FEDERAL COURT OF AUSTRALIA

Cohen v iSOFT Group Pty Limited [2013] FCAFC 49

THE COURT ORDERS THAT:

1.    The appeal be allowed.

2.    Order 2 made by the primary judge on 19 October 2012 be set aside.

3.    Within 28 days of the date of this order, the first respondent pay the appellant the amount of AUD516,830.35, consisting of:

(a)    payment in lieu of six months notice on the redundancy of the appellant’s position (AUD228,062.50);

(b)    long service leave (AUD167,248.75);

(c)    annual leave (AUD114,469.83); and

(d)    outstanding balance of salary for the month of September 2011 (AUD7,049.27).

4.    Within 28 days of the date of this order, the first respondent pay the appellant interest in the amount of AUD68,378.22.

5.    The respondents pay the appellant’s costs of the appeal, as agreed or assessed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

1    The central issue in this appeal is whether in 2011 the appellant, Dr Brian Cohen, was still employed by the first respondent, as he contends, or by another member of the group of companies (the group), of which it was the ultimate holding company. Over the 13 years since its flotation on the Australian Stock Exchange (ASX), as IBA Technologies Limited, the first respondent, has changed its name four times, and it will be convenient generally to refer to it as “the first respondent”.

2    The issue arises in this way. In the appeal, it became common ground that between 2000 and 2008 the first respondent was Dr Cohen’s employer. He had been based and lived with his family in Singapore since 1982. In 2006, Dr Cohen began to work in Bangalore, India, under a written contract. In late 2007, the first respondent seconded Dr Cohen to work in Chennai. Subsequently, Dr Cohen and the first respondent negotiated the terms of an agreement that he executed on 12 June 2008 that identified the terms on which he would work while in Chennai (the 2008 agreement). The first respondent contends, and the primary judge found, that the 2008 agreement changed Dr Cohen’s employer to the second respondent, IBA Health Asia Pte Limited (IBA Asia), a Singaporean company.

3    Despite the relative simplicity of the substantially undisputed documentary evidence, the hearing before the primary judge extended over six days and the appeal ran into a second day.

Dr Cohen’s claims

4    Dr Cohen sought payment of his accrued leave, annual leave, long service leave, the amount of his notice and, pursuant to what he argued was an implied term of his employment, a redundancy entitlement. Alternatively, he claimed those entitlements under State legislation and the Fair Work Act 2009 (Cth).

Background

5    It is necessary to explain the events leading up to the making of the 2008 agreement in some more detail. Dr Cohen was a developer of information technology for use in the health care industry. He began working for SW International Systems Pte Limited (SWI) in Singapore, under a contract dated 1 November 1988. In September 1998, Dr Cohen and SWI entered into a new employment contract. By that time, the chairman of SWI was Dr Cohen’s brother, Gary, a former solicitor and principal in the Allco Finance Group. SWI became a subsidiary of the first respondent in 1999 and came to be called IBA Health Asia Holdings Pte Limited, and we will refer to it generally as “IBA Holdings”. That occurred in September 1999 when the first respondent entered into a merger agreement. Gary Cohen became chairman of the first respondent.

6    Then, on 15 February 2000, the first respondent lodged a prospectus with the ASX. The prospectus recorded that each of the senior management team, including Dr Cohen as chief technology officer, had entered into a service agreement with the first respondent for a period of three years on similar terms. Earlier, on the same day, Dr Cohen and the first respondent executed an executive service agreement (the 2000 agreement). That agreement had been drafted by a major Australian law firm.

The 2000 agreement

7    The 2000 agreement provided that:

    the first respondent agreed to employ Dr Cohen in the position of chief technology officer and he agreed to serve it in that capacity on the terms of the agreement (cl 2.1);

    the term of the agreement was three years from 15 February 2000 (Sch 1);

    the first respondent had to employ Dr Cohen for the term, unless his employment terminated earlier (cl 2.2);

    Dr Cohen had to undertake the duties and exercise the powers that the first respondent’s board assigned or vested in him, comply with its instructions, and among other things, if required, perform services not only for the first respondent, but also for any of its related bodies corporate, as the first respondent might from time to time reasonably require (cl 3.1);

    Dr Cohen was to be paid an annual remuneration, to be calculated using a base package in a manner agreed between the remuneration committee of the first respondent’s board and Dr Cohen (cll 4.1, 4.2);

    the remuneration committee had to review the base package of Dr Cohen on an annual basis in accordance with the first respondent’s policies as varied from time to time provided that his remuneration could not be reduced and any increase in Dr Cohen’s base package would be at the first respondent’s absolute discretion (cl 4.6);

    clauses 7.1, 7.2 and 10.1(a) were in the following terms:

7.1    Annual Leave

The Executive (in addition to the usual public holidays) is entitled to 4 weeks leave in each year to be taken at a time or times agreed between the Board and the Executive.

7.2    Long service leave

The Executive’s long service leave entitlements are to be determined in accordance with law and with the policy of the Company and the Executive must take reasonable steps to ensure that long service leave is taken at a time convenient to the Company.

10.1    The employment of the executive is terminated by whichever of the following events occurs first:

(a)    the expiration of 6 months’ notice of termination given by either party to the other, or of such shorter period of notice as may be agreed; …” (emphasis added)

    the 2000 agreement was governed by the law in force in New South Wales (cl 13.1(a));

    Finally, cl 13.3(a) provided:

“This agreement contains the entire agreement between the parties about its subject matter. Any previous understanding, agreement, representation or warranty relating to that subject matter is replaced by this agreement and has no further effect.”

Events after the 2000 agreement was made

8    Notwithstanding that the first respondent was Dr Cohen’s employer under the 2000 agreement, he received his salary from IBA Holdings, which had been his employer in Singapore prior to the first respondent. The first respondent put IBA Holdings in funds to pay his salary. This arrangement continued until Dr Cohen’s employment ceased in 2011. His Singapore tax returns after 1999 all recorded IBA Holdings as his employer, no doubt because generally he was resident there and IBA Holdings, unlike the first respondent, carried on business there.

9    By early 2003, the first respondent had developed an employee deferred incentive plan, called EDIP, and an employee loan plan, called ELP. These provided share schemes for the benefit of certain employees. Gary Cohen told his brother that only employees of the first respondent would be offered a salary package that was structured on the basis that a reduction in their salary would be compensated for by the allotment to them of shares in the first respondent. Gary Cohen explained to Dr Cohen that the two plans would only be offered to employees of Australian registered companies in the group so as to be compliant with Australian taxation laws.

10    There was no direct evidence of any new written agreement that dealt with Dr Cohen’s employment after the effluxion of the three year term of the 2000 agreement which occurred on 15 February 2003.

The 2006 agreement

11    Next, on 23 February 2006 the then chief executive officer of the first respondent sent Dr Cohen a letter dealing with the terms of his employment with the first respondent following his move to work for it in Bangalore on a fulltime basis (the 2006 agreement). Dr Cohen signed that letter on 1 March 2006. The 2006 agreement appears to have been prepared without assistance from lawyers. Relevantly, it commenced by stating:

“This letter is an addendum to your original employment contract with IBA Health (Asia) Pte Limited (“IBA”) dated 15 February 2000. The terms of your employment with IBA are amended as follows.” (emphasis added)

12    The 2006 agreement provided that:

    Dr Cohen’s employment as chief technology officer was continued, although he was to report to a nominated executive (cl 1);

    his duties in Bangalore had commenced from 1 February 2006 on a fulltime basis and he was to be based in the Bangalore office (cll 2, 3);

    Dr Cohen would work standard days and hours of work as in accordance with Bangalore standard working conditions and hours (cl 4);

    he would be remunerated “[for] as long as you remain in the employ of IBA Health Bangalore” in a manner that was then specified (cl 5);

    allowances were payable to Dr Cohen for living away from Singapore (cl 6);

    there would be a review at the expiry of 11 months from the commencement of the 2006 agreement (cl 7);

    and, importantly, clause 8 provided:

“Confirmation

All other terms of your Executive Service Agreement, as amended, will continue in full force and effect.” (emphasis added)

The emphasised expressions “IBA Health Bangalore” and “Executive Service Agreement” were not defined in the 2006 agreement.

The 2008 Agreement

13    In about October 2007, the first respondent took over iSOFT Group plc, a United Kingdom company (iSOFT UK). At about that time, Dr Cohen agreed to extend his stay in India and move to Chennai to manage the merger of iSOFT UK into the expanded group’s key technology and product development centre there. Over the course of the following months Dr Cohen exchanged drafts of a secondment agreement to provide for his new task.

14    On about 10 June 2008, Dr Cohen received a letter signed by Cathy Walkington over the title “Group HR Director”, setting out the terms governing his secondment to Chennai. He signed the letter on 12 June 2008 so as to make the 2008 agreement. The letterhead used appeared to be that of IBA Holdings. On either side of that company’s name were logos stating “IBA Health an IBA Health Group Company” and “iSOFT an IBA Health Group Company”. At the time the letter was written the first respondent was named IBA Health Group Limited, so that it may safely be inferred that the two logos were its branding devices and indicated the first respondent’s recent merger with iSOFT UK. Ms Walkington worked for the first respondent in Cheshire, England. There is no evidence that she held any office, directorship or other authority in respect of IBA Holdings or IBA Asia. The 2008 agreement also did not appear to have been drafted by lawyers. It commenced as follows:

“EXPATRIATE ASSIGNMENT - 24 months secondment to Chennai, India

I am pleased to be able to confirm IBA’s terms and conditions for the continuation of your current Expatriate Assignment for a further period of 24 months.” (emphasis added)

15    The letter continued by stating that Dr Cohen would now be based in Chennai and that it set out the main terms and conditions of his employment for the duration of the 24 month period. It then provided:

“1    Names of Parties

5.1    The Company: IBA Health

5.2    The employee: Brian Cohen

2    Employment Details

2.1    Your employment continues in the capacity of CTO [chief technical officer] based in Singapore. However, for the coming period of 24 months, you will be based in Chennai, India.

2.2    Please note that it is IBA’s intention that you will return to Singapore in 24 months time to continue in the same role.

3    Commencement of Employment

3.1    Your secondment to Chennai will commence on 1 November 2007 and is contingent on the company being able to continue to be able to obtain any appropriate visas for yourself and your family in Chennai.

3.2    Your employment with IBA Health (Asia) Pte Ltd is deemed to have commenced on the first day you joined the company, therefore, your continuous service is effective from 1 November 1988.

4    Salary & Allowances

4.1    For the period of this assignment, your nominal base salary will be AUD $374,000. This will continue to be paid as per your current salary structure from Singapore. You will also remain eligible for IBA’s Short Term Incentive program and EDIP and ELP of AUD $38,000 respectively.

…

4.3    Your salary will be paid monthly into your bank account through Singapore Payroll and your current contractor arrangement. You may however wish to split your salary between Indian Rupees and Singapore Dollars which can be arranged.

4.4    IBA agrees to implement a tax equalisation policy on your Singapore payrolled salary – should you wish to take up this benefit. …” (emphasis added)

16    The 2008 agreement also contained detailed provisions dealing with health care arrangements for Dr Cohen and his family, a relocation allowance to move from Bangalore to Chennai, promises that “IBA” would pay the cost of transporting him to Chennai, and when the term of his secondment came to an end, relocating him, his family and possessions back to Singapore. The 2008 agreement further provided:

“7.1    Your standard working hours will remain the same as your current terms and conditions.

…

8.1    Your paid annual leave entitlement will remain the same as your current terms and conditions.

…

9.1    Your notice period will remain the same as your current terms and conditions.

9.2    IBA reserves the right in its absolute discretion to pay salary in lieu of notice.

…

10.1    Your personal leave and sick leave entitlement will remain the same as your current terms and conditions.

…

11.1    The Company reserves the right to make reasonable changes to any of your terms and conditions of employment and will notify you in writing of such changes at the earliest opportunity and, in any event, within one month after such changes have taken effect.

11.2    Such changes will be deemed to be accepted unless you notify the Company of any objection in writing before the expiry of one month from the date of notification by the Company of the changes.

12    Acceptance of this Offer

12.1    The details in this letter, your original offer of employment in your home country and the accompanying documentation, including but not limited to the India Employee Handbook, form both the Principle [sic] Statement of the written particulars of your employment and your individual Contract of Employment.

13    Governing Law

13.1    Whilst you are seconded to IBA in Chennai, your employment will be governed by Indian employment law.” (emphasis added)

The 2008 agreement did not define the expression “IBA”.

Events after the 2008 agreement was made

17    On 4 September 2008, Gary Cohen as executive chairman and CEO of the first respondent signed a letter to his brother that commenced: “As a key employee of IBA Health Group Limited.” The letter invited Dr Cohen to participate in an offer to acquire shares under the ELP.

18    On 6 July 2009, Gary Cohen, again as executive chairman and CEO of the first respondent, wrote to his brother informing him that as a result of a recent review of executive pay his annual base salary would be increased by 6% for each of the years commencing 1 July 2009 and 2010. His first new base annual salary for 2009-2010 would be AUD396,440, and the second, in 2010-2011 would be AUD420,227.

19    Subsequently, on 22 December 2009, Gary Cohen, again as executive chairman and CEO of the first respondent, wrote to his brother about the first respondent’s decision to cease providing entitlements under the EDIP and ELP as a result of changes to Australian taxation legislation concerning employee share schemes that had taken effect on 1 July 2009. The letter stated that, to ensure Dr Cohen was compensated for that change, his new base salary with effect from 1 January 2010 would be AUD456,125. Dr Cohen was also to receive compensation of AUD14,121 for the December quarter. The letter concluded:

“All other terms and conditions of your employment remain unchanged.”

20    Subsequently, in mid 2010, the first respondent’s remuneration committee and its new chief executive officer decided that the increase in Dr Cohen’s annual base salary of 6% for the forthcoming financial year, that had been promised in the letter of 6 July 2009, would not be provided. That increase to AUD420,227 was worth AUD23,787 over his 2009 salary. However, the 22 December 2009 letter had increased Dr Cohen’s base salary well above the AUD420,227 referred to in the 6 July letter. As a result of financial difficulties confronting the first respondent and the introduction of new shareholders after the merger with iSOFT UK, Gary Cohen ceased to be chairman of the first respondent in July 2010 and in late September 2010 he resigned as CEO.

Dr Cohen’s termination

21    On 17 June 2011, Dr Cohen had a telephone discussion with Mike Jackman, an executive vice president of the first respondent. Mr Jackman informed Dr Cohen that the first respondent had decided to eliminate his position as chief technical officer for commercial reasons and accordingly, he had become redundant. Mr Jackman said that Dr Cohen’s last day of work would be 17 September 2011. He confirmed this in an email sent later that day. The parties engaged in inconclusive negotiations and could not agree on the length of Dr Cohen’s entitlement to notice. In the event, his last working day was 30 September 2011.

The primary judge’s reasons

22    The primary judge commenced his discussion of the issues to be determined by referring to the history of the dealings between the parties. He then referred to the principles to be applied in ascertaining the correct identity of the employer and employee where there may be two or more employers and cited with apparent approval Finn J’s summary of the principles in Re C & T Grinter Transport Services Pty Ltd: Ex parte Fitzgerald [2004] FCA 1148 at [20]. His Honour rejected the first respondent’s submissions that the 2000 agreement had not operated as a contract of employment and had only been executed to fulfil representations made by it in its prospectus. He concluded that it was significant that the 2000 agreement had been executed by the first respondent as provided in what was then s 127 of the Corporations Law.

23    The primary judge also rejected the first respondent’s submissions that the 2000 agreement had been abrogated or abandoned during its term. His Honour found it unnecessary to make concluded findings as to whether the terms of the 2000 agreement had continued to govern the parties’ dealings with each other after its fixed term of three years had expired in February 2003 up to the time of their entry into the 2006 agreement. That was because, whatever the status of the parties in the interim, the primary judge accepted that the 2006 agreement expressly referred to both the 2000 agreement, as amended, as continuing in full force and effect as well as to Dr Cohen’s ongoing employment. His Honour accepted Dr Cohen’s submissions that the reference in the first two lines of the 2006 agreement to his original employment contract with “IBA Health (Asia) Pty Limited” had been a mutual mistake. He ordered rectification of the 2006 agreement to reflect the common intention of the parties that the first respondent was his employer.

24    However, the primary judge found that the chain of Dr Cohen’s continuing employment with the first respondent had broken down at least by the time when the 2008 agreement commenced. He concluded that the 2008 agreement evidenced that Dr Cohen had been employed not by the first respondent but by IBA Asia saying:

“There is considered to be no ambiguity or uncertainty in cl 3.2 which expressly refers to Dr Cohen’s ‘employment with IBA Health (Asia) Pty Limited’.” (emphasis in original)

25    His Honour found that unlike the position with the 2006 agreement, there were no circumstances surrounding the 2008 agreement that availed Dr Cohen in support of an application to rectify saying:

“[Dr Cohen’s] case stood or fell upon how that agreement was construed.”

26    The primary judge did not refer at this point in his reasoning to the principles cited earlier from Finn J’s reasons in Grinter [2004] FCA 1148 at [20]. His Honour rejected Dr Cohen’s arguments that, first, there were counter-indications within the 2008 agreement as to the identity of his employer, secondly, the history of the early drafts showed that the parties had removed a subclause that, had it been agreed, would have made the 2008 agreement stand in substitution for all earlier agreements, thirdly, the nature of a secondment agreement was that Dr Cohen’s employment continued with the original employer while he worked in another location or company’s organisation, and, fourthly, the 2008 agreement should be construed so that the reference to IBA Asia in cl 3.2 be read as intended to refer to the first respondent.

27    His Honour held that none of those considerations could transform what he found was the true identity of Dr Cohen’s employer. He found that entity had been unequivocally identified in cl 3.2 as IBA Asia. His Honour found that such a change of employer did not offend the principle that a new employer cannot be forced upon an employee without his or her consent. He reasoned that Dr Cohen had agreed both to secondment in Chennai and with the terms and conditions set out in the 2008 agreement. The primary judge held that even if Dr Cohen had inadvertently signed the letter containing the 2008 agreement he was bound by its terms.

28    Next, the primary judge held that after the expiry of the 24 month term of the 2008 agreement “… the evidence did not unequivocally or necessarily point in favour of the employer being the first respondent”. In particular, his Honour had regard to documents sent by or on behalf of Dr Cohen to the Singapore Comptroller of Income Tax in 2010 that identified IBA Holdings as his employer. For that reason his Honour held:

“Even if it were to be concluded that the First Respondent remained Dr Cohen’s employer during the period of his secondment to Chennai, a conclusion which it is respectfully considered should not prevail, that period of employment came to an end in November 2009. Thereafter, Dr Cohen failed to establish on the balance of probabilities that the First Respondent either again became his employer or remained his employer.”

29    Given those conclusions the primary judge held that it was unnecessary to resolve the contingent issues of damages claimed by Dr Cohen. However, his Honour appropriately addressed each of those claims on the hypothesis that Dr Cohen may succeed on appeal. His Honour accepted Dr Cohen’s argument that had he continued to be an employee of the first respondent at the time of his termination of employment in 2011, he would have been entitled to more than the period of six months notice provided for in cl 10.1(a) of the 2000 agreement. He found that that provision applied only to a notice given during the term of the 2000 agreement and that since, on this hypothesis, the employment had continued past the three year term, Dr Cohen was entitled, instead, to reasonable notice. The primary judge concluded that a period of nine months notice from 18 June 2011 would have been reasonable in all the circumstances, including Dr Cohen’s age, his extensive qualifications, his long tenure, his high level responsibilities and his level of remuneration. The primary judge found that the first respondent had an established policy of making redundancy payments. He observed that if the 2000 agreement, as varied, had remained on foot the parties could be assumed to have contracted on the basis of the first respondent’s custom of making a redundancy payment of two weeks salary for every year served more than three years. His Honour found that Dr Cohen would have been entitled to payment on that basis. The primary judge rejected Dr Cohen’s claim to be entitled to the pay rise of $23,787 that had been promised in the letter of 6 July 2009. He found that there had been no consideration for that promise and that Dr Cohen’s continuing performance of his contractual duties was an insufficient basis to award damages for any breach.

30    His Honour also addressed Dr Cohen’s alternative claims to entitlements for redundancy payments under the Fair Work Act and to payments of long service leave under the Long Service Leave Act 1955 (NSW), in the event his contractual arguments failed. The primary judge held that Dr Cohen was not an Australian-based employee within the meaning of the Fair Work Act. That was because s 35(3) excluded from the definition of an Australian-based employee, an employee “engaged outside Australia and the External Territories to perform duties outside Australia and the External Territories”. Secondly, his Honour said that the Long Service Leave Act did not apply extra territorially so as to bring Dr Cohen within its protection.

The respondents’ submissions

31    The respondents’ submitted that the terms of each of the 2000, 2006 and 2008 agreements should be construed strictly. They argued that, as the primary judge had held, each of the three agreements was independent of the others and had to be construed accordingly. The respondents contended that his Honour was correct to conclude that the 2000 agreement was for a term of three years concluding on 15 February 2003. They accepted that the first respondent was Dr Cohen’s employer for that period. The respondents did not challenge the primary judge’s order that the 2006 agreement be rectified so as to provide that first respondent, and not IBA Asia, was the party to the 2000 agreement referred to in the first line, and, accordingly, that it was the contracting employer in the 2006 agreement in respect of Dr Cohen’s secondment to Bangalore.

32    The respondents argued that the 2008 agreement was an entirely separate agreement made between IBA Asia, the second respondent, and Dr Cohen. They contended that Dr Cohen’s employment under that agreement was for a fixed term of 24 months and that cl 3.2 was conclusive as to the identity of Dr Cohen’s employer. They argued that the reference to “continuous service” from 1 November 1988 in cl 3.2 showed that IBA Asia had become Dr Cohen’s employer when the 2008 agreement was made. That was because, the argument ran, Dr Cohen had been employed by IBA Holdings in 1988 (then called SWI) and that company came to be called IBA Holdings in 1999. The respondents contended that the reference to “The Company: IBA Health Group” in cl 1 did not detract from their argument that Dr Cohen was employed under that agreement by IBA Asia, by force of cl 3.2. They submitted that the primary judge had correctly found that the 2008 agreement came to an end in late 2009 or, alternatively, in June 2010 and that there was no persuasive basis to conclude that Dr Cohen had been subsequently re-engaged by the first respondent.

33    The respondents sought to rebut Dr Cohen’s argument that should his employment with the first respondent have ended upon the effluxion of the term of the 2006 agreement, his entitlement to remain a member of the EDIP and ELP would also have ceased at that time. He said that was because, as will appear, the two plans were not intended to be made available to persons who were not working for an Australian member of the group or were not resident in Australia. In answer to this argument put by Dr Cohen, the respondents contended that employees within the group could remain members of the EDIP and ELP even if they transferred to a different group company outside Australia. They contended that this had happened to Dr Cohen by force of cl 3.2 of the 2008 agreement. They contended that, accordingly, the introduction of a new employer for Dr Cohen would not have affected his membership, or continued membership, of the two plans and that IBA Asia could give effect to the promise, in cl 4.1 of the 2008 agreement, that he would remain eligible for those plans.

34    The respondents argued that his Honour was correct to have awarded no damages for any breach of the requirement to give Dr Cohen notice or pay in lieu of notice in respect of the termination of his employment. The respondents contended that the primary judge was wrong to have found that nine months notice would have been appropriate. The respondents contended that a period of three months was appropriate. As a fallback submission, the respondents contended that the six month period of notice under the 2000 agreement should be found. Based on their construction of each of the three agreements, the respondents argued that the primary judge was correct to dismiss Dr Cohen’s claims against the first respondent to be paid outstanding annual leave, long service leave, the unpaid promised pay rise of $23,787 per annum, and redundancy. The respondents also submitted that the primary judge was correct to have dismissed Dr Cohen’s alternate claims for payment pursuant to the Fair Work Act and the Long Service Leave Act.

Principles

35    The meaning of a commercial document and of a contract is determined objectively: Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 at 178-180 [38]-[41] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462 [22] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ. The construction of such a document or contract must be determined by what a reasonable person in the position of the parties would have understood its terms to mean. That process involves consideration not only of the text of the documents, but also of the surrounding circumstances known to all the parties, as well as the purpose and object of the transaction. As Lord Wilberforce explained, in a frequently cited passage from his speech in Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 at 995-996 (that was approved in Pacific Carriers 218 CLR at 462 [22] and Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45 at 52-53 [10] per Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ):

“In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this, in turn, presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.”

36    The objective theory of contract must also apply to ascertaining who were the parties to the contract. Additionally, the contract must be construed as a whole with a view to reconciling and harmonising, if possible, apparent inconsistencies in expression. If words or expressions are used that are repugnant or have been transposed or omitted, the Court can construe the contract to give it the effect that, objectively, can be seen as what the parties intended: Fitzgerald v Masters (1956) 95 CLR 420 at 436-438 per McTiernan, Webb and Taylor JJ. Dixon CJ and Fullagar J expressed the principle there with typical lucidity there by rejecting a construction that (95 CLR at 427):

“… the parties did not intend to contract otherwise than by reference to the terms of a document which they mistakenly believed to exist. … It seems indeed almost absurd to say that the parties, having agreed on everything essential, intended that the agreement should be nullified if effect could not be given to cl. 8.”

37    Employment relationships are not purely contractual and can be affected by statutory provisions and the incidents of a fiduciary relationship: Concut Pty Ltd v Worrell (2000) 176 ALR 693 at 697-698 [17] per Gleeson CJ, Gaudron and Gummow JJ. In that case, an employment relationship had existed over a lengthy period. Initially, the employee had worked for a related company of the employer. However, in 1980 he began working for the employer with which he signed a service agreement in 1986 that was the subject of the dispute. The High Court held that the service agreement was not properly characterised as a new and discrete contract that had replaced and terminated the earlier oral agreement. Gleeson CJ, Gaudron and Gummow JJ said (176 ALR at 698 [19]):

“The relevant principles are well settled. In FCT v Sara Lee Household & Body Care (Aust) Pty Ltd [(2000) 172 ALR 346 at 350-1 [22]; 74 ALJR 1094 at 1098], Gleeson CJ, Gaudron, McHugh and Hayne JJ said:

When the parties to an existing contract enter into a further contract by which they vary the original contract, then, by hypothesis, they have made two contracts. For one reason or another, it may be material to determine whether the effect of the second contract is to bring an end to the first contract and replace it with the second, or whether the effect is to leave the first contract standing, subject to the alteration. For example, something may turn upon the place, or the time, or the form, of the contract, and it may therefore be necessary to decide whether the original contract subsists.

Their Honours went on [(2000) 172 ALR 346 at 351 [23]; 74 ALJR 1094 at 1098. See also (2000) 172 ALR 346 at 360 [81], 362 [95], 363 [100]; 74 ALJR 1094 at 1105, 1106,, 1107 per Callinan J.] to refer to the judgment of Taylor J in Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd [(1957) 98 CLR 93 at 143-4]. Taylor J had rejected submissions that (a) "it is impossible by a subsequent agreement, merely, to vary or modify an existing contract” and (b) "[an] agreement which purports to vary an existing contract operates … first of all to abrogate entirely the existing contractual relationship and, then, to reinstate the terms of the old contract as varied or modified by the new agreement” [cf Meek v Port of London Authority [1918] 2 Ch 96]. His Honour, to the contrary, accepted the propositions that (a) the earlier contract might be rescinded altogether, the determining factor being the intention of the parties disclosed by the later agreement; (b) partial rescission is a variation, not the destruction, of the contractual relationship between the parties; and (c) the earlier contract may be varied by way of (i) partial rescission with or without the substitution of new terms for those rescinded and (ii) the addition of new terms with or without any partial rescission at all [(1957) 98 CLR 93 at 144]. In Tallerman, Kitto J [(1957 98 CLR 93 at 135. See also at 122-3 per Williams J.] spoke in terms which involved acceptance of propositions (a) and (b) as identified above, adding that while “in strict logic” a variation may be a new contract, “the discharge of an old contract is a matter of intention”.” (emphasis added)

38    In applying those principles, their Honours concluded that the service agreement did not entirely supplant the earlier agreement, but, rather, supplemented it, finding (176 ALR at 699 [20], [22]):

“… the text of the service agreement itself, as well as the surrounding circumstances, indicate that such a conclusion would not be in accord with the manifest intention of the parties.”

Consideration

39    We are of opinion that the primary judge erred by construing each of the 2000, 2006 and 2008 agreements as self contained, discrete contracts. His Honour had not been referred to the decision Concut 176 ALR 693 and the parties did not refer to that decision in their written submissions on the appeal. The Full Court drew the parties’ attention to that decision before the hearing. Its reasoning is apposite and applicable to the present matter. While the term of the 2000 agreement expired on 15 February 2003, it could not be said that, as a consequence, Dr Cohen’s employment by the first respondent came to an end. He and the first respondent continued in an employment relationship from where that agreement left off. Having regard to the context in which the parties dealt and all of the evidence, there is no reason to conclude that a different employer was introduced to Dr Cohen’s activities, or that anything changed in the way in which he and the first respondent continued to deal with or regard each other after February 2003.

40    The 2006 agreement was signed by the chief executive officer of the first respondent. It concluded with a confirmation that all the other terms of the 2000 agreement, that were left unamended or not supplemented by its preceding terms, “will continue in full force and effect”. In our opinion, it was not strictly necessary for the primary judge to rectify that agreement, since the reference in the two first lines to the 2000 agreement as having been made with IBA Asia was plainly incorrect: Fitzgerald 95 CLR at 427, 436-438. Both Dr Cohen and the first respondent, the parties who executed the 2006 agreement, knew when they signed it that, first, the 2000 agreement had been made by them and, secondly, it subsequently formed the basis of their relationship, with such changes as they had agreed. The confirmation of the continuity of the 2000 agreement reflected the objective facts.

41    Thus, the 2006 agreement amended and supplemented the 2000 agreement. This amended and supplemented agreement formed the mutually known background for negotiation and entry into the 2008 agreement. Once again, that document used the concepts of continuation and Dr Cohen’s retention of his current entitlements to such provisions as standard working hours, annual and sick leave, notice and his original offer of employment. Moreover, cl 1 identified the parties as Dr Cohen and “The Company: IBA Health Group”. The first respondent’s then corporate name was IBA Health Group Limited. Critically, cl 2.1 began:

“Your employment continues in the capacity of CTO [chief technical officer] based in Singapore.”

42    In contrast, cl 3.2 referred to Dr Cohen’s employment with IBA Asia as having commenced on 1 November 1988. That was plainly incorrect. Of course, IBA Asia did not exist until 1999. Rather, Dr Cohen began working for IBA Holdings in 1988. The reference to IBA Asia in cl 3.2 is an obvious error of the same kind as that in the first two lines of the 2006 agreement: indeed, it is likely to have been sourced from there. The balance of the 2008 agreement makes no commercial sense, with its references to “the Company” (being defined as “IBA Health Group”), continuity and provisions remaining the same, if a new employer were being introduced into Dr Cohen’s life at that time. There had been no negotiations concerning a change in his employer leading up to the entry into the 2008 agreement.

43    Moreover, the reference to IBA Health Group in cl 1.1, as the party to the agreement, sits harmoniously with, first, the first respondent’s name at the time but incongruously with IBA Asia’s different name, secondly, the fact that the signatory of the 2008 agreement was the Group HR Director, and not a person who described herself as having a position with IBA Asia, and, thirdly, the subject matter of the agreement was Dr Cohen’s secondment. The ordinary and natural meaning of the verb “second” is to transfer temporarily to another post, organisation or responsibility (Macquarie Dictionary online). The term “secondment”, as used in the 2008 agreement, is appropriate to describe Dr Cohen as being asked to work in Chennai for another two years, partly under Indian law, while remaining in his continuing employment. It is difficult to harmonise the affirmation in cl 2.1 that Dr Cohen’s “employment continues” with the respondents’ argument that the opposite occurred and that he was entering into new employment with a different employer. If the primary judge’s conclusion that IBA Asia became Dr Cohen’s employer on his entry into the 2008 agreement were correct, cl 2.1 would be wrong. Dr Cohen’s then current employment by the first respondent would have been terminated and he would have commenced a new employment.

44    It might be expected that, if a senior employee such as Dr Cohen were taking up new employment with the foreign subsidiary of his previous publicly listed company employer, the parties would have discussed some reason why the change was to occur. The absence of any discussion of such a significant change in the identity of his employer is striking. Moreover, the introduction of IBA Asia as Dr Cohen’s employer was not consistent with the evidence of Gary Cohen that, when the EDIP and ELP were being established, he had been advised categorically by the first respondent’s external lawyers against allowing participation in those plans by persons employed by a foreign company in the group.

45    The advice emphasised that if such persons were offered shares under those plans, the first respondent might need to issue a prospectus in the country concerned, so as to comply with all relevant laws and to ensure that the employees obtained the benefit of the plans. Gary Cohen said that this advice was, for him, decisive in the first respondent’s decision to restrict invitations to join the plans to employees of Australian members of the group or who were Australian residents. Thus, the confirmation in cl 4.1 of the 2008 agreement, that Dr Cohen remained eligible to participate in those plans is highly unlikely to have been given by the Singaporean IBA Asia or IBA Holdings, or any non Australian member of the group. Gary Cohen’s evidence was that the cost and potential legal complexity of complying with foreign laws relating to offering of shares in publicly listed or other companies to employees of foreign subsidiaries outside Australia was not worth incurring.

46    Additionally, the letters sent by Gary Cohen to his brother on 6 July 2009 and 22 December 2009, identified the first respondent as Dr Cohen’s employer, the second letter affirming that all other terms and conditions of his employment remained unchanged. Those letters were inconsistent with any change in the identity of Dr Cohen’s employer when the 2008 agreement was made.

47    For these reasons, the primary judge erred in holding that the 2008 agreement stood alone or brought the relationship it created to an end in late 2009 or June 2010. Obviously, that agreement’s provisions governing Dr Cohen’s position while he remained in Chennai would cease to have effect once he returned to Singapore, as the agreement contemplated. The reality was that the 2008 agreement was, in the context of the mutually known facts, a supplement to the existing employment contract between Dr Cohen and the first respondent.

What notice period applied?

48    Under cl 10.1(a) of the 2000 agreement, either party could terminate on six months notice in default of agreement to a shorter period. The primary judge concluded that nine months notice would have been reasonable on the basis that cl 10.1(a) only provided for notice to be given during the term of the agreement. However, cl 10.1(a) does not contain such a limitation. There is no reason to depart from provisions as to the six months period of notice of limitation. The parties repeatedly affirmed that cl 10.1(a) would apply over the course of their relationship.

49    When the first respondent gave Dr Cohen three months notice on 17 June 2011, it was not acting in accordance with his contract of employment. The notice was ineffectual. Dr Cohen chose to accept the first respondent’s breach of cl 10.1(a) of his contract as a repudiation when he left. The first respondent had told him his position was to be made redundant, but had failed to give him notice of the termination of his contract in accordance with its terms. Given that it did not pay Dr Cohen his annual and long service leave entitlements either, the first respondent was evincing an intention not to be bound by the contract in the period after 17 June 2011: Carr v JA Berriman Pty Ltd (1953) 89 CLR 327 at 351-352 per Fullagar J with whom Dixon CJ, Williams, Webb and Kitto JJ agreed. Dr Cohen is entitled to damages of six months pay in lieu of notice.

Annual and long service leave

50    The terms of cll 7.1 and 7.2 of the 2000 agreement gave Dr Cohen the right to four weeks annual leave, to be taken at a time agreed by him and the first respondent’s board, and long service leave determined in accordance with its policy. The latter policy adopted the provisions of local legislation. Since the governing law chosen by the parties in the 2000 agreement was that of New South Wales, the Long Service Leave Act applied, as a matter of agreement, to define Dr Cohen’s entitlement to such leave.

51    The first respondent’s argument that the Annual Holidays Act 1944 (NSW) did not entitle Dr Cohen to the value of his untaken annual leave is beside the point. His entitlement arose because of the promise in cl 7.1 that Dr Cohen earned the right to four weeks annual leave as a component of the consideration that the first respondent agreed to pay for his services. He is entitled to damages for an aliquot share of leave untaken commensurate to the end of his period of notice.

Redundancy

52    No express term in the 2000 agreement, as amended in 2006 and 2008 and over the course of the relationship, dealt with redundancy. The primary judge’s reasoning that a term could be implied by custom depended on his finding that the custom on which Dr Cohen relied obtained both before and after 2000.

53    In our opinion, his Honour erred in that finding because, first, the first respondent could not be bound by a custom derived from events before it was incorporated or carrying on business, secondly, cl 13.3(a) was an entire agreement clause that meant what it said, and, thirdly, there was only evidence of one situation in which the first respondent had paid redundancy to departing employees after 2000, and that was an insufficient foundation for the implication of a custom in accordance with the principles in Con-Stan Industries of Australia Pty Limited v Norwich Winterthur Insurance (Australia) Limited (1986) 160 CLR 226 at 236-238, 240 per Gibbs CJ, Mason, Wilson, Brennan and Dawson JJ.

Fair Work Act claims

54    The primary judge’s conclusion was correct that Dr Cohen was not an Australian based employee within the meaning of the Fair Work Act. That was because he was excluded from the operation of that Act by s 35(3). Dr Cohen argued that he had had some duties to perform from time to time in Australia, and so he fell outside that exclusion. On the material in evidence, those duties, whatever they were, were not sufficiently significant to displace the ordinary and natural construction of s 35(3), that excludes from the operation of the Act overseas based employees who might perform no more than an insubstantial part of their duties in Australia.

Conclusion

55    For these reasons, the appeal should be allowed. The parties should bring in draft orders to the effect of these reasons and to deal with the issue of costs.

Associate:

Dated:    17 May 2013