UGL Rail Services Pty Limited v Janik

UGL's Option Plans 27Prior to 2005, UGL had in place an Employee Share Option Plan (ESOP). Under the ESOP, options were typically issued only to senior executives who reported directly to Mr Leupen and to employees who reported directly to those senior executives. The procedure was that in about May each year the CEO of each UGL business division would nominate employees to be allocated options. The nominations were then sent to the Human Resources (HR) section, collated with other nominations and forwarded to Mr Leupen for his consideration and approval. UGL's Remuneration Committee approved the aggregate number of options to be awarded, but within that limit left it to Mr Leupen to approve the allocation of options to individuals. 28On 15 December 2004, UGL's Board resolved to approve certain amendments to the ESOP and to give Mr Leupen formal authority to "allocate options for recruitment and remuneration purposes after referral to the Chairman". 29During the first half of 2005, UGL developed a remuneration strategy which involved the "rollout" of a significant number of options across the UGL Group. This strategy was known as the Broader Employee Share Option Plan (BESOP), but the allocation of options was to take place pursuant to the ESOP. Under the BESOP, options were to be allocated to each UGL business division based on its business contribution. From this allocation, eligible employees in each division would be granted share options based on a formula designed to ensure that they received a set proportion of salary over three years. 30In February and March 2005, a number of senior executives of the UGL Group were allocated options under the ESOP. The number of options allocated to each executive ranged from 60,000 to 200,000. The exercise price in each case was $7.23 (and $7.50 in the case of the 200,000 offer) and the vesting dates (in three tranches) were 1 September 2006, 1 September 2007 and 1 September 2008. Mr Janik was not granted any options during this period. 31On 13 June 2005, Mr McLuckie sent an email to Ms Whipp attaching an "options recommendations spreadsheet". The spreadsheet contained a list of 11 names against each of which was a recommended number of options. The recommended number for Mr Janik was 40,000. The spreadsheet did not include any explanation for the recommended numbers, other than a reference to the foreign citizenship of one nominee. The last item on the list was "Miscellaneous", recommending the allocation of 200,000 options to "be based on succession planning". The total number of options recommended by Mr McLuckie was 780,000. 32The following day Ms Whipp forwarded Mr McLuckie's recommendations to Ms Hayes, UGL Group's Financial Controller and Company Secretary, and to Ms Worrall, Group Manager, HR. 33On 6 July 2005, Mr Leupen sent a memorandum to Division CEOs, including Mr McLuckie. The memorandum emphasised the need to deal with salary reviews in "a fully structured and consistent way". The memorandum referred to option arrangements as follows: "we have a plan to rollout a significant number of options across the group after the July 28 EGM. I would like to receive your recommendations of say your top 20-30 people in the four new main trading entities going forward for inclusion in our option scheme (ie. Rail, Infrastructure, Resources and Services). We need to specifically address the needs of the new companies Alstom and Premas - and no options will be issued without dealing equitably and concurrently with our 2,800 international staff."

The ES Agreement and Side Letter 34The ES Agreement between UGL Rail (then known as United Goninan Ltd) and Mr Janik was finally executed on 29 July 2005. It provided that UGL Rail would employ Mr Janik in the "Position" (cl 3.1). That term was defined to mean: "the position of General Manager Strategic Projects of the Company, or any other position as may be agreed in writing by the Company and the Executive from time to time." 35The ES Agreement was said to commence on 1 January 2004 and to continue "until terminated in accordance with this Agreement" (cl 3.2). Mr Janik was required, among other obligations, to report to the CEO of UGL Rail or such other persons nominated by the company from time to time (cl 4.1(g)). 36The ES Agreement provided for Mr Janik to receive a "Total Remuneration" of $213,200 per annum, inclusive of superannuation contributions (cll 5.1(c), 5.2). UGL Rail was to review the Total Remuneration not less than once each year (cl 5.5). Subject to achieving performance indicators, Mr Janik was entitled to payment of an annual "Performance Bonus" (cl 5.6). 37Clause 6 of the ES Agreement, the Options Clause, provided as follows: "SHARE OPTIONS PLAN The Executive shall be entitled, subject to eligibility rules, to participate in the annual share options plan and employee share plan which are both reviewed annually and at the discretion of the United Group Board. The Chief Executive shall make an initial recommendation of 40,000 options, to be vested over three (3) years. This recommendation must be approved by the United Group Board and is therefore not guaranteed. The Chief Executive shall consider further annual recommendations should options not be approved and granted in 2005." 38It is common ground on the appeal that the "eligibility rules" referred to in the Options Clause are those set out in the "Rules of the United Group Limited Employee Share Option Plan" (ESOP Rules). Clause 12.3 of the ESOP Rules stated that, except as otherwise expressly provided: "the Directors have absolute and unfettered discretion to act or refrain from acting under or in connection with the [ESOP] or any Options under the [ESOP] and in the exercise of any power or discretion under the [ESOP]." The ESOP Rules defined the expression "Directors" to mean the Board of UGL. 39The ES Agreement contained the standard provisions relating to termination of employment and thus did not entitle Mr Janik to any additional payment on a redundancy. However, the side letter of 29 July 2005 signed by Mr McLuckie confirmed Mr Janik's "redundancy ... entitlements in line with your new position of General Manager Strategic Projects". The letter included the Redundancy Clause, as follows: "Should you be made redundant whilst employed in this position you shall be entitled to redundancy payments applicable to the United Goninan Limited Broadmeadow Operation at that time. Currently the payment scale is derived from the United Goninan Limited Broadmeadow Operation Enterprise Bargaining Agreement 2005." There is no dispute that the side letter formed part of Mr Janik's contract of employment with UGL Rail. It reflected the outcome of negotiations between Mr McLuckie and Mr Janik. 40The terms of the Options Clause were different from the arrangements that had been entered into with other executives under the standard Executive Services Agreement that had been developed in 2003. Had Mr Janik accepted the standard terms, he would have been granted 40,000 options in UGL as of right but would have had no entitlements in the event of a redundancy. The ES Agreement (and side letter) reflected his preference for protection against redundancy over a guaranteed grant of options.

The Grant of Options 41On 29 July 2005, UGL granted 30,000 options to Ms Hayes and 125,000 to Mr Birman, the CEO of United Resources. Both allocations were made under the ESOP. 42At its meeting of 25 August 2005, the Board of UGL approved the implementation of "a broader share option plan ... to reach a broader group of management to drive and participate in United Group growth". This resolution constituted approval of the BESOP. 43On 29 August 2005, Mr Long sent a memorandum to the division CEOs, including Mr McLuckie, asking them to submit names of proposed recipients of options in accordance with the criteria stated in the memorandum. The criteria set out the number of options to be granted to employees falling within particular salary "bands". Those on a salary between $150,000 and $199,000 were to receive 7,200 options each. 44On 2 September 2005, Mr McLuckie nominated Mr Janik to receive 7,200 options. The same recommendation was made for eight other employees in UGL Rail, all of whom were in the same salary band as Mr Janik. At that time Mr Janik's total remuneration was recorded as approximately $198,000 per annum. (This figure was less than the total remuneration specified in the ES Agreement, but may have been calculated exclusive of superannuation contributions. Nothing turns on any disparity.) 45Mr Leupen wrote to Mr Janik on 13 October 2005 informing him that he had been awarded 7,200 options under the ESOP with an issue date of 25 August 2005 and an expiry date of 31 December 2008. Half of the options were to vest on 1 September 2007 and the balance on 1 September 2008. The exercise price was $10.73. The vesting and exercise of the options were subject to specified performance hurdles. 46From about late November 2005, Mr Janik queried with the then CEO of UGL Rail, Mr Summers, and others why he had not received an allocation of 40,000 options. 47On or about 1 October 2007, Mr Janik was informed by Mr Summers that he was to receive 4,000 options under the "Long Term Incentive Plan". 48On 15 October 2007, Mr Janik sent a letter to Mr Long asking whether the recommendation for 40,000 options had been tabled before the board of UGL. A chronology attached to Mr Janik's letter recorded that Mr McLuckie had confirmed in April 2007 that: "40,000 Share Options were recommended to Board and Fiona Whipp was to arrange documentation". 49Mr Long replied to Mr Janik's letter on 24 October 2007 as follows: "the UGL Board did not follow the recommendation of the Chief Executive, and instead issued 7,200 options to you under the share options plan. These options were accepted by you. Therefore, you have no entitlement to the 40,000 options claimed. Your claim is rejected." 50On 25 January 2008, Mr Janik sent a further letter to Mr Long asking for a copy of the Board papers relating to recommendations for options to ascertain whether there had been compliance with cl 6 of the Agreement. Mr Long replied on 6 February 2008 rejecting Mr Janik's claim as "unfounded".

Termination of Mr Janik's Employment 51In November 2008, Mr Jenkins replaced Mr McLuckie as CEO of UGL Rail. In September 2009, UGL employed Mr Terry as GM International Business. 52On 3 November 2009, Mr Jenkins issued a "Chief Executive Announcement" headed "Major Organisational Changes". The Announcement said that there had been a reduced demand in some product areas, necessitating a reduction in capacity and staffing. 53On 17 November 2009, Mr Janik was asked by Mr Hinchcliffe, Executive GM, Sales and Marketing at UGL Rail, whether he had considered an exit strategy. Mr Hinchcliffe said that Mr Janik had "been identified as very highly paid, which is a problem". The following exchange then took place: "[Janik]: I expect to be made redundant, like the others. [Hinchcliffe]: You will not get redundancy. It will happen in the next few months." 54In a further conversation on 11 January 2010, Mr Hinchcliffe told Mr Janik that his departure had been confirmed and that his job had been offered to someone else. When Mr Janik repeated his request for redundancy, Mr Hinchcliffe said that his job was not being done away with and was therefore not a redundancy. Mr Hinchcliffe indicated he thought Mr Janik's job was "looking after RailCorp" to which Mr Janik replied that his job title and role had been the same since November 2003 and that his job was wider than just looking after RailCorp. 55Prior to speaking with Mr Janik on 11 January 2010, Mr Hinchcliffe had instructed Ms Hollis-Brown, UGL Rail's HR Manager, to prepare a "Position Requisition Form" in order to allow a replacement for Mr Janik to be appointed. This document was created on 11 January 2010. 56The Position Requisition Form included the following details: "Position Details Position Title GM Strategic Projects Division Sales & Marketing Divisional Unit Passenger Reason for Recruiting Replacement Previous Incumbent John Janik Previous Incumbent Remuneration $252,409.00 Replacement Reason Company Termination Conditions Maximum Total Annual Remuneration $205,000.00 Business Case Justification Existing occupant of this position will be leaving the business within 3 to 4 months. The position needs to be retained due to ongoing work in strategic projects, especially in NSW Key Responsibilities The development of prospects for large build and/or maintenance business to position UGL Rail and to win these projects Define alternatives considered No replacement of this position, also considered dividing the role between other positions but no other position can devote the resources necessary to win the business Consequence if role not approved The loss of significant future business".

57The Position Requisition Form was accompanied, as required, by a Position Description, prepared by Ms Hollis-Brown in consultation with Mr Hinchcliffe. The Position Description stated the primary purpose of the position as follows: "To develop Strategic Projects with major customers, and to manage UGL Rail's relationship with RailCorp, developing account strategies and directing and co-ordinate all activities to maximise the revenue, ensuring agreed sales and profit targets are achieved and complete customer satisfaction maintained." Under the heading "RELATIONSHIPS" the Position Description identified the following: "UGL Rail EXTERNAL EGM Sales & Marketing RailCorp Other Key Account Mgrs Technical & Commercial Partners GM Product Management & Team Key Suppliers COO & GM's Operations & Teams Consultants and Specialists EGM Maintenance & Team Professional Bodies". EGM RSD & Team Corporate Services Team EGM Finance & Team

58The Position Description also set out a non-exhaustive list of "Key areas of responsibility" in the form of 15 bullet points. These included the following: "● Formulate, implement and manage strategic account management/business plans for large customers that will ensure revenue and profit targets and customer satisfaction is achieved. ● Represent UGL Rail in all activities / meeting / communications / interfaces with RailCorp proposals, business engagement teams and other relevant parties acting as the key liaison between Key Customers and relevant parties within UGL Rail. ... ● Keep abreast of RailCorp's business dealings and create detailed working plans on how to maximise the opportunities, working closely with the customers management team to determine their present and future needs and proposing solutions to assist in them achieving their strategic goals. ● Evaluate the feasibility, objectives, rationale, and return on investment of each potential opportunity. Making recommendations to participate and accurately qualifying the value of each opportunity, ensuring the project aligns with UGL Rail's overall corporate strategy. ... ● Establish, action, oversee and follow up relationship strengthening initiatives between relevant parties within UGL Rail and interested parties within allocated customers, ensuring that partnership management guidelines are followed, that efforts are not being duplicated, that all activities are mutually beneficial to all parties. ... ● Monitor and continually review all service KPI's agreed within each contract between UGL Rail and each customer, providing monthly/quarterly reports to all interested parties and investigating any KPI failures." 59The system required the Position Requisition Form to be approved by several executives including Mr Hinchcliffe and Mr Jenkins. Their approvals were duly given and recorded on the Form in a section headed "Audit Trail". The "Approval Comments" noted that this was a "[r]eplacement of a current budgeted position". 60On 18 March 2010, Mr Griffiths (who by then had replaced Mr Hinchcliffe as Executive GM Sales and Business Development) informed Mr Janik by letter that his employment would be terminated on 31 March 2010. The letter said that Mr Janik would be paid three months' salary in lieu of notice and enclosed a calculation of Mr Janik's entitlements. No redundancy payment was included. At the time his employment terminated, Mr Janik's total remuneration, as the Position Requisition Form recorded, was $252,409.

Mr Terry's Appointment 61In February 2010, Mr Griffiths told Mr Terry that Mr Janik was leaving UGL Rail and asked whether Mr Terry wished to replace Mr Janik. Mr Terry said that he would be interested in the role. 62In order for UGL Rail to make an offer of a position to an internal candidate, its procedures required a Salary Establishment Form to be completed. At the end of March 2010, Mr Griffiths requested Ms Hollis-Brown to raise a Salary Establishment Form for the position she described in her affidavit as "General Manager Strategic Projects". However, the Salary Establishment Form recorded the proposed position as "GM Passenger Sales". 63The justification recorded on the Salary Establishment Form was that: "Phillip Terry has been identified as an internal suitable candidate to replace John Janik as GM Strategic Projects. By agreement the position will now hold the title of GM Passenger Sales." The position was to carry a salary of $235,986 plus superannuation of $14,461, a total remuneration of $250,447. This amount precisely corresponded to Mr Terry's then salary package. The total remuneration was slightly less than Mr Janik's total remuneration immediately before termination of his employment, but considerably more than the total remuneration of $205,000 approved in the Position Requisition Form. 64In an announcement made on 30 March 2010, Mr Griffiths advised staff of UGL Rail that Mr Janik had left and that: "Phil Terry will be managing the RailCorp relationship from now on, in the position of General Manager Passenger Sales. In parallel, he will maintain a focus on International Business Development until a successor is appointed." 65Mr Terry commenced work as GM Passenger Sales some time in March 2010. It was not until 12 April 2010 that Mr Griffiths sent a formal letter to Mr Terry offering him appointment to the position. The offer required Mr Terry to perform his duties as GM Passenger Sales to the best of his ability, but did not specify the nature of these duties. The position carried a total remuneration of $250,447. Mr Terry's employment could be terminated on four weeks' notice. Curiously enough, Mr Terry was to be entitled to payments in accordance with UGL's "Redundancy Policy" if his employment was terminated by reason of redundancy. 66Mr Terry performed duties as GM Passenger Sales until September 2010, although he took leave for six weeks between his appointment and leaving the position. In evidence he described the role he performed as: "acting as the RailCorp account manager and, as part of this, working on a number of tenders and development prospects for RailCorp."

Mr Jenkins' Explanation 67Mr Jenkins gave evidence explaining why he had made the decision to terminate Mr Janik's employment and (in his words) "move Mr Terry into Mr Janik's role". 68Mr Jenkins said that in the aftermath of the global financial crisis UGL Rail decided to introduce cost saving measures and to adopt a "more structured and methodological approach" in dealing with clients. Mr Jenkins formed the view that Mr Janik was struggling "to fit in with the more rigorous approach to managing clients", in particular in coping with the documentation and financial aspects of his position. Mr Jenkins was aware that Mr Terry's international role was about to be made redundant and considered that he had the "structured approach" to account management required by the position occupied by Mr Janik. In essence, Mr Jenkins considered that the Sales and Marketing Team had two senior employees but only one role to fill. In these circumstances, Mr Jenkins chose to terminate Mr Janik's employment and shift Mr Terry to the position of GM Passenger Sales.

Mr Terry Leaves 69In October 2010, Mr Terry was transferred to India to work on a joint venture project involving UGL Rail. In his evidence Mr Terry said that he was not aware who succeeded him in the position of GM Passenger Sales that he had occupied since March 2010. He was sure, however, that no-one had taken over the role immediately upon his departure.

The Redundancy Claim 70The primary Judge first addressed Mr Janik's redundancy claim. His Honour considered the authorities examining the meaning of "redundancy" at common law. He quoted at length from the judgment of Vickery J in Hodgson v Amcor Ltd [2012] VSC 94; 264 FLR 1, to which I refer later (at [129]-[130]). 71The primary Judge accepted Mr Janik's description of the "core functions" he performed in the position of GM Strategic Projects. His Honour described those functions as follows: "[27] First, to obtain new business opportunities for large scale passenger and freight train manufacturing and train maintenance projects. To this end he sought out potential clients, identified opportunities, prepared tender documents: explored the most appropriate financial structure upon which the bid may be based, and obtained approval of senior management to make an offer to a client. [28] His work also included such varied duties as working with industry groups and governments to redefine New South Wales local content legislation, investigating the transfer of the defendant's manufacturing operations from Broadmeadow, reporting on the operating and management of single deck versus double-decker trains, establishing a Rail Infrastructure Business, and promoting the privatisation of the Sydney rail fleet. [29] This narration of his duties naturally accords with the title General Manager Strategic Projects. [30] Secondly he was responsible for assisting in the implementation or delivery phase of projects that he had helped secure. To this end he assisted in the design and manufacture of trains and rolling stock and was heavily involved in solving design and manufacturing problems. He was uniquely qualified to discharge this role by his technical background and his experience in manufacture at the defendant's Taree factory. Mr Janik said that it was because of this experience that he was asked to remedy the loss-making situation in which the company found itself with the first OSCAR [passenger rail] project. [31] Mr Janik assisted in the procurement of materials necessary to build railcars and performed project management work in relation to contracts the defendant had won. [32] Mr Janik's work was not restricted to one client, or one class of rolling stock or contract. His work included passenger carriages, freight carriages, and maintenance contracts. His clients included Queensland Rail, Pacific National, Freight Australia, The Manildra Group, and Grain Corp. [33] ... On occasions, he spent up to 70 per cent of his time working on freight rail projects, although he agreed that overall 70 per cent of his work was with passenger projects, and about 30 per cent with freight. The majority of the passenger business was with RailCorp. [34] From the beginning of 2009, Mr Janik was not engaged in any significant work on freight projects. He was, during the calendar year 2009, heavily involved in two major projects for RailCorp. One was a maintenance contract for Maintrain, and the other the third tranche of OSCAR carriages. He said that this work involved little interface with the customers outside of that necessary to prepare the tenders, and that he was flat out doing those two. I didn't have any spare time for much else." (Italics in original.) 72The primary Judge found (at [46]-[47]) that the conversation between Mr Janik and Mr Hinchcliffe on 11 January 2010 showed that the latter incorrectly understood that Mr Janik's role was limited to looking after RailCorp. In fact, Mr Janik's responsibilities were wider. They were not confined to one client, nor to passenger projects. The primary Judge also found (at [48]) that Mr Hinchcliffe's misunderstanding was reflected in the Position Description because the only client identified by name in the box entitled "External Relationships" was RailCorp. 73In his Honour's view (at [51]-[52]), the focus in the Position Description was on managing the relationship with RailCorp. Further, the fifteen "Key areas of responsibility" did "not fully, fairly or accurately describe the areas of responsibility that [Mr Janik] assumed when appointed to the position of General Manager, Strategic Projects." 74The primary Judge referred to an Organisational Structure Chart prepared by Ms Hollis-Brown, which showed where Mr Janik's position fitted under UGL Rail's business structure. The Chart showed that, although the key areas of responsibility of the new position were "of general import", the tasks could equally fall within the purview of other positions identified in the Chart. His Honour thought (at [55]) it was significant that the Position Description did not require design and manufacturing skills for which Mr Janik had been initially hired and which enabled him to produce railway bogies at Taree. It was also significant (at [57]) that the word "freight" did not appear in the documentation for the new position. 75Mr Jenkins had given evidence that in the last year or two before Mr Janik's termination, he (Mr Janik) had performed a predominantly relationship/account manager role, principally with RailCorp. But Mr Jenkins was unaware why Mr Janik was hired in 2003 and was also unaware of any document evidencing a change of role for Mr Janik (at [63]). 76The primary Judge found (at [66]) that the Position Requisition Form downgraded the position of GM Passenger Sales in comparison with Mr Janik's position as GM Strategic Projects. This was shown by the reduction in the proposed salary (to $205,000) and the shorter period of notice required under Mr Terry's contract of employment (at [67]). 77His Honour then made the following findings: "[69] The contract envisaged by the Position Requisition was not a contract appropriate for an employee retained by Mr McLuckie as: One of the four senior players [including the chief executive officer and the chief financial officer], responsible for steering the company going forward. [70] The position of General Manager Passenger Sales, in terms of the conditions of employment and the functions, duties and responsibilities attaching to it was materially different to the position of General Manager Strategic Projects occupied by Mr Janik." (Italics in original.) 78The primary Judge considered (at [80]) it a "peculiarity" that neither Mr Janik nor Mr Terry was ever shown the Position Description, since Ms Hollis-Brown had said that both the incumbent and the new appointee would normally be asked to sign the Position Description. His Honour drew the inference (at [81]) that the Position Description was created under Mr Hinchcliffe's instructions: "not for any legitimate managerial purpose, but to assist [UGL Rail] in resisting the foreshadowed claim by Mr Janik for redundancy payment." 79The primary Judge observed (at [94]) that senior counsel for Mr Janik did "not shrink from the submission that Mr Terry was temporarily seconded into the position as part of a strategy to disguise Mr Janik's redundancy". Mr Jenkins denied the claim, but his Honour considered (at [95]) that Mr Jenkins "may have been unaware of machinations by Mr Hinchcliffe and Mr Styles [head of Human Resources UGL Rail]". 80His Honour continued as follows: "[96] The allocation of Mr Terry's role was entirely within the province of Mr Hinchcliffe, who was his manager. The circumstances as I have recited them raise an inference that the defendant pretended to maintain the plaintiff's position for a short period in circumstances where it had in fact determined to make the position redundant at the time the plaintiff's employment was terminated. [97] In this circumstance evidence relating to whether or not Mr Terry was replaced is highly relevant. I am assisted in drawing the inference that Mr Terry's occupation of the role of General Manager Passenger Sales was a sham by the defendant's failure to call Mr Hinchcliffe or Mr Styles, or explain their absence. I am similarly assisted by the defendant's opposition to the production of relevant employment records. Conclusion [98] It is unnecessary to find that the defendant engaged in a sham. I accept Mr Kimber's alternative submission that by the time Mr Janik was dismissed: The defendant had effectively 'emptied' his position of its duties, functions and responsibilities with the result that the position was in reality abolished. [99] Even if Mr Terry's appointment was not a sham, if the reality was that it was not necessary to replace him, then it may be concluded that at the time of his appointment, because of restructuring, the functions to which the position had been reduced, were, in the words of Beazley J [in Quality Bakers of Australia Ltd v Goulding (1995) 60 IR 327 at 332], In excess of the requirements of the business. [100] I find that Mr Janik was made redundant While employed as General Manager Strategic Projects and is accordingly entitled by his contract to payments calculated in accordance with the Goninan Broadmeadow Operation Enterprise Bargaining Agreement 2005." (Italics in original.)

The Options Claim 81The primary Judge found (at [102]) that UGL Rail promised Mr Janik 40,000 options in UGL if he stayed. That offer was contained in the draft Executive Services Agreement of 7 November 2003. Mr Leupen had approved the drafting of an agreement in that form as part of a strategy to eliminate various employee benefits in return for higher salaries (at [103]). 82Mr Janik, however, had rejected this offer and sought to negotiate more favourable terms, including "retention of his accrued rights to redundancy payments, then worth in the order of $250,000" (at [104]). Mr Janik was the only employee who refused the offer. Had he accepted he would have been entitled to 40,000 options under the ESOP as then administered (at [105]). 83After referring to cl 6 of the ES Agreement, his Honour found (at [108]) that on 13 June 2005, in accordance with the ES Agreement but before its execution, Mr McLuckie recommended that Mr Janik receive 40,000 options. Mr Janik's case was that Mr Leupen failed to exercise his powers in good faith and reasonably because he simply applied a mathematical formula to Mr McLuckie's recommendation and failed to take into account "the subjective merit of Mr Janik's entitlement" (at [112]). 84His Honour recorded (at [113]-[114]) Mr Leupen's evidence that Mr Janik's rejection of OneSteel's offer upon the promise that UGL would consider granting him 40,000 options would not have caused Mr Leupen to allocate more than Mr Janik's mathematical entitlement to options. Mr Leupen had explained that there were 150 people in the options scheme, each one of whom had a case on merit. He could not deal with them all. 85His Honour gave these reasons for rejecting Mr Janik's option claim: "[116] Mr Leupen, who was obviously consulted upon, and approved Mr Janik's employment contract said that he was at the relevant time unaware that Mr McLuckie had provided the side letter preserving Mr Janik's redundancy entitlement. He said that had he known of the letter he would have either sacked Mr McLuckie or given him a final warning because that was exactly what we were trying to get rid of with the restructuring of the contracts. [117] When asked in cross-examination whether it was a big call to start stripping out from Mr Janik's contract an entitlement to 46 weeks pay by way of redundancy, Mr Leupen replied: We did it for everybody else, more senior people than Mr McLuckie. [118] When asked: You mean other people copped it? Mr Leupen replied: They didn't cop it. We traded one for another. Had he taken the 40,000 options, he would have made a lot of money. I think other people were well ahead, having taken the options. [119] Even if Mr Janik was right in his assertion as to the effect of the Executive Service Agreement, I am not persuaded that, if Mr Leupen [had] been made aware of all of the discretionary factors relied upon by Mr Janik, and the additional circumstance that Mr Janik had retained his accrued entitlement to redundancy payments, considerations of good faith and reasonableness required that he depart from the mathematical formula for the allocation of options adopted by UGL. [120] The claim for damages for breach of the options agreement must fail." (Italics in original.)

UGL Rail's Submissions: Redundancy 86UGL Rail challenged the primary Judge's finding (at [98]) that it had emptied Mr Janik's position of its duties, functions and responsibilities so that the position was effectively abolished. Mr Jackman SC, who appeared with Mr Bova for UGL Rail, submitted that the evidence established that Mr Terry continued to perform Mr Janik's duties, functions and responsibilities. In effect, Mr Terry had stepped into Mr Janik's shoes, spending most of his time working in precisely the same two major RailCorp projects that Mr Janik was working on before his termination. 87Mr Jackman accepted that Mr Janik's position originally encompassed responsibility for freight rail manufacturing projects. Nor did he dispute the primary Judge's findings as to the role performed by Mr Janik during his period of employment as GM Strategic Projects. In particular, he accepted that Mr Janik's responsibilities included freight manufacturing, sales and maintenance projects and that his time had been allocated between work on freight projects and other work as the primary Judge described (at [32]-[34]). 88Mr Jackman said that he was content for the issue of redundancy to be approached on the basis of Mr Janik's entire six years of his employment as GM Strategic Projects, rather than by reference to the work he actually performed during the final year (which did not include work related to freight). But even on that basis, Mr Terry was performing 70 per cent of the work that Mr Janik did (although Mr Terry devoted virtually all of his time to that work, as did Mr Janik in his final year). It was therefore impossible to conclude that Mr Janik's position no longer existed or that his role had been modified in such a way as to alter the fundamental nature of the position. Mr Jackman pointed out that the primary Judge had not found that the collection of functions, duties and responsibilities attached to Mr Janik's position had been broken up and distributed to others. In any event, there was nothing to support such a finding. The highest Mr Janik's case could be put was that towards the end of his tenure, he found that several of his former functions were being performed by others. 89Mr Terry, so Mr Jackman argued, continued in Mr Janik's role in managing the RailCorp account. This account was critical to UGL Rail since RailCorp was one of UGL Rail's biggest customers and a key account for the UGL Group. Mr Jackman referred to evidence given by Mr Jenkins that Mr Janik's position would only ever have been made redundant if UGL lost RailCorp as a client. In essence, the decision to terminate Mr Janik's employment had not been made because his position had ceased to exist, but because Mr Jenkins decided that he no longer wanted Mr Janik to perform the role. In these circumstances, Mr Janik had not been made redundant.

Mr Janik's Submissions: Redundancy 90The principal submission made by Mr Kimber SC, who appeared with Mr Furlan for Mr Janik, was that the primary Judge correctly found that UGL Rail had redistributed the functions, duties and responsibilities attached to Mr Janik's position as GM Strategic Projects, with the result that the position no longer had any duties associated with it. Despite not filing a notice of contention, Mr Kimber also contended that the duties performed by Mr Terry had been "materially different" compared to those performed by Mr Janik to such an extent that Mr Janik had been made redundant. 91Mr Kimber relied on a number of matters, including:

• the differences between the responsibilities attached to the position of GM Strategic Projects and those allocated to the position of GM Passenger Sales, particularly the removal of responsibility for freight projects;
• the different skills required for each position, as explained by Mr Jenkins;
• the changed title of the new position and its downgrading, reflected in the reduced salary initially proposed for the position; and
• the removal of some responsibilities from Mr Janik while he still occupied the role of GM Strategic Projects. These and other arguments advanced by Mr Kimber are dealt with below.

Mr Janik's Submissions: Options Claim 92Mr Kimber pointed out that the primary Judge had not addressed the proper construction of the Options Clause. His Honour apparently took the view that he did not need to do so because he rejected (at [119]) Mr Janik's claim on the ground that even if Mr Leupen had been aware of the "discretionary factors" supporting Mr McLuckie's recommendation, he would still not have departed from "the mathematical formula for the allocation of options". Mr Kimber submitted that the construction of the Options Clause had to be addressed in order to decide whether UGL Rail was in breach of its contractual obligations and, if so, to quantify the loss or damage Mr Janik sustained by reason of UGL Rail's breach. 93Mr Kimber submitted that the Options Clause, on its proper construction, incorporated promises by UGL Rail that: (a) Mr McLuckie would recommend that 40,000 options in UGL be allocated to Mr Janik; (b) the recommendation would be transmitted to Mr Leupen as the relevant decision-maker for his consideration; and (c) Mr Leupen would consider the recommendation reasonably, conformably with the purposes of the ES Agreement and not capriciously or arbitrarily. 94Mr Kimber accepted that Mr McLuckie had made the recommendation contemplated by the Options Clause. However, he contended that UGL breached the Options Clause in that: (a) Mr McLuckie's recommendation was never transmitted to Mr Leupen and thus was never considered by the decision-maker; (b) even if the recommendation reached Mr Leupen, he failed to consider it in the manner promised by UGL Rail; and (c) Mr Leupen simply allocated options to Mr Janik in accordance with the mathematical formula and failed to take into account Mr Janik's particular circumstances, especially his rejection of the OneSteel offer in order to remain with UGL Rail. 95Since UGL Rail had breached the Options Clause, Mr Janik had lost the opportunity to have Mr Leupen properly consider the recommendation for the grant of 40,000 options and the opportunity to be granted those options. Mr Janik was therefore entitled to damages for breach of contract, assessed by reference to the value of his lost opportunity. Mr Kimber submitted that Mr Janik's claim was not defeated by the primary Judge's acceptance of Mr Leupen's evidence that even if he had appreciated the basis for Mr McLuckie's recommendation, he would not have acted on the recommendation. Mr Leupen's evidence did not take account of UGL Rail's promise that he would consider the recommendation in the manner required by the Options Clause. In any event, it was not a matter of what Mr Leupen probably would have done, but of determining whether there was a breach of the promise contained in the Options Clause, and if so, assessing the value to Mr Janik of the chance that Mr Leupen would have acted on Mr McLuckie's recommendation had he (Mr Leupen) acted in the manner promised by UGL Rail.

UGL Rail's Submissions: Options Claim 96Mr Jackman accepted that the Options Clause required Mr McLuckie to make a recommendation to UGL. He submitted, however, that UGL Rail had complied with the Options Clause, provided the recommendation made by Mr McLuckie reached the Company Secretary and HR Department of UGL (as it undoubtedly did). Thus, even if the recommendation was not actually transmitted to Mr Leupen, UGL Rail did not breach the Options Clause. 97Alternatively, Mr Jackman submitted that although Mr Leupen could not remember seeing Mr McLuckie's recommendation, Mr Janik had not demonstrated that the recommendation did not reach Mr Leupen. At first, Mr Jackman put this submission on the basis that there was an "evidentiary vacuum", which left the probabilities evenly weighted. Therefore, Mr Janik had not discharged his evidentiary onus. Later in his argument, Mr Jackman contended that, despite the absence of documentation demonstrating that Mr Leupen had actually seen the recommendation, the evidence affirmatively established that the recommendation had indeed been transmitted to Mr Leupen by the relevant officers within UGL. 98Mr Jackman next submitted that the Options Clause could not be understood to require UGL or Mr Leupen to do anything, since neither was a party to the ES Agreement. The Options Clause, therefore, could not impose any obligation on UGL or Mr Leupen to consider Mr McLuckie's recommendation in any particular manner or to produce any particular outcome. 99If that argument was not accepted, Mr Jackman contended that any obligation imposed on UGL or Mr Leupen by the Options Clause had to take into account cl 12.3 of the ESOP Rules (see at [38] above) to which the Options Clause was subject. The effect of cl 12.3 was that the Board of UGL and Mr Leupen as its delegate had an absolute and unfettered discretion to decide whether options should be allocated to employees. An unfettered discretion of that kind was simply inconsistent with any obligation on the part of UGL or Mr Leupen to consider the recommendation in the manner propounded by Mr Janik. In any event, even if UGL Rail had promised that Mr Leupen would not exercise his discretion unreasonably, capriciously or arbitrarily, he had not done so. Mr Leupen had made a decision in the commercial interests of the UGL Group and had sound reasons for allocating share options to Mr Janik in the way that he did.

The Issue 100Mr Janik's pleaded case was that as part of a restructure, UGL Rail resolved to and did break up the collection of functions, duties and responsibilities attached to the position of GM Strategic Projects, and distributed these functions to the holders of other positions and to the newly created position of GM Passenger Sales. Mr Janik also alleged that his position was abolished and that he was left with no duties to discharge. His position thereby became redundant and his employment was terminated by reason of redundancy. Accordingly, he became entitled to a redundancy payment pursuant to the Redundancy Clause. 101Mr Janik's pleading did not allege that UGL Rail seconded Mr Terry temporarily into Mr Janik's position in order to disguise his redundancy and defeat his foreshadowed claim. Nor was there any allegation that the secondment of Mr Terry was a "sham" designed to give the appearance, without the reality, of preserving Mr Janik's position for a short time. Nonetheless, as the primary Judge recorded (at [94]-[97]), Mr Janik's case at the trial incorporated these claims and Mr Kimber's cross-examination of some witnesses was conducted on that basis. 102The primary Judge indicated (at [97]) that he was prepared to infer that Mr Terry's occupation of the position of GM Passenger Sales was a sham. But he expressly refrained (at [98]) from making such a finding. Instead he accepted Mr Kimber's alternative submission that UGL Rail had "effectively 'emptied' [Mr Janik's] position of its duties, functions and responsibilities with the result that the position was in reality abolished". 103As has been explained, Mr Janik filed a cross-appeal challenging the dismissal of his claim under the Options Clause. But he has not filed a notice of contention seeking to support the judgment in his favour based on the Redundancy Clause on the ground that the appointment of Mr Terry as GM Passenger Sales was a "sham" or a device to disguise Mr Janik's redundancy. Nor has Mr Janik filed a notice of contention supporting the judgment on any ground other than that given by the primary Judge. 104Mr Kimber's argument on the redundancy issue ranged more widely than supporting the reasoning of the primary Judge. Nonetheless he made no submission that this Court should find that UGL Rail engaged in a sham or deliberately disguised the circumstances of Mr Janik's dismissal. Indeed it is difficult to see how any such submission could have been made in view of Mr Terry's unchallenged evidence that he accepted an offer to take up the position of GM Passenger Sales and that he performed the duties of that position (including many of the functions previously performed by Mr Janik) until he was unexpectedly asked in October 2010 to undertake work on a joint venture project in India. In any event, no question of a sham arrangement or pretence designed to conceal a redundancy arises on the appeal.

A Challenged Finding 105It is, however, necessary to address the finding made by the primary Judge (at [83]) that the result of the organisational changes in 2010 was that two positions, GM Passenger Sales and GM International Business Development, had been combined into one. His Honour considered that this finding supported an inference that Mr Terry's occupation of the role of GM Passenger Sales was a sham. But the finding also seems to have influenced his Honour's acceptance (at [98]) of Mr Janik's alternative argument that the position of GM Strategic Projects was effectively abolished following Mr Janik's departure. 106The primary Judge may have relied for this finding on the announcement by Mr Griffiths on 30 March 2010 (at [64] above) that Mr Terry would maintain a focus on International Business Development until a successor was appointed. But Mr Terry gave unchallenged evidence that during the time he was GM Passenger Sales he did not perform the role of marketing UGL products and services overseas. Nor was Mr Jenkins seriously challenged on his evidence that the international project on which Mr Terry had been working until early 2010 was "absolutely wound up" and that there was no intention at that time to restart it. The evidence establishes that, notwithstanding Mr Griffiths' announcement to staff, from about the end of March 2010, if not earlier, Mr Terry's international position "no longer existed", and was only revived in October 2010, when Mr Terry was transferred to India. 107It follows that the primary Judge's finding that the two positions of GM Passenger Sales and GM International Business Development were effectively merged into one cannot stand. The evidence shows that from late March until October 2010, except for a six week period when he was on leave, Mr Terry was fully occupied in his position as GM Passenger Sales.

The Concept of Redundancy 108Before referring to the interpretation given by the authorities to the term "redundancy", it is convenient to make several preliminary observations. 109First, the construction of the term "redundancy" can arise in a variety of settings. As the Full Federal Court observed in Dibb v Commissioner of Taxation [2004] FCAFC 126; 136 FCR 388 at [38], "[t]he term must be construed in the context in which it appears". Dibb v Commissioner of Taxation involved the construction of s 27A of the Income Tax Assessment Act 1936 (Cth), which gave concessional treatment to a payment made "by reason of the bona fide redundancy of the taxpayer". It will be apparent that a dispute between the Commissioner of Taxation and a taxpayer relating to the character of a payment made to the taxpayer on termination of employment does not necessarily present the same issues as a claim by an employee to a redundancy payment under a contract of employment or an industrial award. 110The interpretation of the term "redundancy" most commonly arises in industrial or employment disputes, but even then the circumstances vary widely. For example, the judgments of the Full Court of the Supreme Court of South Australia in The Queen v The Industrial Commission of Australia; Ex parte Adelaide Milk Supply Co-Operative Ltd (1977) 16 SASR 6 are often cited when the meaning of "redundancy" is in question. The issue in that case was whether an application to vary an industrial award to cover redundancy fell within the statutory concept of an "industrial matter". The meaning of "redundancy" was therefore of less significance to the decision than the construction of the statutory expression "industrial matter". 111The concept of "redundancy" is more central to the resolution of other kinds of industrial disputes. Sometimes it is necessary to interpret the term because it is used in an industrial award or agreement and employees' entitlements depend directly on whether they have been made redundant within the meaning of the award: see, for example, Amcor Ltd v Construction, Forestry, Mining and Energy Union [2005] HCA 10; 222 CLR 241; Short v FW Hercus Pty Ltd (1993) 40 FCR 511; Commonwealth Bank of Australia v Finance Sector Union of Australia [2002] FCAFC 193; 125 FCR 9. In other cases, of which the present case is an instance, an individual contract of employment provides benefits to the employee in the event of a redundancy: see, for example, Foster's Group Ltd v Wing [2005] VSCA 322; 148 IR 224; Encyclopaedia Britannica Australia Ltd v Campbell [2009] NSWCA 286; Hodgson v Amcor Ltd [2012] VSC 94; 264 FLR 1. The question of redundancy can also arise in the context of an unlawful dismissal claim, as where the employer defends a claim on the ground that termination of the claimant's employment was a "genuine redundancy": see, for example, Quality Bakers of Australia Ltd v Goulding (1995) 60 IR 327 (Ind Rel Court of Australia); Jones v Department of Energy and Minerals (1995) 60 IR 304 (Ind Rel Court of Australia). 112A second and related point is that the interpretation of "redundancy" in a particular case may well be influenced by the context. This point can be illustrated by Adelaide Milk Supply. In that case, Bray CJ said (at 8) that: "the concept of redundancy in the context we are discussing seems to be simply this, that a job becomes redundant when the employer no longer desires to have it performed by anyone. A dismissal for redundancy seems to be a dismissal, not on account of any personal act or default of the employee dismissed or any consideration peculiar to him, but because the employer no longer wishes the job the employee has been doing to be done by anyone." 113Bright J, who dissented on the jurisdictional issue, said (at 26-27) that: "The word 'redundant' does not occur in the [Industrial Conciliation and Arbitration Act 1972-1975]. In its industrial sense it is not defined in the Oxford Dictionary. The application [for an award] attempts a definition for the purpose of the proposed award. A consideration of the cases leads me to think that the question of the redundancy of an employee is linked to the question of the continued utility of the job which he is performing. In other words it does not relate to the personal competence of the employee in the job which he is performing. If I am right in this, then in its widest form the concept of redundancy connotes that an employee becomes redundant whenever (and for whatever reason) his employer no longer desires to have performed the job which that employee was doing. A wide variety of instances are contained in the definition clause in the application but they all seem to fit into this connotation, even the reference to retrenchment of employees for any reason whatsoever." The definition clause to which his Honour referred (at 16) identified the circumstances that might lead to redundancy as including: "technological automation, mechanisation change, re-organisation, rationalisation or centralisation in the processing industry; fall in demand of products for whatever reason; or retrenchment of employees or an employee for any reason whatsoever." 114Mitchell J adopted (at 34) a description of redundancy in a New South Wales industrial case (Re Clerks (State) Award (1976) 10 Ind Arb Service 75), as follows: "It can fairly be said that in industrial circles the term redundancy payment has come to mean compensation for losses of various kinds suffered by employees who have given substantial service to an employer and whose services are terminated because, for one reason or another, the employer no longer needs them." 115Each of these descriptions of "redundancy" is framed in general terms. This is not surprising having regard to the issue before the Court (whether redundancy fell within the statutory concept of an "industrial matter"), which did not require any greater precision in the language. But some care needs to be taken in applying the language in a different context, for example where the question is not the power to amend an industrial award but whether a particular former employee was made redundant within the meaning of his or her contract of employment. This point was recognised by the Court in Dibb v Commissioner of Taxation, which noted (at [40]) that Bray CJ's analysis of redundancy does not necessarily explain what is meant by "the job" that the employer no longer wants performed. The same comment may be made about Bright J's analysis. The identification of the "job", or the duties associated with the job, may be crucial in an individual case. 116Thirdly, it follows from what has been said that the meaning of "redundancy" may depend on the statutory, industrial or contractual context in which the expression is used. Sometimes, for example, an industrial award or contract of employment contains its own definition of redundancy, as in Short v Hercus and Foster's Group v Wing. It cannot be assumed therefore that "redundancy" must have a uniform meaning, regardless of the context, or circumstances in which the term has to be construed. 117The importance of context was emphasised by the joint judgment of Gummow, Hayne and Heydon JJ in Amcor v CFMEU. In that case, a clause of an industrial agreement provided that "should a position become redundant and an employee subsequently be retrenched", the employee was entitled to certain payments. Following a demerger of the employer's business, all employees received offers of employment by a different entity on the same terms and conditions. The joint judgment observed (at [50]) that the relevant clause had to be read in context. It was therefore necessary to take into account the text and operation of the industrial agreement as a whole and the legislative background against which the agreement was made. When these matters were taken into account, the proper conclusion was that the position of each employee had continued and had not been made redundant.

The Principles 118Mr Kimber referred to judgments supporting a broad construction of "redundancy". He relied particularly on a passage in the judgment of the Full Federal Court in Dibb v Commissioner of Taxation (at [43]): "s 27F [of the Income Tax Assessment Act 1936 (Cth)] speaks of the 'bona fide redundancy of the taxpayer'. We consider that it is more accurate to say that any employee becomes redundant when his or her job (described by reference to the duties attached to it) is no longer to be performed by an employee of the employer, though this may not be the only circumstance where it could be said that the employee becomes redundant. Reallocation of duties within an organisation will often lead the employer to consider whether an employee, previously employed to perform specific functions assigned to a particular 'job', will be able to perform any available 'job' existing after such reallocation. Even if the employee's job, defined by reference to its duties, has disappeared, he or she may be able to perform some other available job to the satisfaction of the employer. In that case, no question of redundancy arises. It is only if the employer considers that there is no available job for which the employee is suited, and that he or she must therefore be dismissed, that the question of redundancy arises. If, in good faith, the employer: ● has reallocated duties; ● considers that the employee is not suitable to perform any available job, defined by reference to those reallocated duties, existing after the re-allocation; and ● for that reason, dismisses the employee, then, for the purposes of s 27F, the employee is dismissed by reason of his or her bona fide redundancy. In the above discussion we have used the word 'available' as meaning 'vacant', and the word 'suitable' as meaning 'within the employee's capacity'." 119These observations have to be understood by reference to both the legislation under consideration and to the facts of the case. The taxpayer was a District Manager whose employer had acquired staff in excess of business requirements. In consequence, the employer redistributed the duties previously performed by District Managers and added further duties. The Court found (at [44]) that "[t]he job, described by reference to its duties and previously performed by [the taxpayer], ceased to exist" and that the employer "no longer wished to have that job performed by anybody" (emphasis added). 120The judgment of the Court recognises (at [41]) that a person can be made redundant even if some aspect of that person's duties remain to be performed by someone within the organisation. However, the judgment does not decide that if an employer re-allocates some duties attached to a position but retains the position (whether under the same or a different name), a redundancy will necessarily occur should the incumbent not be appointed to the position. The key findings in that case were that the job previously performed by the taxpayer no longer existed and was not to be performed by anyone. 121Mr Kimber referred also to Encyclopaedia Britannica v Campbell. In that case, the letter pursuant to which the claimant was employed provided for benefits "in the event of a redundancy". The employee was dismissed but his claim for a redundancy payment failed. My judgment (Giles and Macfarlan JJA agreeing) contains the following passages: "[69] ... The background to the insertion of this expression ['in the event of redundancy'] in the letter was the concern stated by the [employee] to [the employer] arising out of the 35 redundancies that had taken place in May 2000. The [employee] conveyed his concerns about his own position, particularly if the [employer] intended to abolish further positions. [70] In these circumstances, I would not be inclined to give the expression a narrow meaning. I would not be disposed, for example, to confine an event of redundancy to the case where the [employee's] employment was terminated because of a restructuring that affected a number of positions in the [employer's] organisation. On this approach, there might well be an event of redundancy if the [employee's] employment was terminated solely because the [employer] wished to redefine the role and responsibilities of the Managing Director and the [employee] was thought not to have the necessary qualifications or skills for the restructured position: cf Jones v Department of Energy, at 308. ... [73] The redundancy provisions of the May 2000 Letter were intended to provide the [employee] with enhanced entitlements if the [employer] decided to terminate his services for a particular reason. The entitlements would arise if the decision was made, at least in part, not because of any perceived deficiency in the [employee's] ability to perform his duties, but because the position he held was to be abolished or because the responsibilities attached to it were materially changed. If, for example, [the employer] terminated the [employee's] employment because [it] wished to restructure the Australian operations and to redefine the role of the Managing Director, it is likely that there would have been an event of redundancy." 122These observations explain why, even on a broad construction of the redundancy provision in the letter of employment, the claimant's case in Encyclopaedia Britannica v Campbell had to be rejected. On the evidence, the claimant's employment was terminated because of dissatisfaction with his performance (at [72]). The judgment therefore had no need to consider the extent to which the role the claimant had performed prior to termination would have had to be redefined or the responsibilities "materially changed" before it could be said that the claimant had been made redundant. The judgment does not purport to address that question. 123Mr Kimber also cited the comment in the joint judgment in Amcor v CFMEU (at [52]) that: "If ... there had been some change in the terms and conditions offered by the new employer from those offered by Amcor, or there had been some change in the tasks to be undertaken by the employee, there may have been some question about whether 'the position' continued." This passage cannot be read as authority for the proposition that some changes in the duties attached to a position, regardless of the nature and significance of the changes, will justify a finding that the previous holder of the position has been made redundant. 124The facts of Foster's Group v Wing, referred to by Mr Jackman, are similar in some respects to those of the present case. The employee had been employed as the GM of the employer's Shanghai operations. His contract of employment provided for benefits if his position was "made redundant". The contract incorporated by reference a policy document, which stated that redundancy would arise: "when an employee's role no longer exists or the duties of the role have changed that for all practical purposes the original role no longer exists." The employee successfully claimed in the County Court of Victoria that he had been made redundant. The employer appealed. 125Habersberger AJA (Maxwell P and Nettle JA agreeing) examined the meaning of the term "redundancy" by considering the judgments in Adelaide Milk and Dibb v Commissioner of Taxation and the authorities referred to in those judgments. His Honour concluded (at [36]) that the approach in these cases had been reflected in the policy document which had been incorporated in the claimant's contract of employment. The critical question was therefore: "whether through no fault of the employee his or her role no longer exists or the duties have so changed that for all practical purposes the original role no longer exists." 126Habersberger AJA went on to find (at [62]) that the employee had not been made redundant. The position of GM in Shanghai still existed after the termination and an acting GM (Mr Bett) performed the duties of the office. His Honour accepted (at [63]) that some of the responsibilities attached to the position had been transferred to another executive before the employee was dismissed, but considered that work remained for him to perform, whatever title was given to the role (at [65]). 127Habersberger AJA rejected (at [67]) as "unrealistic" the employee's contention that because Mr Bett devoted only 25 per cent of his time to the Shanghai GM's position, the position had been made redundant: "it is unremarkable that Mr Bett was not able to devote his entire time to the general manager's role, given that he was at the same time carrying out the duties of his other, more senior, position. The [employer] further submitted, and I agree, that the fact that Mr Bett did not devote (according to the Judge) more than 20 to 25% of his time to the acting general manager role does not mean that if a person was employed in the role on a full time basis there would not be enough duties to occupy that person in a meaningful and substantial way. I also accept the [employer's] submission that, even putting the [employee's] case at its highest, if performing the "country manager" role in China would only involve 20 to 25% of a person's working time, it could not be said that the role did not exist. In the [employee's] terms, the degree to which the original role would have been changed was not sufficient to include that 'for all practical purposes it no longer existed'." 128The Court in Foster's Group v Wing could perhaps have dealt with the case by interpreting the language of the policy document without examining closely the authorities that have interpreted "redundancy" under the general law. But Habersberger AJA did undertake that examination and concluded that the policy document accurately reflected the meaning of the term "redundancy" under the general law. His Honour interpreted "redundancy" to mean that through no fault of the former employee his or her role no longer exists or the duties have so changed that for all practical purposes the original role no longer exists. 129Hodgson v Amcor Ltd, a decision referred to by the primary Judge and by both parties on the appeal, interpreted the judgment of Habersberger AJA in Foster's Group v Wing in this way. The issue in Hodgson v Amcor Ltd was whether one of six group general managers (GGMs) had been made redundant as a result of a restructure that reduced the number of GGMs to four. Vickery J found that the position occupied by the claimant (GGM Fibre Packaging) had been modified in the restructure, but not so as to alter the fundamental nature of the position (at [383]). The claimant had become "surplus to requirements", but that had not been brought about by any redistribution of the duties of his position, but because of other issues between the claimant and his employer. 130Vickery J quoted extensively from the authorities, including Foster's Group v Wing. He said (at [371]) that: "subject to any qualification or re-statement found in the relevant contract of employment or any applicable statute, the common law concept of 'redundancy' comes down to the following propositions: (a) A job becomes redundant when the job of the employee ceases to exist because the employer, for whatever reason, whether by reason of reorganisation, mechanization, change in demand or other reason, no longer desires to have it performed by anyone; (b) This can occur either when the role no longer exists or the duties have so changed that for all practical purposes the original role no longer exists; (c) However, redundancy is not limited to the circumstance where the employer, no longer desires to have the work previously performed by the terminated employee done by anyone; (d) A redundancy may also arise upon the redistribution of job functions, where the duties performed by an employee are redistributed among other employees. In this case the employer still requires the duties to be performed, but the re-organisation may give rise to a redundancy. In this event, although the duties remain to be performed, 'for all practical purposes the original role no longer exists' because the duties are divided and assigned amongst others. In such a case the question is whether any function or duty remains to be performed by the employee. A redundancy will occur if, after the reorganisation, the employee in question is left with no duties to discharge; and (e) Redundancy will not arise where the termination of employment is carried out solely because of any personal act or default of the employee terminated or for any consideration peculiar to that employee." (Citations omitted.) 131The opening words of this extract must be kept in mind: the starting point for analysis must be the language of the relevant statute, award or contract of employment. Subject to this qualification, Vickery J's analysis in my view accurately summarises the principles stated in the cases. The key concept is that the job performed by the claimant ceases to exist, or the duties have so changed that for all practical purposes the role no longer exists. 132This concept cannot be applied in the manner of a mathematical formula. A difficult judgment may have to be exercised, for example where the nominal position remains in place but the duties of that position are substantially altered: see Commonwealth Bank of Australia v Financial Services Union at [27]. Similarly, if the name of the position has been changed, but many of the duties and responsibilities attached to the previous position are retained, there may be no redundancy. But the fact that the duties attached to a position have changed or some responsibilities have been transferred to other positions does not establish that the position, or the occupant of the position, has been made redundant. Ordinarily, it is necessary for the employee claiming to have been made redundant to show that the changes in the duties and responsibilities of a position are so substantial that for practical purposes the position no longer exists. That may come about in a particular case where a position appears to continue (whether under the name or a different name), but the duties and responsibilities of the position are so substantially altered that it is largely stripped of its functions.

Construction of the Redundancy Clause 133The Redundancy Clause in the side letter of 29 July 2005 given to Mr Janik stated that "[s]hould you be made redundant whilst employed in this position you shall be entitled to redundancy payments". Neither the letter nor the Enterprise Bargaining Agreement defined or further explained the expression "be made redundant". 134Both parties approached the construction of the Redundancy Clause on the basis that it should be interpreted in accordance with the common law principles governing the concept of redundancy. Neither Mr Kimber nor Mr Jackman submitted that the circumstances in which the Redundancy Clause came into existence warranted giving any different meaning to the expression "made redundant". Nor did Mr Kimber make any submission founded on the Redundancy Clause being expressed to apply if Mr Janik (rather than his position) was made redundant. In particular, no submission was made that Mr Janik as an individual had become superfluous to the needs of UGL Rail and thus had been made redundant regardless of whether UGL Rail retained his position: cf Commonwealth Bank of Australia v Financial Services Union at [27]; Dibb v Commissioner of Taxation at [43] (extracted at [118] above). Mr Janik's case is that his position had been made redundant and, accordingly, he was entitled to the benefits provided by the Redundancy Clause. It follows that the principles to which I have referred, particularly those stated in Hodgson v Amcor Ltd, provide guidance as to the construction of the Redundancy Clause.

Was Mr Janik Made Redundant? 135Once the suggestion of a sham is put aside and it is accepted that the position occupied by Mr Terry from March 2010 did not include his previous international role, the evidence does not support the primary Judge's finding that Mr Janik's position of GM Strategic Projects had been effectively emptied of its duties and "in reality abolished". The primary Judge was not asked to find and did not find that Mr Janik's position continued to exist but the duties and responsibilities had been so substantially altered that the position had been largely stripped of its functions. No notice of contention has been filed by Mr Janik. Assuming that is not a barrier to this Court making a finding that Mr Janik's position had been largely stripped of its functions, in my opinion the evidence does not support such a finding. 136Shortly before Mr Hinchcliffe told Mr Janik that his departure had been confirmed, Mr Hinchcliffe instructed Ms Hollis-Brown to prepare the Position Requisition Form. The Form (extracted at [56] above) stated that a "replacement" for Mr Janik was to be appointed and that the "position need[ed] to be retained due to ongoing work in strategic projects, especially in NSW". The Form recorded that alternatives had been considered, including dividing the role between other positions, but no other position could devote the resources necessary to win the business. 137In the absence of a finding that the Position Requisition Form was anything other than a genuine document approved by those whose names appear on the "Audit Trail", the document shows that the new position was intended to replace Mr Janik's role as GM Strategic Projects. The document also shows that Mr Janik's role and responsibilities were not to be distributed among other positions. This was confirmed by the description of the duties attached to the position, recorded in the Position Description prepared by Ms Hollis-Brown in consultation with Mr Hinchcliffe. 138The primary Judge inferred (at [81]) from the conversation between Mr Janik and Mr Hinchcliffe on 17 November 2009 (when Mr Hinchcliffe told Mr Janik that he would not get redundancy) and because neither Mr Janik nor Mr Terry had signed the Position Description which was the normal practice that the Position Description had been created to defeat Mr Janik's foreshadowed redundancy claim. Nonetheless, his Honour recognised (at [53]) that the Position Description covered many of the functions performed by Mr Janik (some are extracted at [58] above). The key areas of responsibility identified in the Position Description were not confined to managing the relationship with RailCorp, although that function was clearly very important to UGL Rail. The responsibilities included implementing "strategic account management/business plans for large customers" and evaluating potential opportunities consistent with UGL Rail's overall corporate strategy. 139The primary Judge discounted the importance of the Position Description, on the ground that its general language could be used to describe tasks that "could equally fall within the purview of other positions". But the question was whether Mr Janik's position had effectively ceased to exist or at least the duties had been fundamentally changed so as to largely strip it of its functions, by the redistribution of responsibilities or otherwise. The fact that some of the tasks identified in the Position Description "could equally fall within the purview of other positions" is of little assistance in answering that question. 140Despite the primary Judge's doubts as to Mr Hinchcliffe's motivation creating the Position Description, the document assumes greater significance in the light of Mr Terry's evidence as to his role and responsibilities. This evidence was not challenged, but was not referred to by the primary Judge. In his affidavit, Mr Terry said that as GM Passenger Sales he "generally undertook the roles and responsibilities listed in the 'Key Responsibilities' section of the [Project Description]". This evidence strongly suggests that the duties and responsibilities of Mr Terry's position overlapped to a considerable extent with those performed by Mr Janik. Indeed, as I have noted, it is hard to see how Mr Janik could establish that his position had effectively been abolished (as the primary Judge found), or fundamentally altered so as to have been largely stripped of its functions, unless Mr Terry's evidence as to his role and responsibilities was directly challenged. 141In the course of his oral submissions, Mr Kimber handed up a chart which purported to compare Mr Janik's responsibilities with those of Mr Terry and suggested that Mr Terry's responsibilities were considerably more restricted. However, as was pointed out in argument, the chart is of little assistance because it does not take account of Mr Terry's evidence as to the scope of his responsibilities and duties. That evidence cannot simply be put to one side or ignored. 142Mr Kimber placed considerable emphasis on Mr Terry's evidence that the functions he performed as GM Passenger Sales were "associated with being an account manager of RailCorp". In my view, that emphasis was misplaced. Allowing for some ambiguity in the phrase "associated with", Mr Terry's evidence accurately reflected not only his own responsibilities, but those attached to the position occupied by Mr Janik. From the beginning of 2009, as the primary Judge found (at [34]), Mr Janik was heavily involved in two major projects for RailCorp. One was a maintenance contract for Maintrain and the other was the third tranche of the OSCAR passenger rail carriages project. According to Mr Janik, during the last year of his tenure these projects took up virtually the whole of his time. 143The functions Mr Janik said he performed in 2009 were clearly within the key areas of responsibility allocated to Mr Terry's position. Moreover, Mr Terry's evidence, again unchallenged, was that as GM Passenger Sales he worked on securing the Maintrain contract. This contract would have enabled UGL Rail to provide maintenance services to RailCorp at its Maintrain maintenance facility. Mr Terry also worked on the OSCAR project, the object of which was to secure for UGL Rail the right to supply OSCAR model trains to RailCorp. As Mr Jackman submitted, Mr Terry's uncontradicted evidence shows that his primary responsibilities as GM Passenger Sales coincided with Mr Janik's core responsibilities, to which Mr Janik devoted almost all of his time throughout 2009. 144In addition to his role with RailCorp, Mr Terry said that he was involved in other business development work, such as preparing what he described as the "Adelaide trains tender". These additional duties actually performed by Mr Terry overlapped with Mr Janik's responsibilities as GM Strategic Projects. 145Mr Kimber submitted that even if there was a significant overlap in the functions performed by Mr Janik and Mr Terry, there had been a "material" alteration in the responsibilities assigned to the position of GM Passenger Sales compared with those previously assigned to Mr Janik as GM Strategic Projects. According to Mr Kimber, the material alteration came about because Mr Janik had responsibility for freight rail, but Mr Terry had no responsibility for that area of UGL Rail's business. Mr Janik's evidence, accepted by the primary Judge (at [33]), was that on occasions he spent up to 70 per cent of his time working on freight rail projects. Overall, he estimated that he spent 70 per cent of his time on passenger projects and about 30 per cent on freight. However, as has been noted, in the last year of his tenure, Mr Janik performed no work on freight rail projects. 146Mr Terry gave evidence that if asked he would have been prepared to perform work other than working on projects associated with RailCorp. Nonetheless, it is clear enough that his duties as GM Passenger Sales did not extend to freight projects. This is not surprising since, at the time Mr Janik's employment was terminated and Mr Terry was appointed as GM Passenger Sales, UGL Rail was not undertaking or (so far as the evidence shows) seeking to undertake any freight rail projects. I accept that, as Mr Kimber submitted, Mr Janik's responsibilities as GM Strategic Projects had never been amended to exclude freight projects. I also accept that it follows that there were differences between Mr Janik's responsibilities and those attached to Mr Terry's position as GM Passenger Sales. 147This does not mean, however, that Mr Janik's position effectively ceased to exist or was largely stripped of its functions by reason of the reorganisation within UGL Rail that took place in late 2009 and early 2010. As I have explained, the "key responsibilities" of Mr Terry's position as GM Passenger Sales were expressed broadly and covered the bulk if not all the non-freight responsibilities that had been allocated to Mr Janik. Even if Mr Janik's estimate that overall he devoted 30 per cent of his time to freight rail is accepted as the proper basis for comparison, that leaves something in the order of 70 per cent of his responsibilities remaining within Mr Terry's nominal responsibilities as GM Passenger Sales. On the principles to which I have referred, the fact that Mr Terry was not given responsibility for freight projects does not justify a finding that Mr Janik's position had been abolished or the duties allocated to others, so that for all practical purposes the position ceased to exist. Nor does it justify a finding that his position had been largely stripped of its functions. 148In reaching this conclusion, I have assumed that Mr Kimber is correct to contend that, in determining whether Mr Janik's position was made redundant, the starting point is Mr Janik's nominal areas of responsibility, regardless of whether he was actually performing any of those functions at any particular point in time. As I have explained, even on that assumption Mr Janik's position was not made redundant. However, I doubt that the assumption is correct. 149In my view, in determining whether Mr Janik's position was made redundant, it is unrealistic to accord much significance to functions that Mr Janik did not perform during the last year of his tenure. The reason why Mr Janik did not work on freight rail during 2009 was because UGL Rail did not have any such work to perform, not because responsibility for freight rail had been transferred to someone else within the organisation. In the absence of evidence that UGL Rail was likely to resume freight rail projects in the foreseeable future, the exclusion of such projects from the responsibilities allocated to Mr Terry as GM Passenger Sales seems to me to be of little practical significance. 150Mr Kimber also submitted that Mr Jenkins' reasons for terminating Mr Janik's employment and moving Mr Terry into the position designated as GM Passenger Sales show that the functions and responsibilities of the GM Strategic Projects had been substantially altered and redistributed to others within UGL Rail. The thrust of Mr Jenkins' evidence was that UGL Rail still required the duties allocated to the GM Strategic Projects (other than freight) to be performed, but considered that the manner in which the duties were discharged needed to change. In contrast to Mr Terry's position, which had indeed become redundant by the termination of the international project, most of the duties performed by Mr Janik were to continue, but were to be performed in what Mr Jenkins characterised as a more "rigorous" manner. Mr Jenkins also made it clear that Mr Janik's role in managing RailCorp's account was "very important" to UGL Rail because RailCorp was a key customer. The reasons given by Mr Jenkins for replacing Mr Janik do not involve the abolition of his position or a redistribution of his major functions and responsibilities to others within the organisation. 151It is true that the title of the new position changed to GM Passenger Sales, no doubt reflecting its primary focus. It is also true that the remuneration initially approved for the new position was about 20 per cent lower than Mr Janik's remuneration, although the remuneration ultimately paid to Mr Terry was more or less the same as that paid to Mr Janik. But whether a position has been abolished or largely stripped of its functions and responsibilities is a matter of substance not form: Commonwealth Bank of Australia v Finance Sector Union at [27]. The fact that the remuneration attached to the position is reduced may be a reason to examine closely whether the position has in truth been retained, but it cannot be determinative of that issue. In this case, the functions and responsibilities of the GM Passenger Sales occupied by Mr Terry were in substance those of the GM Strategic Projects, with some differences attributable to the absence of freight work available to UGL Rail. The changes to the position were not trivial, but they fell considerably short of justifying a finding that Mr Janik's position had been abolished or largely stripped of its functions. 152Mr Kimber further submitted that it was significant that UGL Rail had adduced no evidence as to whether Mr Terry had been replaced in October 2010 and whether, in any event, the position of GM Passenger Sales had been continued. Mr Terry himself said that he did not know whether he had been replaced. But while the failure to call evidence as to what happened after Mr Terry's transfer may have been relevant to the "sham" case, it could not support an inference that the responsibilities of Mr Terry's position and the duties performed by him were other than he described. 153Mr Kimber relied on evidence given by Mr Janik that during the last 12 months of his employment he noted that others within UGL Rail became involved in several projects that he had been working on. He gave three illustrations. The evidence is consistent with other managers becoming more involved in specific projects as Mr Janik's role within UGL Rail became more tenuous. The evidence does not address the significance of the individual projects and does not establish that there was any significant redistribution of functions within UGL Rail that substantially altered the duties and responsibilities attached to Mr Janik's position. 154Finally, Mr Kimber pointed to the representation made by either Mr McLuckie or Mr Parkinson in late 2003 that Mr Janik would be one of four senior players in UGL Rail. The ES Agreement provided that Mr Janik wold report to the CEO of UGL Rail or such other persons nominated by the company from time to time. It is not entirely clear whether there was any formal change in reporting requirements, although the organisational chart suggests that at some stage Mr Janik was required to report to Mr Hinchcliffe, who then reported to the CEO. If this change did in fact occur, it was consistent with the terms of the ES Agreement. The reporting requirements appear not to have changed since Mr Terry assumed his new role.

Conclusion 155The primary Judge found that UGL Rail effectively emptied Mr Janik's position as GM Strategic Projects of its duties, functions and responsibilities so that the position was in reality abolished. That finding is not supported by the evidence and cannot stand. The evidence does not justify any other finding that warrants concluding that Mr Janik was made redundant within the meaning of the Redundancy Clause. It follows that UGL Rail's appeal must be allowed and the judgment in favour of Mr Janik must be set aside.

Reasoning: The Options Claim 156It is convenient to reproduce the text of the Options Clause upon which Mr Janik relies for his claim that UGL Rail is liable to him for breach of contract: "The Executive shall be entitled, subject to eligibility rules, to participate in the annual share options plan and employee share plan which are both reviewed annually and at the discretion of the United Group Board. The Chief Executive shall make an initial recommendation of 40,000 options, to be vested over three (3) years. This recommendation must be approved by the United Group Board and is therefore not guaranteed. The Chief Executive shall consider further annual recommendations should options not be approved and granted in 2005."

Matters Not Argued 157It is important to appreciate that there are two matters on which Mr Janik does not rely in support of his claim under the Options Clause. First, he does not press his pleaded case that the ES Agreement incorporated an implied term that UGL Rail would not act in a manner calculated or likely to damage or destroy the relationship of trust and confidence between itself as employer and Mr Janik as employee. Mr Kimber accepted that the decision of the High Court in Commonwealth Bank of Australia v Barker [2014] HCA 32; 88 ALJR 814, forecloses such a contention. 158Secondly, Mr Janik does not contend that Mr McLuckie failed to make the "initial recommendation" required by the Options Clause. There has never been any dispute that the spreadsheet prepared by Mr McLuckie included a recommendation that 40,000 options be allocated to Mr Janik. There is also no dispute that Mr McLuckie did not prepare a document explaining the basis for his recommendation that Mr Janik receive 40,000 options. In the absence of such an explanatory document being transmitted to Mr Leupen (as the decision-maker), or Mr McLuckie communicating his reasoning to Mr Leupen in some other way, it is not surprising that Mr Leupen did not become aware of the circumstances that led to the Options Clause being included in the ES Agreement. Specifically it is not surprising that Mr Leupen did not know that Mr Janik had applied for the position at OneSteel and that he had foregone that opportunity on the faith of an assurance that he would be considered for the grant of 40,000 options. 159On one view, the bare recommendation made by Mr McLuckie may not have constituted an "initial recommendation" of the kind contemplated by the Options Clause. That contention, however, was not pleaded by Mr Janik and is not a ground in his notice of cross-appeal. Nor did Mr Janik seek to put any argument to this effect on the hearing of the cross-appeal. 160The absence of any such argument is of some importance in considering the operation of the Options Clause. The consideration required to be given to Mr McLuckie's recommendation to the Board of UGL (or Mr Leupen as its delegate) may be different, depending upon whether the recommendation simply consisted of Mr Janik's name and the number of suggested options (as was the case) or whether the recommendation incorporated reasons for the recommendation that he be granted 40,000 options.

The Promisor 161The Options Clause forms part of the Agreement between Mr Janik and his employer, UGL Rail. It is correct, as Mr Jackman submitted, that UGL, the parent company, was not a party to the contract of employment embodied in the Agreement. But there is no reason in principle why one party to a contract (A) cannot promise another party to the contract (B) that a non-party (C) will act in a particular way or achieve a particular result. Depending on the language used in the contract, it may be interpreted to require A to use its best endeavours to procure to C to act in the stipulated manner or bring about the specified result. However, the contract may be interpreted as a promise by A to B, that C will in fact act in the stipulated manner or bring about a particular result. 162In the latter situation, C is not bound by A's promise since he or she is not party to the contract (it is not necessary to explore exceptions to this general rule, such as principles of agency). If, however, B has provided consideration for A's promise, B may well be entitled to enforce the promise against A, including by means of an action for damages for breach of contract. Provided that B can show that he or she has suffered loss or damage by reason of A's breach of contract, B may be entitled to compensatory damages and not merely to nominal damages: cf Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; 165 CLR 107 at 118-119 (Mason CJ and Wilson J); at 132 (Brennan J); at 143 (Deane J); at 157-158 (Dawson J). 163Mr Janik's case against UGL Rail under the Options Clause is that UGL Rail promised that Mr McLuckie's recommendation would be transmitted to Mr Leupen as the Board's delegate and that he would consider the recommendation reasonably, conformably with the purposes of the ES Agreement and not arbitrarily or capriciously. Although Mr Janik's pleaded case is perhaps not entirely clear on the point, Mr Janik's submissions to the primary Judge make it clear that he was not contending that the Options Clause contractually bound UGL and Mr Leupen to act in a particular way. His argument was that UGL Rail had made a contractual promise that the recommendation for the grant of the options would be transmitted to Mr Leupen as the relevant decision-maker and that Mr Leupen would consider the recommendation in the manner described above. 164If this argument is correct, it is of no significance that UGL was not a party to the ES Agreement. UGL Rail made the contractual promises to Mr Janik. If UGL did not conduct itself in the manner UGL Rail promised, UGL Rail (and not UGL or Mr Leupen) would be liable to Mr Janik for breach of contract.

Principles of Construction 165The High Court has recently restated the principles governing the construction of commercial contracts. In Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640, the joint judgment (French CJ, Hayne, Crennan and Kiefel JJ) reaffirmed (at [35]) the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. Therefore, the meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood the terms to mean. That requires: "consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'." (Citations omitted.) 166The joint judgment also reaffirmed (at [35]) that: "unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption 'that the parties ... intended to produce a commercial result'. A commercial contract is to be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'." (Citations omitted.) See also Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184; 310 ALR 113 at [84] (Leeming JA, Ward and Emmett JJA agreeing).

Did UGL Rail Promise that the Recommendation would reach Mr Leupen? 167The Options Clause states in the first sentence that Mr Janik is entitled, subject to the eligibility rules, to participate in the annual share options plan and the employee share plan, both of which are said to be reviewed annually and at the discretion of the Board. The second sentence requires the CEO of UGL Rail to make an initial recommendation of 40,000, to be vested over three years. That obligation is to be performed by UGL Rail independently of anything to be done by UGL. The third sentence states that the CEO's recommendation must be approved by the Board of UGL (which includes its delegate) and that therefore approval of the recommendation is not guaranteed. 168Neither the second nor the third sentence of the Options Clause expressly requires the "initial recommendation" to be made to the Board of UGL (or its delegate). But the language plainly contemplates that the recommendation will be transmitted to and received by the Board, since the recommendation can have no effect unless approved by the Board. It would be "commercial nonsense" for the Options Clause to be interpreted merely as a promise by UGL Rail to make the recommendation without any obligation to ensure that the recommendation actually reaches the only decision-maker capable of approving it. 169In my view, a reasonable businessperson would understand the language of the Options Clause, particularly having regard to the circumstances in which it came into existence, as a promise by UGL Rail not merely to use its best endeavours to ensure that the recommendation reached the decision-maker, but that the recommendation would actually reach the decision-maker. The Options Clause formed part of a contract of employment which had been negotiated over a long period (albeit without legal assistance) after Mr Janik had refused OneSteel's offer of employment and had been persuaded to remain with UGL Rail. While Mr Janik's entitlement to options was highly conditional, UGL Rail's promise to make the recommendation and have it considered by the decision-maker was an important element in Mr Janik's decision. 170This construction of the Options Clause is supported by Mr Leupen's evidence. He said that he was ultimately responsible for and oversaw all aspects of the business conducted by UGL and its subsidiaries, including the strategy and policy, capital expenditure and financial and operational performance of each business division in the UGL group. Contrary to Mr Jackman's submissions, Mr Leupen can hardly be regarded as the CEO of an entity entirely separate from UGL Rail and outside its direct lines of reporting. While Mr Leupen may have been CEO of the parent company, he oversaw the operations of UGL Rail, including financial matters such as the entitlements of senior executives. It is a businesslike interpretation of the Options Clause to regard it as imposing an obligation on UGL Rail to ensure that the recommendation to grant Mr Janik 40,000 options actually reached the decision-maker. 171In my opinion, the language of the Options Clause warrants this construction without recourse to any implied term. If, however, the Options Clause cannot be construed to require UGL Rail to ensure that the recommendation actually reached Mr Leupen unless a term to that effect is implied, I consider that the requirements for implying such a term are satisfied: Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; 144 CLR 596 at 605-606 (Mason J, Barwick CJ, Gibbs, Stephen and Aickin JJ agreeing). In particular, the implied term is so obvious that "it goes without saying".

Did Mr Janik Show that the Recommendation did not reach Mr Leupen? 172The question which then arises is whether Mr Janik has shown that Mr McLuckie's recommendation concerning the grant of options to Mr Janik did not in fact reach Mr Leupen. The evidence on this issue is sparse. UGL Rail did not adduce any documentary record of Mr Leupen's consideration of the recommendation. (It seems that UGL Rail sought to tender documents that it belatedly discovered, but the application was refused. The content of the documents is not known.) Mr Leupen himself said that he had no recollection of seeing in 2005 the spreadsheet containing Mr McLuckie's recommendation concerning the allocation of options to Mr Janik. Mr Long, who was the UGL executive responsible at the time for staff remuneration, also did not recall seeing the spreadsheet. Nor could he recall seeing the email from Ms Whipp of 14 June 2005 to Ms Hayes and others which attached Mr McLuckie's spreadsheet. 173Mr Long gave evidence that the usual practice was that UGL's Head of Human Resources and Company Secretary would collate the names of those recommended for participation in the share options plan into a central document. The document, incorporating the recommendations, would be forwarded to Mr Leupen for his consideration and approval. Typically Mr Long would review the recommendations with Mr Leupen. 174Despite the evidence of UGL's usual practice, in the absence of affirmative evidence confirming that Mr McLuckie's recommendation reached Mr Leupen I would conclude, on the balance of probabilities that the recommendation did not reach Mr Leupen and thus was not considered by him. Whatever UGL Rail's reason for not adducing documentary evidence of the decision-making process undertaken by Mr Leupen, it was within UGL Rail's power to produce evidence showing that Mr Leupen received and considered the recommendation that 40,000 options be granted to Mr Janik: Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970. 175Mr Jackman, however, referred to other evidence which suggests that Mr Leupen did receive Mr McLuckie's recommendation. Mr Jackman pointed to the following matters:

• Mr McLuckie's recommendation was transmitted to Ms Whipp, the HR Manager of UGL Rail, on 13 June 2005. On 14 June 2005, Ms Whipp forwarded Mr McLuckie's recommendations, including the recommendation relating to Mr Janik, to Ms Hayes and Ms Worrall of UGL. This suggests that the recommendations were to be processed in accordance with the usual practice, described by Mr Long, so that they could be presented to Mr Leupen for his consideration.
• In a memorandum to Mr Long of 15 October 2007, Mr Janik recorded that he had confirmed with Mr McLuckie that the recommendation had been made to the Board and that Ms Whipp was to arrange the necessary documentation for that to occur. The memorandum suggests that Mr McLuckie had given instructions to Ms Whipp to set in train the steps required to ensure that the recommendation reached the Board (or its delegate).
• In the same memorandum, Mr Janik asked Mr Long whether the recommendation for 40,000 options had reached the Board. Mr Long responded on 24 October 2007 as follows: "Consistent with the UGL Board 2005 position in relation to amounts of options being issued, the UGL Board did not follow the recommendation of the Chief Executive, and instead issued 7,200 options to you under the share options plan. These options were accepted by you." 176The onus is on Mr Janik to prove on the balance of probabilities that Mr McLuckie's recommendation was not received by Mr Leupen. Mr Kimber correctly submitted that UGL Rail's failure to call Ms Hayes and Ms Worrall makes it easier to draw inferences adverse to UGL Rail. However, this is offset to a considerable extent, if not entirely, by UGL Rail calling Mr Leupen, Mr Long and Ms Whipp. While both Mr Leupen and Mr Long said (not surprisingly) that they could not recall seeing the spreadsheet, it was not put to Mr Leupen that he had proceeded to implement the mathematical formula for the grant of options without following UGL's usual practice of seeing the recommendations collated by the HR Department. Indeed, Mr Leupen said that, although he could not recall the recommendation, it must have come to his attention because the recommendations had to be adjusted downwards. In my opinion, the evidence, slight as it is, suggests that the recommendation probably was transmitted to Mr Leupen in conformity with UGL's usual practice, but was not approved by him because he preferred to apply a mathematical formula for the allocation of options to eligible staff. In any event I cannot be satisfied on the balance of probabilities that the recommendation was not sent by UGL to Mr Leupen and not received by him. Accordingly, Mr Janik has not established that UGL Rail breached the Options Clause by failing to ensure that Mr McLuckie's recommendation for the grant of options to Mr Janik reached Mr Leupen.

An Implied Obligation? 177Mr Janik's case rests heavily on what is said to be an implied obligation on UGL Rail to ensure that Mr Leupen used his discretion to grant options reasonably, conformably with the purposes of the ES Agreement and not capriciously or arbitrarily. The parties are in dispute as to whether such a term can be implied into the Options Clause or in the Agreement as a whole. 178Mr Jackman relied on the decision in Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15, to argue that the implied obligation for which Mr Janik contends is inconsistent with cl 12.3 of the ESOP Rules, which conferred an "absolute and unfettered discretion" on Mr Leupen in relation to the grant of options. 179Vodafone v Mobile involved the construction of an agreement between the operator of a mobile telephone network and an agent engaged to acquire new subscribers to the network. Payments to the agent depended in part on its success in achieving target levels for new subscribers. Clause 18.4 of the agreement provided that the operator would "have the sole discretion to determine, from time to time, the target level in respect of the number of new connections of New Subscribers". The agent argued that the operator was under an implied obligation to act in good faith and reasonably in determining target levels. 180Giles JA (with whom Sheller and Ipp JJA agreed) was prepared to assume, expressly without deciding, (at [191]) that unless excluded by express provision or an inconsistent term, the operator would be under an obligation implied by law of the kind alleged by the agent. His Honour held (at [198]), however, that cl 18.4 precluded the implication of an obligation to act in good faith and reasonably. There was a "fundamental tension" between the agent's interest in maximising the number of new subscribers and the operator's interest in acquiring profitable subscribers. The agreement could only work if one party had the "whip hand" in relation to the acquisition of subscribers and that party was intended to be the operator (at [196]). Clause 18.4 gave it control over the raw numbers, while other provisions gave it control over such matters as tariffs and terms and conditions. 181Giles JA expressly did not decide whether cl 18.4 excluded an implied obligation not to exercise the discretion in an arbitrary or capricious fashion (at [194]). It was not necessary to decide that issue because the trial judge had found that the operator had not exercised discretion arbitrarily or capriciously (at [132]). Thus the decision leaves open the question whether cl 18.4 precluded an implied obligation on the operator not to act arbitrarily or capriciously in setting target levels. 182Mr Kimber countered Mr Jackman's submission by citing two authorities which, so he argued, show that an implied obligation of the kind relied on by Mr Janik can survive the presence of a clause conferring an "absolute and unfettered discretion" on an employer to determine whether or not to grant options. Mr Kimber submitted that these authorities demonstrate that cl 12.3 of the ESOP Rules did not prevent UGL Rail coming under an implied obligation to ensure that Mr Leupen acted reasonably, in conformity with the ES Agreement and not arbitrarily or capriciously. The two authorities are Silverbrook Research Pty Ltd v Lindley [2010] NSWCA 357 and Mallone v BPB Industries Plc [2002] EWCA Civ 126; [2002] ICR 1045. 183In Silverbrook v Lindley, a contract of employment provided that the employee, a Business Development Strategist, would be employed at an annual salary of $210,000. The employer agreed to establish set objectives each quarter, assess the employee's performance against those objectives and, provided her performance satisfied the objectives, pay her a Performance Bonus. The obligations were, however, subject to cl 4.3 which stated that the "decision as to whether [the employee] should receive the Performance Bonus is entirely within the discretion of [the employer]". At no time did the employer set the objectives referred to in the contract of employment. Over the five years of her employment, the employee never received a Performance Bonus. After she resigned, the employee claimed damages for breach of the contract of employment. She claimed damages on the footing that the employer's failure to set objectives deprived her of the opportunity to be paid the Performance Bonus. 184Allsop P (Beazley JA agreeing) noted (at [4]) that it was common ground that the employee had lost the opportunity to obtain the Performance Bonus. The task was then to value that loss of opportunity: "[5] ...This process begins with a proper understanding of the contractual content of the obligations and entitlements ... That the decision as to whether the [employee] should receive the bonus was 'entirely within the discretion of' the [employer] should not be construed so as to permit the [employer] to withhold the bonus capriciously or arbitrarily or unreasonably; it should not be construed so as to give the [employer] a free choice as to whether to perform or not a contractual obligation. The relevant discretion should be understood against the proper scope and content of the contract. This was a bargained for bonus to be assessed against set objectives. Such a clause should receive a reasonable construction and not permit the appellant to choose arbitrarily or capriciously or unreasonably that it need not pay money the set objectives having been satisfied. [6] The discretion is to be exercised honestly and conformably with the purposes of the contract. There may be many circumstances in which it would be legitimate, and conformable with the purposes of the contract, not to pay the bonus. There may be financial stringency or misbehaviour by the [employee] or some other consideration. It is unnecessary to explore the possibilities in detail. What, however, would not be permitted is an unreasoned, unreasonable, arbitrary refusal to pay anything, come what may. This would be a denial of the very clause that had been agreed. If these parties wished to make payment under the clause entirely gratuitous and voluntary such that payment could be withheld capriciously, notwithstanding the compliance with solemnly set objectives they needed to say so clearly." (Citations omitted.) 185It is clear from this passage that the critical element of the agreement was the employer's promise to set performance objectives and, subject to the discretion, to pay the Performance Bonus if the "solemnly set" objectives were met. The Options Clause in the present case required Mr McLuckie to recommend that 40,000 options be granted to Mr Janik. But the Options Clause contained no provisions equivalent to those in Silverbrook v Lindley requiring UGL Rail (or UGL) to set or adhere to objective performance standards governing the grant of options, subject only to the exercise of a discretion. Nor did the Options Clause create a prima facie entitlement to the grant of options if Mr Janik satisfied objective standards. Once the recommendation was made, the decision-maker's discretion was unfettered. Silverbrook v Lindley does not support the implication of a term in the ES Agreement of the breadth propounded by Mr Kimber. 186Mallone v BPB was a similar case. An employee who ceased to be employed was not permitted to exercise more than an "appropriate proportion" of the options previously granted by the employer. The rules incorporated a formula for determining the "appropriate proportion" based on the number of years of service as an executive by the employee, but the directors had the power to determine the proportion "in their absolute discretion". Rix LJ (Waller LJ and Wilson J agreeing) referred with approval to Clark v Nomura International Plc [2000] IRLR 766, where Burton J held (at [40]) that the relevant test where an employer has a discretion to award a bonus is: "one of irrationality or perversity (of which caprice or capriciousness would be a good example) ie that no reasonable employer would have exercised his discretion in this way." 187Rix LJ rejected (at [39]) a submission that an employer could not be found to have acted irrationally unless the employee was also dishonest: "Perhaps irrationality and arbitrariness are very close to the same thing. But I think that someone may act irrationally while being honest; and as Burton J suggested in Clark v Nomura International, capriciousness is something else (eg deciding on the basis of the colour of someone's hair or eyes)." 188His Lordship upheld the primary Judge's finding that the employer had acted irrationally by deeming the "appropriate proportion" of the options to be nil. Prima facie the contract provided that the proportion would reflect the employee's years of service (at [40]). Moreover, the options had already "vested", in the sense that they had been granted as a reward for past performance (at [41]). It was hard to see why someone who had not been dismissed for misconduct should be denied the benefit of the options on the ground that his performance after the options had vested had been regarded as less than the standard required. 189There is no difficulty in regarding the Options Clause as incorporating an implied promise by UGL Rail that Mr Leupen would consider the recommendation to grant Mr Janik 40,000 options and would do so honestly and not arbitrarily or capriciously. There is also no difficulty in implying a term that Mr Leupen would consider the recommendation consistently with the proper scope and content of the ES Agreement. The authorities do not justify the implication of any broader term. In particular, they do not justify implying a term that UGL Rail promised that Mr Leupen would act reasonably having regard to Mr Janik's particular circumstances and would take into account Mr McLuckie's rationale for making the recommendation. 190On this construction of the Options Clause, UGL Rail did not breach its contractual obligations. The recommendation reached Mr Leupen. As I have explained, Mr Janik does not submit that the Options Clause required the recommendation to be accompanied by reasons explaining Mr Janik's circumstances or the rationale for Mr McLuckie's recommendation. Mr Leupen rejected the recommendation because he considered, as his memorandum of 6 July 2005 shows, that a restructure of option arrangements was necessary for the financial well-being of the UGL Group. In his evidence Mr Leupen explained that the introduction of mathematical formulae for the allocation of options was required to ensure equity among employees and to overcome the logistical difficulties of giving consideration to the individual circumstances of numerous employees. 191Mr Leupen accepted that he had a discretion to grant options outside the confines of the BESOP and that options had been granted to several senior executives outside the BESOP during 2005. Mr Leupen also agreed that the fact that Mr Janik had withdrawn his application to OneSteel and that the offer concerning the options was part of the inducement to stay with UGL Rail could have been a relevant consideration in exercising his discretion. 192None of this demonstrates that Mr Leupen acted arbitrarily or capriciously in rejecting Mr McLuckie's recommendation. If the Options Clause did not require the recommendation to explain Mr Janik's particular circumstances, it is difficult to see how UGL Rail could be understood to have promised that those circumstances would be taken into account by Mr Leupen. His evidence showed that the very point of moving to a new system was to avoid the difficulty of considering individual cases. There was nothing irrational, capricious or arbitrary in Mr Leupen deciding that Mr Janik, like other executives, should receive a standard allocation of options calculated by reference to the number available. 193Nor is there anything inconsistent with the scope and purpose of the ES Agreement. Mr Janik bargained away a guaranteed grant of options for protection against redundancy. The Agreement did not provide for anything other than a bare recommendation to be transmitted to Mr Leupen. It cannot be understood as incorporating a promise by UGL Rail that Mr Leupen would consider Mr Janik's circumstances when those circumstances were not required to be put to Mr Leupen and when he could not reasonably be expected to investigate those circumstances for himself.

Conclusion 194For the reasons I have given, Mr Janik's cross-appeal must be dismissed.

Orders 195The following orders should be made:

1. Appeal allowed.
2. Set aside the orders made by the primary Judge on 18 December 2013.
3. In lieu of the orders referred to in Order 2, order judgment for the defendant.
4. Cross-appeal dismissed.
5. Set aside the orders made by the primary Judge on 11 March 2014.
6. In lieu of the orders referred to in Order 5, order that the plaintiff pay the defendant's costs of the proceedings.
7. Order the respondent/cross-appellant pay the appellant/cross-respondent's costs of both the appeal and the cross-appeal.
8. The respondent, if otherwise qualified, have a certificate under the Suitors' Fund Act 1951 (NSW) in respect of the appeal. 196ADAMSON J: I agree with Sackville AJA.

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