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[2002] NSWIRComm 3
Industrial Relations Commission (NSW)
2001-12-21
Peterson J
Original judgment source is linked above.
Industrial Relations Commission of New South Wales in Court Session
CITATION : Sheffield v Brambles Australia Limited and another [2002] NSWIRComm 3 revised - 21/01/2002 APPLICANT: Lindsay John Sheffield
PARTIES : FIRST RESPONDENT: Brambles Australia Limited
SECOND RESPONDENT: Brambles Industries Limited FILE NUMBER: 4136 of 1999 CORAM: Peterson J CATCHWORDS : Unfair contract - termination of employment of senior executive - six months notice provision - contract freely entered into - salary package - twelve months notice reasonable - relocation expenses - share option plan - discretion of board to commit exercise of outstanding options - superannuation - contract unfair in the statutory sense - orders to await further submissions LEGISLATION CITED : Industrial Relations Act 1996 CASES CITED : Westfield Holdings Limited v R G M Adams [2001] NSWIRComm 293 (Unreported) 21 December 2001 HEARING DATES: 04/02/2001; 04/03/2001; 04/04/2001; 04/05/2001; 04/06/2001; 05/01/2001; 10/05/2001 DATE OF JUDGMENT: 01/18/2002
APPLICANT Mr M J Kimber SC with Mr A R Moses of counsel
SOLICITOR Abbott Tout SYDNEY.
LEGAL REPRESENTATIVES: RESPONDENT Mr H J Dixon SC
SOLICITOR Corrs Chambers Westgarth SYDNEY.
JUDGMENT: - 33 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION
CORAM: PETERSON J DATE: 18 January 2002
LINDSAY JOHN SHEFFIELD v BRAMBLES AUSTRALIA LIMITED AND ANOTHER.
Application under s106 of the Industrial Relations Act 1996.
1 The applicant, Lindsay John Sheffield, has had almost 30 years experience in various managerial positions, the last 12 years of which were spent as an employee of Brambles Australia Limited ("BAL"), the first respondent. The position he ultimately occupied was that of General Manager of Brambles Security Services ("BSS"), which he commenced on 1 March 1997. His employment at Brambles came to an end on 3 May 1999 in circumstances which have given rise to these proceedings.
2 The summons for relief alleges that the contract of employment of the applicant in the position of General Manager of BSS and the collateral arrangement involving the provision of certain share options were unfair within the meaning of s106 of the Industrial Relations Act 1996 ("the Act"). Apart from seeking orders for the payment of money, the summons seeks to vary the contract from a relevant time by making the following changes: An order varying in part, either ab initio or from some other time, the said contract entered into between the applicant and the first respondent so as to: (a) delete clause 3(b) and insert instead the following clause, namely:-
"(b) as long as it is reasonable to do so, the company may subsequently require you to work or carry out services for any Company, business or entity in which Brambles Industries Limited has a direct or indirect interest ("Group") provided that: (i) unless by consent, the services that the Company can require you to under-take will be consistent with your skill, training and experience and will not constitute a demotion; (ii) all rights and entitlements that you have under this Contract will be retained by you in any such further position; (iii) you will be given three (3) months notice of the Company's intention to move you from the position referred to in Schedule A hereto along with full details as to the title/description of any new position; a statement of duties and responsibilities referable to that position; details of any proposed new reporting lines; as well as details of the number and nature of the employees that will be answerable to you in any such new position;
(iv) the Company will not be entitled to impose any new terms or conditions upon you as a consequence of its exercise of its right under this sub-clause, save in so far as any such new term or condition is not inconsistent with the terms and conditions of this contract;
(v) you shall be under no obligation to design any new position and any failure or refusal on your part to provide the Company with possible suitable alternative positions will not constitute an unreasonable refusal to accept a change of duties and will not be deemed to be notice of termination as specified in clause 15(a)". (b) Delete clause 6.3.
(c) Insert the following clause, namely, a new clause 9.3 in the following terms: "9.3 Notwithstanding 9.1 and 9.2 above, in the event that this Contract is terminated for reasons other than serious and/or wilful misconduct or poor performance, any such termination of this Contract will not terminate or otherwise adversely affect your rights to share options issued to you by Brambles Industries Limited under the terms of its Employee Share Option Plan" (d) Delete clause 15(a) and (b) in so far as they refer to "by paying base salary in lieu of notice" and inserting the following words: "Full salary package in lieu of notice, with such package including the value of all the benefits set out in clauses 5 - 8 of Schedule A and those referred to in Schedule B to this Contract. (e) Delete clause 9(i) of Schedule A in so far as it refers to"six (6) months" and insert the words "twenty-four (24) months".
(f) Delete clause 10 of Schedule A. (g) Insert a new clause 17A in Schedule A entitled "RELOCATION ALLOWANCE" that provides: "17A In the event that this Contract is terminated other than by resignation or due to your serious misconduct or dishonesty, you will be entitled to a monetary sum from the Company to reflect the actual costs of you and your family returning to Western Australia. Such allowance shall include the costs of disposing of your Sydney residence and the costs associated with the acquisition of a suitable residence in Western Australia." (4) An order varying in part, either ab initio or from some other time, the said collateral contracts/arrangements so as to insert a new clause 9 of the premium option terms and conditions in the following terms, namely: "9. Notwithstanding anything to the contrary herein contained and clause 14 of the Terms and Conditions of Brambles Option Incentive Plan, in the event that an option holder is terminated for reasons other than serious and/or wilful misconduct or poor performance, such termination will not cause the option holder's options to immediately lapse, but the exercise date of all outstanding options (whether exercisable or otherwise) shall be brought forward to the date of termination/cessation and, if not thereafter exercised within a period of 352 days shall automatically lapse provided however that the directors of the Company may, subject to any legal restriction, in their sole discretion and irrespective of whether or not the 352 day period will have passed extend the period of 352 days to a time period stipulated by the Directors and allow the options to be exercised in such extended period by the option holder or his legal personal representative as appropriate, and it is noted that the directors will extend the period in circumstances where the option holder would be prevented by the provisions of the Corporations law from selling any shares arising from an exercise of those options".
3 It also seeks the substitution of a six-months notice of termination provision with one providing for two years' notice and, consequentially, an order for the payment of two years salary at the "package" level of remuneration rather than the base rate of pay. Orders are sought for the payment of sums in relation to:
(a) 24 months notice or pay in lieu at the full value of salary package $659,229 (b) Loss of opportunity to gain superannuation benefit at age 55 $ 97,220 (c) Share options $229,356 (d) Relocation Expenses $ 36,008
4 The applicant contends that, in the circumstances of the termination of his employment, the contract (a word I shall use compendiously to embrace all aspects of the impugned contract or arrangement) was unfair in its terms and as it was performed by the respondent. That submission, contested by Brambles, needs to be tested in the light of the circumstances evidenced in the proceedings. It would be unusual indeed for a contract to appear on its face to be unfair, particularly when one is dealing with a respondent, described by the applicant as an employer he had thought was "whiter than white", and a senior manager who had input into, and ultimately accepted, the terms of the contract.
5 The factual circumstances are these. From May 1987, when the applicant was first employed as Special Projects Manager by Brambles Manford, a Brambles subsidiary which later became Brambles Western Australia Limited, he progressed through a series of managerial positions including Long Distance Manager, responsible for transport operations in Western Australia and the Northern Territory; Divisional Manager, Transport Services, responsible for all general and specialised transport within Western Australia; Divisional Manager, again in Western Australia and, in 1994, Divisional Manager, Specialised Transport Services. Over this period his remuneration had progressively increased from an initial package of $69,000 to a package of $185,000 in 1997.
6 In November 1996 he was approached by Terence Robert Mulligan, an Executive Director of Brambles Australasia Limited - a wholly-owned subsidiary of BAL - to take the position of National Manager (the title was later changed to General Manager) of BSS. He had been recommended for this position by the then Managing Director, Trevor Bourne, when the previous National Manager was transferred to another Brambles Division in January 1997 after being with BSS for eight years.
7 The salary package offered to the applicant was $28,000 above his existing package of $185,000, but this was inadequate given the increase in responsibility and the need to move to Sydney and he refused the position. Eventually, he agreed to accept the position when Mr Bourne authorised an additional allowance of $35,000 per annum net of tax, which enabled him to meet the extra cost of housing in Sydney. The housing allowance was to be $35,000 for the first three years, thereafter decreasing at the rate of 20 per cent per year, to reduce to nil after eight years. This housing allowance was utilised to support bank finance on the purchase of a suitable home in Sydney.
8 As I have noted, the applicant commenced in the role with BSS on 1 March 1997. Soon after 12 November 1997 he was invited to participate in the Brambles Industries Limited ('BIL') Share Option Plan. His application for membership was accepted and he was granted 8,700 options on 28 November 1997. On 12 June 1998 he was invited to take up further options and on 28 June 1998 was granted a further 12,000 options. Both of these options grants were made under the terms of what was described as Premium Option Issues.
9 The initial grant of 8,700 options was to vest according to the following schedule:
Prior to 28 November 1999 Nil From 28 November 1999 1,740 From 28 November 2000 1,740 From 28 November 2001 1,740 From 28 September 2002 3,480 TOTAL 8,700
10 The grant of 12,000 options was exercisable as follows:
Prior to 29 June 2000 Nil From 29 June 2000 2,400 From 29 June 2001 2,400 From 29 June 2002 2,400 From 29 April 2003 4,800 TOTAL 12,000
The exercise price for these options was $30.84 per share.
11 The purpose of the Brambles Option Incentive Plan and, in particular, the Premium Option Issue, was described as having been "designed to enable those employees to whom options are issued an opportunity to share in the future growth and profitability of the Brambles Group". The terms of the Plan required that the receiver of options would be required to hold each option for a minimum of two years although there were exceptions provided in the event of termination of employment. After two years, 20 per cent of the options would become exercisable and 20 per cent thereafter for each subsequent completed year of service with the balance becoming exercisable after four years nine months.
12 Upon resignation or dismissal the rules of the Plan provided, by clause 14: If you leave the employment of the Brambles Group after receiving options you may exercise all your outstanding options in the 60 days after the cessation of employment. The Company has a discretion to extend the exercise period in certain circumstances, such as death. IF YOU FAIL TO EXERCISE YOUR OPTIONS WITHIN THE 60 DAYS AFTER CESSATION OF EMPLOYMENT THE OPTIONS WILL AUTOMATICALLY LAPSE, AND CANNOT LATER BE EXERCISED. 13 However, with the adoption of the Premium Option Issues special terms were made applicable, including clause 2.8, which provides: Where an event contemplated by Clause 14 of the Terms and Conditions of the Brambles Option Incentive Plan occurs, or where the option holder dies, all options shall immediately lapse except. (a) those which have already become exercisable under Paragraphs 2, 3, 4 and 5 above, which exercisable options may be exercised during the period specified in such Clause 14; or
(b) where the Directors of the Company bring forward the exercise or expiry date of outstanding options under Clause 11 of those Terms, or where Clause 12 of those Terms has operated to bring forward the time for exercise of outstanding options.
14 On 14 December 1998 the applicant took sick unexpectedly and underwent a triple bypass heart operation on 18 December 1998. He was expected to be fit to resume work on 18 March 1999. At this stage he had no reason to believe that his employment as General Manager of BSS was in jeopardy. 15 The applicant's concern for the business of BSS caused him to decide to resume work on 22 February 1999. His medical advice was that he could remain at work whilst he felt capable but should return home if in need of rest.
16 Unbeknown to the applicant, Mr Mulligan, in November 1998, had caused an executive recruitment company to commence a search for a replacement for the applicant.
17 On the applicant's second day back at work, 23 February 1999, Mr Mulligan called him in and they had a conversation about which their evidence is largely consistent. The applicant expressed his expectation that he would be working until normal retirement and that his health would not be a concern - he would be 'fitter than ever' six months after the operation - and Mr Mulligan announced to him the following: I want to make a change as your role has changed and I want you to step down as General Manager of BSS. You have the choice of a subordinate position in BSS reporting to the new General Manager or you can leave. I have the permission of the new Managing Director of BAL, Bob Anderson, to replace you. Anderson asked me if I was trying to remove you because you've been sick and I told him that was not the case as I don't work like that. To this the applicant responded: This is an unfair situation to have to face one day back at work as the medicos have advised me against making any significant lifestyle changes for the first six months due to the trauma of the operation. Here you are expecting me to agree to one of the biggest decisions possible at this time in my career. To that Mr Mulligan said: You must accept the subordinate position or leave.
The applicant said: I'm well aware of the personal difficulties between us and I've made efforts to overcome them and even considered requesting Trevor Bourne to transfer me to another division in the interests of harmony. What other opportunities are available for me to transfer in place of the demotion?
They then discussed alternative positions in the course of which Mr Mulligan said in relation to the lesser role that the applicant might occupy: The role will have to be agreed between me, your replacement and you, do you have any suggestions as to what it should involve? The applicant replied: Surely it could only be in operations or sales but I really haven't any idea at this time. I will have to think about it.
Mr Mulligan then said: I want to make an announcement on Friday, 26 February 1999 as the new person in your position is starting in late March. You will remain at BSS until the end of the year and then it will be reviewed. In the interim your conditions will remain as they are. The situation will be reviewed to see if it is mutually beneficial to continue.
After being asked what the alternative was Mr Mulligan said: Leave now with 10 months salary plus relocation back to Western Australia.
The conversation continued: The Applicant: What's the alternative to non-continuance in the subordinate role after the end of the year?
Mr Mulligan: The termination package may be available. (Mr Mulligan contended in evidence that he said the termination package "will" be available). The Applicant: The termination package is insufficient to reflect my years of service and my commitment to Brambles. It should be two years rather than 10 months.
Mr Mulligan: Even Trevor Bourne did not receive two years. If Brambles gave me two years salary, then I would leave.
The Applicant: I will need time to think. Can we meet again on Thursday?
Mr Mulligan: I need to make an announcement as time is important. If you agree, I will state that you are not returning to your role because of health reasons.
The Applicant: No, that is an untrue statement, let along giving me problems for any future position of employment.
Mr Mulligan: I can state that you are being replaced and demoted if that is what you prefer.
The Applicant: If that is the truth, so be it. The applicant indicated that he would speak when he was ready with Mr Anderson. Mr. Mulligan said: If you choose to remain in the lesser role, you will be expected to be supportive and cooperative as any other attitude would be unacceptable. The applicant said: I am a professional person and these comments are unnecessary. The applicant agreed not to discuss this situation with anyone else at BSS.
The applicant and Mr Mulligan met again on 25 February when Mr Mulligan was handed a hand-written record of the previous meeting prepared by the applicant. In this conversation Mr Mulligan said: I intend to put out a notice by Friday, 26 February whether you agree to the change or otherwise and I will state that you will not be returning to your role. to which the applicant responded: I believe I should complete my sick leave as recommended and will advise you further as to my situation on 18 March 1999. Mr Mulligan then said:
You will need to give some thought to the option of the subordinate role and advise me of the duties. The Applicant: It is not clear in my mind how this could work and it could be detrimental to the harmony of the division.
Mr Mulligan: I have increased the offer of the termination payment to 12 months.
The Applicant: I will contact Bob Anderson and seek an appointment over the next two weeks to further discuss my situation.
Mr Mulligan: There are no other positions available and you should take your time and carefully consider the situation before replying. I know that you are a proud person.
18 The applicant then decided to stay at home until the end of his sick leave on 18 March. This was later extended to 31 March 1999 and approved by Mr Mulligan.
19 On 26 February 1999 an announcement was made by Mr Mulligan in the following terms: Mr Lindsay Sheffield is absent on sick leave and will not be returning to his current position. We wish Lindsay a speedy recovery and hope to see him back in the near future. Effective 22nd March, Mr Howard Wigham will take up the position of General Manager of Brambles Security Services. Howard joins Brambles with extensive marketing and general management experience. He holds a B.Sc. (Hons.) and is fluent in German. He joins Brambles following roles as Marketing Manager for Aristocrat Leisure and Group General Manager AWA. We wish Howard well in his career with Brambles. TERRY MULLIGAN EXECUTIVE DIRECTOR BOB ANDERSON MANAGING DIRECTOR
On 2 March 1999 Mr Mulligan wrote to the applicant describing available options as follows: 1. Continue to be employed in Brambles Security in a role to be agreed between the new General manager, yourself and myself. This role will probably be in the operations area but I asked you to give your view on what role you would like giving options if you have more than one proposal. Your salary and conditions would continue unchanged. Should you accept this option, you would of course be subject to the normal conditions that relate to all employees. In February 2000, the situation would be reviewed to determine if the situation was mutually beneficial. 2. You leave the company, in which case the following conditions apply: (a) You would continue to be employed until the end of May or until you found a new position, whichever occurs first. During this time your existing conditions would apply.
(b) During discussions, I said you would be paid 10 months of base salary on separation. I am now prepared to lift that to 12 months of base salary.
(c) The housing relocation allowance you are currently receiving will continue to be paid until end July 1999 or until your Sydney property is sold, whichever is the earliest.
(d) Reasonable expenses involved in selling your property and returning to Perth.
20 The applicant regarded that letter as unsatisfactory and then arranged a meeting with Mr Anderson which took place on 11 March 1999. During the course of this conversation Mr Anderson said: I will review the termination package with Terry Mulligan to see if the offer is fair and reasonable. When the offer is confirmed, I don't think it can remain out there much longer and you should re-read your contract and relocation agreement to fully understand the offer. And later: I agree. You should seek legal assistance and advice to help you in this matter. If you wish to discuss this further you can ring me if you wish.
21 On 15 March 1999 the applicant received a revised offer of termination in the following terms: Dear Lindsay, Following your discussions with different people in Brambles, I outline below the terms and conditions covering your severance from the company. 1. You will continue to be employed until the end of May 1999 or until you have found a new position whichever occurs first. During this time your existing conditions will apply.
On separation you will receive 12 months of base salary.
The housing relocation allowance you are currently receiving will continue to be paid until end September 1999 or until your Sydney property is sold, whichever is the earliest.
Reasonable expenses involved in selling your Sydney property and returning to Perth will be met by the company.
You have continued use of the company vehicle until the end of May; at that time you are authorised to buy the vehicle at the current market value in line with company policy.
The company will pay for reasonable outplacement assistance with a reputable outplacement firm nominated by the company.
Would you please signify your agreement to the above by signing and returning the attached duplicate copy of this letter by 31st March. If agreement is not reached by end March, the company will commence termination in accordance with your contract of employment. Terry Mulligan Executive Director 22 The applicant noted there was no reference to share options in that letter and then contacted the Share Manager of BIL, Mary Knight, and told her of his 20,700 premium options and what appeared to be an opportunity to benefit from their disposal "subject to directors' discretion". Ms Knight said: Are you leaving because of ill health? The applicant said: No, Terry Mulligan has informed me I must take a demotion or leave the company. Ms Knight said: All outstanding premium options will expire on your termination of employment as the exercise date of those options will be brought forward to that day. There is not a period of 60 days from the date of cessation of employment to exercise your options within applicable to the Premium Options Issue as there is under the Option Incentive Plan. The applicant said: As the date of termination would be known in advance, surely at the discretion of the directors the outstanding options could be exercised on that day and the shares issued to me for disposal or otherwise? There is no cost to Brambles. Ms Knight said: I will refer these matters to Doug Corben, Brambles Company Secretary, for his advice and we'll call you back. The applicant received no response thereafter from the second respondent until after the termination of his employment.
23 There then occurred a series of exchanges between solicitors on behalf of the applicant and those for BAL. The final letter from the applicant's solicitors made the point that: Your client should be in no doubt that Mr Sheffield seeks to honour the Contract of Employment in its observance and not in its breach, by him. Mr Sheffield is committed to accepting reasonable alternative employment by way of redeployment provided such is offered and accordingly the matters referred to in numbered paragraphs 1 to 7 (both paragraphs inclusive) of our letter of 15 April 1999 remain apposite. Whilst you have not responded in terms to those requisitions clearly they are relevant to the issues to be discussed and agreed between our respective clients as part of the redeployment process. They do, after all, inform the ongoing employment relationship. Please advise what steps Mr Sheffield should now undertake in order to continue the discussions with respect to redeployment?
24 On 3 May 1999 the applicant received a notice from Mr Mulligan in these terms: Dear Mr. Sheffield, EMPLOYMENT I refer to my letter dated 15 March 1999, to the letter which Abbott Tout sent on your instructions to Bob Anderson dated 31 March 1999 and to the recent correspondence between Abbott Tout and Corrs Chambers Westgarth. You have made it clear to me personally and to the Company that you are not prepared to accept redeployment to any position within Brambles Security Services. I have had the opportunity to read the correspondence which has passed between your solicitors and the Company's solicitors. Although your solicitors have sought to give the appearance that you are prepared to discuss with me redeployment within Brambles Security Services and to accept redeployment, I am not satisfied that this genuinely reflects your intention. As the Company's solicitors recorded in their letter to your solicitors dated 20 April 1999, the position was and is that I do not have confidence in your capability to adequately perform all the duties required of the General manager of Brambles Security Services. I have taken the view that your refusal to accept a change of duties within Brambles Security Services is unreasonable and that the unreasonable refusal is deemed to be a notice of termination given by you to the Company within the meaning of clause 15(a) of your contract of employment. However, should there be any doubt as to whether this is so and in order to remove any doubt, this letter is also to be accepted by you as a notice of termination pursuant to clause 15(b) of your contract of employment.
25 It is noteworthy that between the meeting with Mr Mulligan on 26 February 1999 and Mr Mulligan's letter of termination dated 3 May 1999, the applicant and Mr Mulligan had no personal communication, such contact as they had being in writing, in part with the involvement of legal representatives. 26 The applicant was paid on termination his salary for the month of May, annual and long service leave due, plus six months' pay in lieu of notice at his base rate of $150,000 per annum. Nothing was then mentioned about the share options, but on 11 June 1999 Ms Knight wrote to him advising that under the Premium option terms of the Brambles Option Incentive Plan the 20,700 options held by him had "automatically lapsed on your termination of employment with the Brambles Group and are therefore not available for exercise".
27 On 16 June 1999 the applicant wrote to Mr Corben, the company's secretary of the second respondent, seeking the exercise of discretion by the board of directors to permit him to exercise his outstanding premium options. His letter detailed the history leading up to his termination and the previous silence from Brambles until the receipt of Ms Knight's letter of 11 June.
28 On 8 July 1999 Mr Corben replied in the following terms: BRAMBLES OPTION INCENTIVE PLAN - PREMIUM OPTIONS
I advise that the directors of Brambles Industries Limited considered your request at their meeting on 1 July, 1999. Your request was refused. 29 Certain difficulties arose between the applicant and Mr Mulligan during the period of their relationship. In describing them, I shall repeat some of the facts earlier set out. In essence Mr Mulligan formed the view that the applicant did not have the capacity to lead BSS in a market which had become more competitive. His evidence went to material relevant to the reasons why he formed this view. Equally the applicant's case included evidence going to his performance which was, in his opinion, satisfactory and, importantly to him, uncriticised. I do not intend to traverse this material at any length for reasons I shall develop in my conclusions. 30 Having come to his view, Mr Mulligan, engaged a recruitment company to search for a replacement for the applicant. Further, on 25 November 1998 he raised this at a Succession Planning Committee meeting. Such meetings were held every second month to consider the succession of managerial staff and were attended by all Executive Directors of the Brambles Group. If a meeting accepted that the raising of an issue concerning an individual was warranted, a search by all Directors for any suitable vacancy within their areas of responsibility was automatically their obligation. It was the duty of any Director finding a vacancy to notify it to, in this case, Mr Mulligan. He received no such notice. Mr Mulligan also made a particular enquiry in W.A. to see whether there was anything suitable but to no avail. 31 Mr. Mulligan formed the intention to remove the applicant from Brambles but the illness occurring in December 1998 caused him to consider that "Brambles owed it to the applicant to give him some financial security by finding him an alternative role if that could be achieved". The implementation of that intention is summarised in para. 19 et seq hereof. 32 As a result of the outside executive search, Mr Howard Wigham was appointed to the applicant's (then practically vacant) position from 22 March 1999. 33 The final claim concerns superannuation. The summons for relief made a claim for recovery of an anticipated loss of opportunity to receive a taxation benefit by retiring at age 55 years. The applicant in fact turned 55 years of age on 1 May 2001. Accordingly this claim was not pressed and another concerning the loss of benefit or return actually received during the two years following termination was substituted. As to this claim, it was submitted for the applicant that had he been given 12 months in which to find other work within Brambles and then 12 months' notice, he would have had attributed to his superannuation account a further sum from employer contributions of approximately $22,500. Further, unchallenged accountant's calculations, based on an 11.5% rate of return of the Brambles fund, suggested that his account would have accrued $78,536 over that 2-year period. His loss was $63,409.60, after allowing for the return he achieved of only $15,126.40. The claim pressed was for these amounts, totalling $85,909.60.
34 The respondents have submitted that they should not be required to make good any loss based on the applicant's choice of fund and his election to take some superannuation as cash. They put forward a schedule of fund rates of return over the relevant period, which it was argued supported the proposition that he might have achieved, in effect from wiser investment decisions, a rate comparable to that of the Brambles fund. 35 The applicant's position was that he initially transferred his superannuation funds to the Colonial First State Rollover and Superannuation Fund - Capital Secure ("the Colonial Fund") on 18 August 1999. This decision was made under pressure (having only 60 days from termination to transfer funds from the Brambles Fund) and at a time when the applicant had great concerns about his ability to meet his ongoing financial commitments. Given his uncertain financial future the applicant considered it was vital that he be able to access the funds if necessary. The applicant submitted that it was rational for him to seek a secure investment that he could access when and if necessary before age 55.
36 In or around October 2000 the applicant transferred these funds to the National Australia Bank. The money was placed in two funds, the Balanced Fund ("the National Fund") and the Parking Fund. A portion of the money was placed in the Parking Fund, again, to allow the applicant to access this money if necessary to meet his ongoing financial commitments. The applicant had at October 2000 been unemployed for approximately 17 months and there was a real risk that he would need to access part of the funds to secure his mortgage and other financial commitments prior to reaching age 55. It was therefore rational at this time, it was submitted, to place part of the funds in a parking fund to meet this need.
37 As to the respondents' schedule detailing the performance of various funds as at 31 August 2001, the applicant submitted the schedule did not take account of the applicant's need to maintain part of the funds in an accessible holding account so that he could access it when required or the need for a low risk investment given his difficult financial situation following termination. In effect, the schedule sought to compare (with the benefit of hindsight) the returns of long term superannuation investments with higher risks which could not be accessed with the returns received by the applicant in the lower risk and accessible funds. The schedule relied on hindsight to contend that the applicant could have made a better choice of superannuation funds when he was attempting to mitigate his loss and ignores the financial constraints. The applicant submitted that his choice of funds was rational at the time based on his financial needs which arose as a direct result of the termination of his employment by the respondent.
38 Senior Counsel have made substantial submissions in writing, which were developed orally. I do not intend to summarise those submissions but in my conclusions I will attempt to deal with them to the extent necessary to resolve each issue raised. The first issue involves the applicant's contention that Brambles, through Mr. Mulligan, acted inhumanely in replacing him and unconscionably in its treatment of his application for the early vesting of share options. The inhumane behaviour alleged concerns the method, the timing and the manner of that replacement. The starting point for consideration must be the view formed by Mr. Mulligan that the applicant was not equipped to carry BSS forward in its newly-developed business environment. As against that is the approach of the applicant to the question raised by that view, namely that his performance was strong and the demands made and expectations of him were unreasonable. I consider it would be futile to attempt to decide whether either of the competing views was justified. In the end it was Mr. Mulligan's responsibility to decide whether he had the requisite confidence in the applicant and to act upon his opinion. Where reasons for termination involve such intangible considerations, not specific cause or fault, this Court's function is not to gainsay that decision but to consider the consequences for the applicant in the context of his contractual rights, their fairness and the manner of their exercise. After all, strong performance at a particular level or in a position is no guarantee of success upon being selected for promotion. However, it is necessary to stress that I do not find that, in deciding to replace the applicant, Mr Mulligan was motivated in any way by malice felt towards the applicant. I accept Mr Mulligan was concerned to do only what he thought was necessary in the best interests of BSS. His evidence in this regard I found convincing. There is no reason here to doubt why Mr Mulligan acted but that is not to say that the treatment of the applicant was not unfair in the relevant statutory sense.
39 It is patently clear that the timing of the revelation to the applicant that he was to be displaced could hardly have been worse. Here was a senior executive, just returned early from major, life-threatening surgery, who is confronted with disastrous career news. It is impossible to feel other than great sympathy for him in that circumstance. However, that sympathy must be tempered by an appreciation that Mr. Mulligan's predicament was also dire. Accepting, as I do, that his concerns for the BSS business were genuinely held, it was incumbent on him, in the interest of BSS, to act. BSS must be regarded for this purpose, if not all purposes, as being not simply a corporate entity, but a business consisting of a body of employees also requiring protection. In a sense both the applicant and Mr Mulligan were presented with no-win, but inevitable, situations. Where I consider Mr Mulligan failed in addressing the problem was in doing what he considered reasonable, that is in giving the applicant an opportunity to develop his own suggestion as to what he might do under the new General Manager. This seems to me to have transferred to the applicant the obligation which properly fell upon the employer. To so approach it was inconsistent with the statement of obligation advanced by Mr Mulligan and quoted in para. 31 hereof. It was this which led eventually to a virtual stand-off between the applicant and Mr Mulligan and had a serious impact on the ending of the employment. That this was so is illustrated by the letter of termination itself (set out in para. 24 hereof), which described the applicant's conduct as a "refusal to accept a change of duties" which was "unreasonable". 40 Those references reflect the words of clause 4 of the applicant's contract which, in conjunction with clause 3 (b) imposing an obligation on the applicant to "work or carry out services for any company, business or entity in which Brambles Industries Limited has a direct or indirect interest", were challenged by the applicant as being relevantly unfair and justifying variation of the contract.
I do not find those terms of the contract unfair at all; they were simply misapplied in an unfair way, as I have described.
41 I turn next to the issue of notice. The applicant's written contracts of employment prior to his appointment as General Manager of BSS provided a notice period (and payment in lieu thereof) of "at least six months." The contract pertinent to the position of General Manager of BSS provided for "six months notice" or payment in lieu thereof. The contract also provided, by clause 15 (c), for termination by "the giving of such other period of notice as may be mutually agreed". Mr Kimber submitted that the earlier contracts providing for at least six months notice were intended to provide an opportunity for greater than six months notice and that the removal of the words "at least" in the 1997 contract amounted to a diminution of the benefit. It may also be said, I would have thought, that clause 15(c) of the 1997 contract may have been intended as much to contemplate notice of greater than six months. I do not regard the rewriting of the clause in the 1997 contract as introducing any inherent unfairness. As it eventuated there were discussions between Mr Mulligan and the applicant about notice which culminated in an offer of what was effectively three months employment plus a twelve months payment at the base rate of pay. This was described by Mr Dixon in his submissions, after setting out clause 15(c), as a real and genuine attempt by the first respondent to reach a mutually agreed period of notice. I accept that position, given what I consider was the first respondent's erroneous view about the applicant's willingness to remain with Brambles. Nevertheless, the existence of clause 15 (c) seems to me to be a very significant fact in the matter. It reflects a view that the 1997 agreement was intended to operate in a way which would produce a fair result in the circumstances rather than by the application of a predetermined formula.
Were it not for the existence of clause 15(c), I would have some difficulty with the proposition that the Court should find that six months notice was inherently unfair. There is no question that the contract was freely entered into. The applicant was a senior manager, who had initially declined an offer of the position but who, after being approached again, was able to induce certain improvements in the terms upon which he would accept the position of General Manager. The notice provision was not a term which caused him any concern at the time. I consider that unless unfairness in contractual terms of this type is glaringly obvious the Court should not too readily interfere by finding the notice period unfair. Managers at senior levels in corporations must, I consider, be given an opportunity to make their own bargains and, in the absence of plain unfairness, whether on the face or in the circumstances of their making, it is desirable that both parties be encouraged to observe those bargains. Of course, each case will necessarily depend on its own facts.
42 Here, however, the bargain was not confined to six months notice and contemplated the possibility for something else; indeed that alternative was pursued between the parties but not resolved. The inability to resolve that issue left the applicant in a situation where he was driven back to what can only be seen as the minimal terms of his contract as to notice. A significant aspect of the failure to agree was the view of the first respondent that the notice period should be confined to the base rate of pay. The six months notice period would have given the applicant $75,000 gross payment, leaving aside any statutory entitlement, after twelve years service. The offer of twelve months in lieu of notice would have produced $150,000, which is to be contrasted with his package rate of $329,000. To leave him with $75,000 in this context would obviously be unfair. It illustrates the way in which the contract as performed, or the conduct of the parties, may produce a contract or arrangement which is unfair within the meaning of section 105 of the Act. The applicant would be left in a relatively parlous state for reasons which I will now deal with.
43 The applicant's case included an attempt to establish that Mr Mulligan's view of the applicant concerning alleged poor performance was of recent invention; that the previous General Manager of BSS had managed the business poorly and had run it down, with the consequence that Mr Mulligan held unreasonable expectations of the applicant; and that the applicant had indeed generated substantial improvements in the business. These issues seem to me largely irrelevant. Mr Mulligan, one would have thought not unnaturally, did have managerial issues from time to time including issues of substance which he raised with the applicant. At no stage, however, did the applicant ever appreciate that these matters were of such substance that his employment was in jeopardy. The real point seems to me to be that Mr Mulligan came to the view that the applicant was simply unsuitable in the changed market conditions and decided it was necessary to find a replacement. This is no slight on the applicant. The applicant was described by Mr Mulligan as very experienced - commercially quite astute - a hard worker - with a good focus on business objectives. He also described him at one stage as a "reliable, secure and solid manager." A three-year business plan prepared by the applicant was described by Mr Bourne, then the Managing Director of the first respondent, as the best he had ever seen. Other witnesses, Mr Dietrich and Mr Milroy, gave evidence of the applicant's performance in particular contexts as being accomplished and commendable.
44 Any issues of a job-threatening kind which Mr Mulligan may have had with the applicant were never raised with the applicant. It is unnecessary to determine whether they were of recent invention because the failure to bring those matters forward during the continuance of the relationship destroys their value at this stage. They are to be treated now as no more than an ex post facto rationalisation of events. They cannot provide any basis for the resolution of the issues in this case.
45 I conclude, on the issue of notice, that the contract as between the applicant and the first respondent operated unfairly, in that after twelve years of service in managerial roles the applicant was left, as a result of the parties failure to agree to a reasonable period of notice, with only minimal benefits which do not reflect a fair entitlement having regard to his service, his position and his circumstances.
46 I consider twelve months notice to be entirely reasonable in this case, where, had the applicant received notice and been afforded a positive offer to undertake work suitable for him, other opportunities may have presented within the Brambles organisation. It is also reasonable in the context of a willingness to continue with Brambles, but which was treated by the first respondent as a position not genuinely held. It was inappropriate for the first respondent to take the position that it did in the face of entreaties from the applicant through his solicitors for proposals with respect to work. Another factor which supports substitute notice at that level is the absence of any credit in the notice provision in the contract for the possibility that the applicant might have become surplus to requirements. The traditional view that a redundancy occurs where an employer no longer requires the job performed by an employee to be undertaken by anybody has some operation here. While the applicant was replaced, in the sense that a new General Manager of BSS was appointed in his stead, the rationale for replacement was that the job had changed to the point where the applicant was no longer able to bring to it skills that were necessary. It follows that the job he had been employed to do and for which there is no real dispute he had appropriate capacity, was no longer available to him. That job no longer existed. Therefore, while the position of General Manager remained, the applicant became in every sense a supernumerary.
47 In my view, it was unfair that the contract would contemplate the treatment of those circumstances, which are more akin to redundancy, as though an employee was being terminated for fault falling short of misconduct.
48 I now turn to the issue of the rate at which the notice period should be paid. Clause 6.3 of the applicant's contract would confine the rate to the base salary. In this case I have come to the firm view that the appropriate level should exceed that of the base rate but not be the full package rate. As I have said, the application of the base rate to the applicant would produce a benefit which is astonishingly small given his service, age and limited career prospects. While that is a factor to be considered, there are additional factors in play here. A principal consideration is that the applicant and his family are transferees from Perth to Sydney, solely due to the needs of BSS. The cost associated with the transfer were fully met by the first respondent and the relocation allowance, reducing over a period of years, was designed to ameliorate the housing cost burden faced by him in the Sydney market. That burden has obviously continued subsequent to termination of employment. Had the termination been effected by fair notice that burden would have been supported for the notice period by the allowance. There is no reason why the applicant should not have the benefit of the inclusion of the allowance for the period in respect of which the payment in lieu of notice might be made applicable. Were it otherwise, costs associated with satisfying the first respondent's needs would be transferred to the applicant.
49 It is also necessary that the applicant have the benefit of relocation expenses to meet any cost associated with separating from Sydney and returning to Perth. That return was always within the contemplation of the parties and indeed, the payment therefore formed an element in the pre-termination offer of Brambles which lapsed upon the parties failing to agree. 50 Accordingly, I find clause 6.3 of the contract unfair in the statutory sense.
51 I now turn to a consideration of the claim with respect to share options. Options were issued to the applicant under the Brambles Option Incentive Plan. The terms of clause 14 (set out in para.12 hereof) permit an employee, departing for any reason, to "exercise all your outstanding options in the 60 days after the cessation of employment". The applicant's options then outstanding, in the sense that they were available due to the passing of time, were exercised by him within the period of sixty days following the termination of his employment. The term "outstanding options" in clause 14 appears to have two meanings. In the original Plan, it appears that "outstanding options" may be not only those vested but not exercised but also those not yet vested. Clause 2.1, Definitions, of the Plan, defines "outstanding options" as "options which have not yet been exercised". This definition is equivocal. That it may embrace both vested and unvested options seems to be supported by clause 4.1, Exercise of Options, which refers to outstanding options not yet exercisable, in the following way: The options shall not be immediately exercisable but shall become exercisable in the manner stated on the face of the option certificate PROVIDED THAT all outstanding options which, by virtue of the provisions of this clause, are not yet exercisable, shall become immediately exercisable…
52 The claim concerns premium options received by the applicant under terms which caused such issue to lapse upon termination of employment, subject only to the discretion of the board of directors of the second respondent to grant an early exercise.
53 The issues which arise in respect of the options claimed are, firstly, the validity of clause 8 of the premium option terms, which prescribes that the option shall immediately lapse upon the cessation of employment except where the directors bring forward the exercise or expiry date of outstanding options. Secondly, the failure of the option incentive plan and the premium option issue to take into the account the differing circumstances which may pertain to the termination of a participating employee. Thirdly, the matter of the exercise of discretion by the board in declining to grant the applicant an extension of time. 54 The effect of clause 8 of the premium option terms is to apply the lapse on termination effect, which contrasts with clause 14 of the Brambles option incentive plan which affords a sixty-day period after termination to exercise options. It appears from the evidence, particularly of Mr Corben, that clause 8 was promulgated by the directors in reliance upon clause 17 of the Plan which provides: Upon the issue of any options, the Directors of the Company may impose (and are deemed always to have had the power to impose) at their discretion, conditions restricting the exercise of those options to circumstances which reflect improved performance, by any target dates specified by the Directors, in the Company's share price and/or earnings per share and/or dividend yield and/or total return to shareholders over and above those prevailing at the time of issue of the options. This Clause 17 prevails over Clause 14.
55 The fundamental argument in favour of invalidity of clause 8 is that it does not reflect the circumstances prescribed by clause 17 for restricting the exercise of options, namely those "which reflect improved performance …….". There is no evidence that the introduction of clause 8 had ever been the subject of specific approval by the shareholders of the second respondent. Indeed, Mr. Corben, having been company secretary of the second respondent since approximately 1984, had no recollection of that having occurred. Thus its validity is dependent upon its reliance on clause 17.
56 The respondent's position was that the premium option terms were entirely consistent with the objective of the shareholders and the provisions of clause 17 of the Brambles Incentive Plan. I consider this view to be correct. Viewed as a whole, the premium option terms are primarily conditioned upon the achievement of particular performance targets identified in those terms. The options were to become available, each year commencing from the second anniversary of the date of issue of the options, at the rate of twenty percent per year. The exercise of twenty percent of the holder's options was contingent upon the company's annual diluted earnings per share exceeding a particular cents per year figure (or such other figure as might be set from time to time by the board). If the applicant's argument that clause 8(b) (the lapse provision) was invalid was correct, and had the effect that such options would become exercisable upon the termination of employment, the obvious and fundamental objective of the premium options issue would fail. Namely, in the case of the termination of an option holder the performance requirements of the grant would be rendered nugatory. This would defeat the express intention of the shareholders in approving clause 17 of the Brambles Incentive Plan. I consider the imposition of a requirement that in order to exercise premium options the holder must be in employment (subject to the discretion of the board) is consistent with clause 17 and accordingly not invalid. 57 It seems to me that the two remaining questions posed for decision on the subject of share options, namely the failure of the Option Plan to react to differing circumstances of termination, and the exercise of discretion in this case by the directors, ought be treated as one issue. The terms of the Plan applicable to non-premium options seem to have a curious effect when employees are terminated for different reasons. For example, clause 14 would give the retiree no different treatment to an employee dismissed for misconduct. If the benefit is itself fair (as there is here no reason to doubt), then that would seem to be to the advantage of the defaulter and not the disadvantage of the retiree. 58 However, contrasting the theoretical defaulter's benefit with that afforded to the applicant, there appears to be a clear disadvantage accruing to the applicant, in that he would receive nothing in respect of unvested options while the defaulter would receive all of his unvested options, although under a different grant. In these circumstances it appears obvious that the discretion referred to in clause 2.8 (b), relating to premium options, assumes considerable significance. Regrettably, here the exercise of that discretion seems to have miscarried. 59 The factors taken into account by the board in declining to grant the applicant an advance of his vest date were: (a) that he was not "a long-serving employee", yet he had longer service than Mr. Mulligan, who was given an advanced date, thereby permitting him to exercise his options. His service was almost as long as a number of other executives who also received a favourable exercise of discretion.
(b) that he was being terminated by Brambles, but in circumstances where there was at least a misunderstanding on Brambles' part about his willingness to remain. His treatment contrasts with that afforded an executive senior to him who was terminated for poor performance yet given the opportunity to exercise 50% of his premium options.
(c) that he was not retiring from employment. He was never advised this was a factor the board would pay regard to and, while he then had no such intention to retire, the vagaries of employment circumstances today for the former executive may visit that very result upon him. Nevertheless, the board has treated other executives as having 'retired' where there was fairly obviously no intention to be bound to retirement. These former executives, including the former Chief Executive, were able to receive their full options and then move on to other positions or, in at least one case, return to consult to Brambles. 60 The applicant also raised in argument factors which the board did not pay regard to but which Mr. Corben accepted in evidence were relevant to the exercise of the board's discretion. These were: (a) Ill health, redundancy, changing job requirements. While the applicant was clearly in poor health at the time, this was not referred to, whereas Mr. Mulligan was treated as being ill when later he was terminated, although he denied this was the fact. He was also made redundant, as was another executive whose application for the early exercise of premium options was approved.
(b) The applicant's overall contribution to the company.
(d) The number of options which would vest in any notice period the applicant may have been permitted to work out.
(e) The immediate loss of benefits and the personal circumstances of the applicant. 61 These features satisfy me that the applicant was dealt with harshly in the context of his employment, the terms of the option plan and the history of the respondent's treatment of other executives. In substance, he was treated as though he was the cause of his own difficulty when, in truth, he was largely a victim of circumstance. I am satisfied that the applicant has made out a case for a remedy on this issue. The summons for relief seeks variation of the contract and the terms of the option plan to put the applicant in the position he would have been in had the discretion been exercised in his favour. Subject to my assessment of the degree of success he should have in that respect, I consider that form of remedy is justified. 62 I am troubled somewhat by the idea that all options should be treated now as available for exercise. My inclination is that something less than 100% ought be awarded. However, I am now conscious of the judgment of the Full Bench of the Court in Westfield Holdings Limited v R G M Adams (Unreported, 21 December 2001, NSWIRComm 293) which considered this question in the circumstances of that case and with reference to a number of other decided cases. It seems desirable that the parties should have an opportunity to address further submissions on that case and subject. I am also aware that the applicant has requested an opportunity to be heard on the matter of the level of any monetary order given the variations in share price which have occurred since the date of termination. In these circumstances I will hear the parties on these questions and also costs at a date to be fixed. 63 I turn to the claim under the head of superannuation. The evidence and arguments are referred to in para. 33 et seq. I consider the applicant's case is strong in this respect. There can be no doubting that, to a significant extent, the losses on this aspect were a result, in a very direct sense, of the termination of employment. While it is true that the losses were in part referable to the way in which the applicant was required to deal with his funds, this was caused by the fact of the termination. I consider it would be unfair indeed to regard these losses as a result of his actions, remote from the causal event. There is also room for the conclusion, as was put for the applicant, that the rate of return available to him in alterative funds was not as attractive as the respondents submitted. To the extent the contract failed to take account of these consequences for the applicant of the respondents' actions, it was relevantly unfair. I would award the applicant a sum in this respect which would cover the loss attributable to the period of twelve months' notice which I have substituted.
64 The making of orders will await the further hearing to which I have referred. I intend to award interest on the judgement when quantified.
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Sheffield
Brambles Australia Limited and another