Sheffield v Brambles Australia Limited and another

Sheffield v Brambles Australia Limited and another - [2002] NSWIRComm 3 - NSWIRComm 2001 case summary — Zoe

[74]

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.

[78]

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.

[79]

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.

[95]

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.

[100]

(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.

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