might, I see no reason why such a payment should not be taken into account in reduction of any damages for which the employer may ultimately be held liable. Employers should be encouraged to make an ex gratia payment in such circumstances. If so, then public policy would seem to require that such payments be brought into account." 62. There is here nothing in the evidence to suggest the ex gratia payment was referable to Dr Lindley's loss. Since there is no nexus established between the payment and her loss, I decline to take it into account.

Conclusion 63. There will be judgment for the plaintiff for $74,000. I will hear counsel on the issues of interest and costs.

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