FEDERAL COURT OF AUSTRALIA

Westpac Banking Corporation v Wittenberg [2016] FCAFC 33

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be allowed.

2.    The orders made in proceedings NSD 90 of 2010 on 27 March 2015 be set aside and in lieu thereof it be ordered that:

(a)    Judgment for the applicant be ordered in the sum of $60,000 plus interest on that amount from 27 February 2009 to 27 March 2015 at the rates prescribed by section 51A of the Federal Court of Australia Act 1976 (Cth).

(b)    The respondent pay 25% of the applicant’s costs of the proceedings in NSD 90 of 2010, as taxed if not agreed.

3.    The respondent to the appeal pay the appellant’s costs of the appeal, as taxed if not agreed.

4.    The cross-appeal be dismissed with costs, as taxed if not agreed.

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

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be allowed in part.

2.    Order 5 made in proceedings NSD 31 of 2010 on 27 March 2015 be set aside and in lieu thereof it be ordered that:

(a)    The respondent pay the applicant’s costs of the proceedings on a party and party basis for the period up to and including 11.00 am on 6 December 2011.

(b)    The applicant pay the respondent’s costs of the proceedings on an indemnity basis for the period after 11.00 am on 6 December 2011.

3.    There be no order as to the costs of the appeal.

4.    The cross-appeal be dismissed with costs, as taxed if not agreed.

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

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be dismissed with costs, as taxed if not agreed.

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

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be dismissed with costs, as taxed if not agreed.

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

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be dismissed with costs, as taxed if not agreed.

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

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be dismissed with costs, as taxed if not agreed.

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

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be dismissed with costs, as taxed if not agreed.

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

REASONS FOR JUDGMENT

BUCHANAN J:

Introduction

1    In May 2008, St George Bank (“SGB”) and Westpac Banking Corporation (“Westpac”) announced, in principle, that they proposed to merge. The ensuing negotiations about matters of detail were successful and a scheme of arrangement was agreed which was approved on 17 November 2008. The merger was completed on 1 March 2010, when the merged entity became a single “authorised deposit-taking institution” (“ADI”). At that time also, Westpac guaranteed all SGB’s interests and obligations.

2    The proceedings at first instance dealt together with cases by seven former employees of SGB all of whom remained with SGB until the scheme of arrangement was approved and all but two of whom (Mr Wittenberg and Ms Murphy) were at around that time seconded to Westpac for a period. Of the seconded employees, all but one subsequently left SGB’s appointment compulsorily before 1 March 2010. One employee, (Mr Moore) was terminated on 11 May 2010.

3    A central reason for the secondments was that each of the employees worked in the SGB Treasury, which ceased to operate separately when the scheme of arrangement was approved. Each then moved to a role with Westpac, although on secondment only while SGB operated under a separate authorisation as an ADI, before the merger was completed.

4    One set of claims arose from a unilateral statement by SGB on 18 June 2008 to certain “key” staff, including all of the employees, promising a “retention incentive payment” if certain targets were met by SGB for the financial year ended 30 September 2008, and if the employees remained in their employment with SGB as at 13 November 2008.

5    Another set of claims arose because when employees were seconded to Westpac they found that the level of bonus they had enjoyed at SGB was substantially reduced or eliminated while at Westpac.

6    Another set of claims arose because, when some employees were ultimately retrenched from SGB, the calculation of their severance pay was based on their regular salary, but excluded any amount referable to bonuses.

7    A further set of claims arose because the employment of some employees was terminated without what was claimed to be the “reasonable notice” required.

8    There were some other, miscellaneous, matters which arose also for decision.

9    The proceedings were long and complicated. Senior and junior counsel appeared on both sides of the record at first instance, as they did on the appeal. The primary judge recorded (at [5]):

5    The trial was conducted over a period of approximately seven weeks. The parties tendered approximately 1500 pages of documents. Twenty-six lay witnesses gave evidence (and most were cross-examined). Three expert witnesses gave evidence and participated in a concurrent evidence session. The applicants’ closing written submissions (including their written reply) totalled 374 pages. Westpac’s closing written submissions totalled 489 pages. The parties handed up supplementary notes and/or submissions which totalled almost 200 pages. There were 2,057 pages of transcript.

10    The primary judgment is thorough and exhaustive (Murphy v Westpac Banking Corporation [2014] FCA 1104). It sets out in considerable detail the factual contentions of the parties, the legal arguments of the parties, the nature and extent of the relief claimed by individual employees, the evidence of individual witnesses, and specific findings about what evidence was accepted without reservation, accepted with qualifications, accepted only if corroborated, doubted or rejected. Specific findings of fact were made after detailed discussion and explanation.

11    No summary of the judgment or its effect could really do it justice. It would be a limited and inadequate paraphrase of some only of its elements. The discussion which follows will therefore concentrate on the lines of argument advanced on the appeal and will assume a working knowledge of the contents of the primary judgment.

The issues in outline

12    Not all the matters argued at first instance were pursued on the appeal, but many were. The outcome of the proceedings at first instance may be summarised as I do hereunder.

Retention incentive payment

13    The employees claimed they were misled about SGB’s intentions. They had understood that a certain target was proposed (which was met) but, unknown to them, SGB had intended to impose a higher one (which was not met). I will come to the detail in due course. Initially, payment was withheld but, ultimately, the promised payments were made. The employees claimed that if they had known SGB’s true intention they would not have stayed at SGB and, because they could have done better elsewhere, they suffered a loss by staying. They sued in negligence in two different ways and under the Trade Practices Act 1974 (Cth) (“TP Act”) for misleading or deceptive conduct.

14    The primary judge rejected those claims because he was not satisfied that the employees had proved any loss – i.e. that the opportunities they said they gave up were worth more at the time than those they secured by remaining with SGB. Two of the employees have appealed that outcome. As will be seen, in my view there were other difficulties which could not be overcome.

Bonus payments

15    The primary judge found, over the opposition of Westpac, that five of the employees had a contractual entitlement to participate in bonus schemes at SGB under a Treasury Incentive Plan (“TIP”) but found that no breach of the contractual entitlement had been proved. In large part his Honour’s conclusions turned on the fact that the SGB Treasury had ceased to operate in late 2008 or early 2009 and that, as a result, no pool of funds generated by that Treasury was thereafter available for distribution under the TIP. The five employees have appealed that outcome.

16    One employee had a claim to a payment under a Divisional Incentive Plan (“DIP”). That claim was also rejected and an appeal against that finding requires resolution.

Wrongful dismissal

17    Some employees were ultimately retrenched. SGB had a redundancy policy. The parties agreed, and the primary judge accepted, that the policy was incorporated into each of their contracts of employment (except in one case – Mr Wittenberg). The policy provided for the calculation of severance pay (called retrenchment pay in the policy). One element of the calculation provided for six weeks’ pay “in lieu of notice”. The primary judge found that this provision displaced any implied requirement for reasonable notice. The affected employees have appealed this conclusion.

18    In Mr Wittenberg’s case, the primary judge found that in the two years of his employment with SGB the magnitude of changes to his duties had the result that a written term for six months’ notice from SGB in his “service agreement” (by contrast only one month’s notice was required from him) had been discharged and replaced with an implied term for reasonable notice, which the primary judge assessed to be nine months’ notice. Westpac appealed this finding, and Mr Wittenberg cross-appealed claiming 18 months’ notice.

Calculation of severance pay

19    A further issue arose in connection with the redundancy policy. It provided for a calculation of specified weeks of “pay” for years of service. The primary judge found that “pay” in this context did not include bonus or incentive. That conclusion has been appealed by a number of employees.

Repudiation

20    Two employees (Mr Moore and Ms Lavars) claimed that SGB repudiated their contracts of employment by extending (or attempting to extend) their secondment beyond 12 months notwithstanding a contractually incorporated requirement to the contrary. The primary judge agreed. He awarded Ms Lavars damages including severance pay and unpaid bonuses, but concluded that Mr Moore had affirmed his contract by attending for work and in various other ways. As a result, Mr Moore was not entitled, as he claimed, to retrenchment pay at that time. Mr Moore has appealed. Westpac appealed the award to Ms Lavars but abandoned this aspect during the appeal.

Costs calculation

21    There is one issue raised on appeal by Westpac against the award in favour of Ms Lavars. It concerns the operation of r 25.14 of the Federal Court Rules 2011 (Cth), and the presumptive rule it states concerning indemnity costs. In short, is an offer of compromise to be compared with a final verdict which includes interest, or should interest since the offer be disregarded to make a proper comparison?

The SGB employees

Mr Wittenberg

22    Mr Wittenberg commenced employment with SGB on 27 February 2006. His employment ended three years later, on 27 February 2009.

23    He was employed in the position of Head of a new Debt Capital Markets Division in SGB Treasury. His title did not change during his employment, although his duties expanded after he commenced, and in 2007 he took on responsibility for the sales and distribution team.

24    Mr Wittenberg’s written service agreement specified that his employment could be terminated by six months’ notice to him, or payment in lieu, or by one month’s notice from him. The service agreement stipulated that his duties, or position, could be changed and were to be as directed by SGB. He had been told before employment that there could be changes to his role.

25    He was offered the retention incentive payment on 18 June 2008.

26    Mr Wittenberg was advised in late November 2008 (i.e. after the scheme of arrangement was approved) that his role would be redundant from 1 December 2008, and he would commence a period on 19 January 2009 when redeployment would be considered. On 5 February 2009, he was informed that redeployment opportunities had been explored but no suitable employment had been found.

27    At trial, Mr Wittenberg pursued claims for damages for lack of reasonable notice (i.e. greater than six months), for failure to pay pro rata bonus when calculating severance pay and payment in lieu of notice and for loss from SGB’s negligence concerning the retention incentive payment and failure to make the payment itself. During the trial the amount of the retention incentive payment was conceded. The primary judge upheld the claim for further “reasonable notice” (which he quantified as nine months in total), but dismissed the other claims.

28    Westpac appealed the verdict for additional payment in lieu of notice. Mr Wittenberg cross-appealed the failure of the primary judge to uphold the full extent of his claim to notice (18 months). Each party filed a notice of contention.

Ms Lavars

29    Ms Lavars commenced employment with SGB around September 1998 as an Account Manager in the margin lending area. She was employed pursuant to a written letter of offer which stated that her employment could be terminated on four weeks’ notice or payment in lieu. She was promoted, or changed position, a number of times. From 2005, she was a Senior Manager in the Institutional Sales Section of the Treasury Division of SGB.

30    Ms Lavars was paid a bonus annually under the TIP. On 18 June 2008, she was offered payment under the retention incentive scheme, which was withheld on 13 November 2008.

31    Ms Lavars unsuccessfully sought a “contestable position” at Westpac in about mid-November 2008. On 1 December 2008, she was seconded to Westpac. She received a bonus at Westpac, but considerably less than at SGB.

32    Ms Lavars attempted to resist extension of her secondment beyond the 12 month period specified in SGB’s secondment policy when her secondment commenced. She was told that if she did not attend for work at Westpac after 1 December 2009 her employment would be terminated. Ms Lavars did not attend for work at Westpac. By letter dated 8 December 2009, on SGB letterhead, Ms Lavars was informed that her employment was terminated effective from 4 December 2009, without payment in lieu of notice.

33    At trial, Ms Lavars claimed damages for negligence in relation to the retention incentive and for non-payment of the retention incentive (which was conceded during trial), non-payment of severance pay (including pro rata bonus) consequent upon her wrongful dismissal, and non-payment of SGB bonus to the time of termination. At trial, Ms Lavars was awarded $80,000 for unpaid bonus up to termination and severance pay calculated in accordance with SGB’s redundancy policy.

34    Westpac appealed the award of $80,000 and the failure of the primary judge to award indemnity costs against Ms Lavars in light of her refusal of an offer of compromise. Ms Lavars cross-appealed the failure to award damages for “reasonable notice” and failure to include pro rata bonus in calculation of severance pay. Each party filed a notice of contention.

35    At the appeal, Westpac pursued only the question of costs. It did so as a matter of principle concerning the proper application of r 25.14(1) of the Federal Court Rules 2011 (Cth). That is a matter which merits separate attention in its own right in due course.

Ms Murphy

36    Ms Murphy commenced work with Advance Bank in May 1996 as a junior auditor. After SGB and Advance Bank merged in 1998, she became employed as a Senior Manager – Market Risk in the SGB Treasury. In 2002, she was appointed Chief Manager for half of the risk management and compliance area of SGB’s institutional and business bank operations, including Treasury. In 2004, she was made General Manager, Risk and Compliance.

37    Ms Murphy received bonuses under a scheme called the Short Term Incentive Annual Opportunity (“STIA”) and also under another bonus scheme for senior executives of SGB based on share allocations – the Medium Term Treasury Incentive Plan (“MTIP”). She was offered the retention incentive payment on 18 June 2008.

38    In 2008, Ms Murphy dealt with some personal issues which affected her work performance, and her bonuses.

39    As a very senior manager, it appeared that her position would be redundant by mid-December 2008. The primary judge found that Ms Murphy was “very interested in being made redundant at SGB from at least May 2008”.

40    At trial, Ms Murphy challenged the omission of pro rata bonus from the calculation of severance payment, non-payment of retention incentive (conceded during trial), failure to award damages for negligence in connection with the retention incentive and failure to provide “reasonable notice” on termination.

41    On the appeal, failure to provide reasonable notice and the calculation of severance pay were pursued.

Mr Lawson

42    Mr Lawson commenced employment with SGB in July 2005 with a written contract of employment, which could be terminated by four weeks’ notice on either side or by payment to him of salary in lieu of notice. After two years’ service he became entitled to a further week’s notice or salary in lieu.

43    He began in the position of Executive Manager, Non-Credit Trading. He was promoted in late 2006 to Head of Non-Credit Trading. He received a salary increase and his duties and responsibilities increased.

44    Mr Lawson worked in the Treasury Division of SGB’s Institutional and Banking Division. He received annual bonuses under the TIP. He was also invited, in December 2007, to participate in the MTIP. Shares were allocated to him in two equal tranches, up to a maximum total value of $50,000, exercisable on or after 30 September 2009 and 30 September 2010. Poor group performance resulted in a final allocation of 90% of this opportunity.

45    Mr Lawson was invited to participate in the retention incentive scheme on 18 June 2008.

46    Mr Lawson was seconded to Westpac commencing on 1 December 2008. He worked there in the Strategic Risk Group (“SRG”). He was informed on 14 December 2009 that the SRG would close and his position there (and at SGB) was redundant. Redeployment opportunities were left open for an initial six week period to 29 January 2010, and then for a further week to 5 February 2010.

47    According to Westpac requirements and budgets, Mr Lawson did not earn any bonus while on secondment to Westpac. He was told he had been taken off the MTIP scheme. Accordingly, he received no extra payments or entitlements under this scheme referable to his period of secondment with Westpac.

48    On 5 February 2010, Mr Lawson was retrenched by SGB. He received payment on account of notice equivalent to five months’ salary (not including bonus) and a severance payment of 19 weeks’ salary at the same rate, calculated in accordance with the applicable SGB redundancy policy.

49    At trial, Mr Lawson claimed damages for non-payment of bonus while at Westpac, non-payment of pro rata bonus on termination (i.e. payment only of salary), failure to provide reasonable notice of termination, non-payment of retention payment and damages for loss from misrepresentations about the basis of the retention incentive scheme. During the course of the trial, payment of the promised retention incentive amount was conceded. Other claims were dismissed.

50    On appeal, claims for MTIP bonus payments while at Westpac were not pursued. The other claims were. Westpac filed a notice of contention seeking to uphold the findings of the primary judge about those issues on additional grounds.

Mr Smith

51    Mr Smith commenced employment with SGB on 2 December 2007 as Senior Portfolio Manager, Global Rates, Non-Credit Trading at SGB. He was employed under a written service agreement. He was told he would receive annual bonuses under the TIP. He was offered the retention incentive payment on 18 June 2008.

52    Mr Smith was seconded to Westpac on 1 December 2008. He received no bonus referable to his secondment with Westpac. On 14 December 2009, Mr Smith was advised that his position was redundant. On 5 January 2010, he was retrenched.

53    At trial, Mr Smith claimed damages for non-payment of bonus on secondment, non-payment of retention incentive (conceded during trial), failure to pay pro rata bonus in severance pay and loss for misrepresentations about the retention incentive scheme.

54    At trial, all the non-conceded claims were dismissed. On appeal, Mr Smith pursued an alleged entitlement to bonus on secondment, damages for misleading and deceptive conduct and damages for negligence concerning the retention incentive scheme. Westpac filed a notice of contention concerning those issues.

Mr Moore

55    Mr Moore commenced employment with SGB in August 1994 as a senior foreign exchange dealer. His letter of offer stipulated that his employment could be terminated with four weeks’ notice or payment in lieu. He participated (at least from 2003) in the MTIP.

56    In late 2006 or early 2007, Mr Moore was appointed Head of the Currency and Option Trading Group.

57    On 18 June 2008, he was offered the retention incentive payment.

58    Mr Moore was seconded to Westpac from 1 December 2008. In late 2009, there were discussions with Westpac staff which apparently Mr Moore regarded as insufficiently satisfactory about the role he was then performing and what the future might hold.

59    On 26 November 2009, Mr Moore asserted in writing that he would resume duties at SGB from 1 December 2009, at the end of the maximum period of secondment possible under the SGB secondment policy in place when his secondment commenced (the policy had subsequently been amended to remove that stipulation). Mr Moore was directed, however, to continue to report at Westpac.

60    There was further correspondence in late December 2009, the terms of which appear to have been influenced by legal advice. Mr Moore took some holidays, returning around 10 January 2010, and resumed his work at Westpac as required.

61    Meanwhile, there were discussions with Mr Moore about concerns relating to “under-performance”. On 11 May 2010, his employment was terminated, effective that day, with four weeks’ salary in lieu of notice.

62    At trial, Mr Moore claimed that his contract of employment had been repudiated, that he was entitled to severance pay and reasonable notice, that both should be calculated to include pro rata bonus, that he was also entitled to bonuses on secondment to Westpac, that he was entitled to the retention incentive payment and for damages for misrepresentation or negligence in connection with it. A claim for the retention incentive payment was conceded during the trial. The other claims were dismissed.

63    On the appeal, claims were pressed for severance pay, payment in lieu of reasonable notice (calculation of those payments to include pro rata bonus), and for payment of bonuses at Westpac. Westpac filed a notice of contention.

Mr Poulos

64    Mr Poulos commenced employment at SGB on 14 April 1998 as a Senior Tax Manager. He was promoted to Head of Tax in July 1999. In October 2000, his title changed to Group Tax Manager. He participated in the DIP. He also participated in the MTIP.

65    Mr Poulos was offered the retention incentive payment on 18 June 2008.

66    Mr Poulos was told at the beginning of November 2008 that he would commence reporting to the General Manager of Group Tax for Westpac. He was made redundant on 11 September 2009. He received five months’ pay in lieu of notice and pro rata DIP (for all but two weeks of the year to 30 September 2009). His severance pay was for 47 weeks. Payment in lieu of notice and severance pay was made at base salary, not including any bonus amount.

67    At trial, Mr Poulos sought payment for 12 months as reasonable notice, severance pay and pay in lieu of notice calculated to include pro rata bonus, a higher payment for DIP and payment of the retention incentive payment. The retention incentive payment was conceded during the trial. The other claims were dismissed.

68    On the appeal, those other claims were pressed. Westpac filed a notice of contention.

Contractual promises and discretionary payments

69    At common law, the relationship of employment is based on contract. It is a contract for personal services, discharged on the part of an employee by the personal performance of work and by the employer by reward for that work.

70    Being based on contract, the terms of the employment must be specified, or necessarily implied, concurrently with the commencement of the relationship, or by agreed variation thereafter. This basic concept, and the need for a mutual intention to create legal and enforceable relations based on the terms of the contract, does not easily accommodate notions of unilateral importation or modification or re-working after the relationship has commenced, simply based on developing but unstated and unagreed expectations.

71    However, at the same time, variation to the terms of a contract may in some instances be readily inferred by conduct.

72    An example concerning the performance of work may be taken. In many (perhaps most) cases, duties will be specified or understood at the outset, although there may be cases where an employee simply agrees to perform such duties as are directed from time to time. Similarly, in most (or certainly in many) cases, the place or places of work will be known; but they may not be. Some contracts may have an express term that an employee will perform such other or additional duties within his or her competence, skill or ability as the employer may (lawfully) direct from time to time. This was a common award provision. Some contracts may not so specify.

73    Whatever the position, there is no doubt that an employee may agree to perform additional or different duties. Frequently, the agreement may be inferred by actual performance of the duties, without demur. A common example is a promotion. Another is a transfer.

74    In the case of resistance by an employee it will be important to ascertain whether the agreed terms of the contract gave the employer a discretion (from the outset normally) to effect or direct a non-agreed change of duties – i.e. to change the manner or method of performance of the contract by the employee. Any conclusion about such a matter will depend on the facts of individual cases, but it is common that employers have a measure of discretion about actual duties to be performed in the employer’s business, at least by direct employees, because of the implication that an employer may give lawful directions for the performance of work and the corresponding principle that an employee may not without misconduct, refuse a lawful order within the scope of the employment.

75    The scope of the employment must be judged according to whether it should be concluded that the parties anticipated that duties would be fixed, or subject to variation. If subject to variation, was the variation dependent upon agreement or not? To take an example already referred to, in Mr Wittenberg’s case his written contract of employment specified that duties could change and would be as directed by SGB, but often such an implication is readily available in the absence of any express terms.

76    The question of compliance by an employee (and by the employer) with an employer’s policies also raises difficult issues in some cases.

77    At one level, a contractual requirement to comply with an employer’s published policies (often expressed as compliance with the policies as they exist from time to time) is simply an agreed record of a basic contractual obligation imposed by implication on an employee – i.e. when performing work under the contract to always comply with the lawful directions of the employer. This requirement is necessary to permit compliance by the employer with obligations to other employees and to third parties because an employer is generally vicariously liable to third parties for the conduct of employees when carrying out their duties and liable to other employees for their safety and well being at work.

78    Policies of this kind are subject to adjustment. The adjustment is in the discretion of the employer. The employee normally agrees to comply with the instructions in the policy as it is in place at any particular time. There may also be good reason for an employer to make discretionary exceptions to its own policies, from time to time, either generally or in particular cases without formal alteration. These are usually not matters intended to be subject to negotiation; nor are they in practice in most cases.

79    Policies of this kind are, by their nature, applicable generally to employees. They may apply to thousands of employees. They are broad guides to behaviour, not individually stated for particular employees. In a contract of employment, an employee sometimes promises obedience, but not always – even when a policy is referred to. Sometimes the contract merely records, in a letter of offer: “You will be expected to comply with [the Company’s] policies concerning […………] as published or in force from time to time”. There may be a real question whether a counterpart signature by an employee on a letter of offer like this raises any particular contractual obligation on the employee, arising from the contract. Any allegation of failing to comply with a policy would be more safely expressed as a failure to follow a lawful instruction (an obligation implied by law into contracts of employment) than as a contractual failure to comply with the policy. However that may be, in my view no contractual obligation is directly or expressly cast upon the employer by an exchange of this kind.

80    In other cases, an employee may actually agree to comply with an employer’s policies as published from time to time. Upon the assumption that an express contractual term is thereby stated, difficult questions then arise about whether, and to what extent, an employer becomes contractually bound to the same policies, given that (usually) it should be concluded that an employer intends to retain complete control over the content of its own policies which are in no sense negotiated with its individual employees.

81    The immediate significance of acceptance by an employee of an obligation to comply with employer policies is the effective acknowledgement that failure to comply will likely constitute misconduct justifying dismissal, perhaps summarily without notice. That traditional understanding is illustrated by a statement in Mills CP, Industrial Laws, New South Wales (4th ed, Butterworths, 1977) as follows:

At common law the employee’s duty under the contract is to serve the employer faithfully and to obey all lawful orders given within the scope of the employment; breach of this duty on the part of the employee, in a serious case, will entitle the employer to terminate the contract forthwith—to dismiss the employee without the notice otherwise required under the contract. …

82    In the 2nd edition of Brooks B, Contract of Employment : principles of Australian employment law (2nd ed, CCH Australia Limited, 1982), the same idea is expressed as follows:

If the employee undertakes to obey lawful orders it follows that refusal is a breach of his contract. ...

83    There are judgments in this Court which have held that an employer may, by requiring express acceptance of its policies in this way, become bound by its own policies in a way which imposes a contractual obligation on an employer (e.g. Riverwood International Australia Pty Ltd v McCormick [2000] FCA 889; (2000) 177 ALR 193 (“Riverwood”); Goldman Sachs JBWere Services Pty Ltd v Nikolich (2007) 163 FCR 62 (“Goldman Sachs”); Romero v Farstad Shipping (Indian Pacific) Pty Ltd (2014) 231 FCR 403 (“Romero”)).

84    In Riverwood, a term of an employment contract read:

Company policies and practices

You agree to abide by all company policies and practices currently in place, any alterations made to them, and any new ones introduced.

85    At termination of employment, a policy manual stated:

Where terminations of employment are as a result of redundancy the terms and conditions of the company redundancy policy shall apply. ...

86    A related policy said:

Redundancy provisions

Where an employee is made redundant, the following severance payments will be made:

(i)    Unless the particular Award provides a greater benefit, three weeks ordinary pay for each completed year of service and pro rata payment for each completed calendar month.

87    The content of the policy manual at the date of the contract of employment was unknown, but at that date the second provision set out above referred directly to the policy containing the third provision, which came into existence after the date of the contract. It, therefore, appears that the “entitlements” were created in that form after the formation of the contract.

88    Lindgren J thought there had been no contractual incorporation of entitlements. His Honour said:

[38]    The letter was presented to Mr McCormick by Packaging as a fait accompli. A purpose of the paragraph which suggests itself was, as a matter of more abundant precaution, to remind Mr McCormick that he must accept, and had no right to object to, Packaging’s “policies and practices”, present and future.

(Emphasis in original.)

and:

[50]    According to my own construction of the letter, Mr McCormick was undertaking to abide by requirements of Packaging that answered the description “policies” or “practices”, wherever they might be found. No doubt, these words could also give rise to difficulty of construction and application in particular circumstances. Moreover, they would not give Mr McCormick the protection of a substantial constraint on the unilateral imposition of terms by Packaging. But their purpose was, in my view, in general terms to “acknowledge the right of management to manage”, and, accordingly, there might be some unilateral impositions by Packaging so substantial that they would be held to fall outside the notions of “policies” and “practices”. The competing construction, that Mr McCormick (Packaging as well) was agreeing to abide by any obligations which Packaging might cause to be included from time to time in its own document, clearly offered him no protection at all.

89    The majority took a different view. North J concluded that it was permissible to examine the provisions of the manual itself to see whether the contract intended to incorporate it (at [89] and [110]). His Honour rejected the notion of unilateral change which was stated in the express contractual term, saying:

[111]    In any event, the purported agreement to abide by alterations or additions to the policies and practices of Riverwood did not create a legally binding obligation on Mr McCormick to accept any unilateral alteration or addition. A purported agreement which leaves the content of the agreement entirely at the discretion of one party is not contractual in nature. Any alteration or addition to the company policies and practices could only achieve binding contractual effect if there was separate agreement to such alterations or additions, either by way of variation of the existing agreement or by way of entering into a new agreement.

(Emphasis added.)

90    Thus, his Honour concluded, the policy was contractual, and not open to unilateral variation. With respect, that seems to me to rewrite the terms of the contract itself rather than to construe it. The sentence I have emphasised, in my view, tends against a conclusion of incorporation, rather than for it.

91    Mansfield J reasoned from a position of perceived mutual intent, saying:

[149]    The evidence of the respondent was that he had a general understanding of the existence of some redundancy agreement in existence, but he did not specifically know of the manual. It can readily be inferred that he apprehended that the appellant had some policies and procedures, for that is what the policy clause in the letter referred to, but he did not give evidence of knowing of the detailed content of any specific policies. The degree of his knowledge is not commensurate with that of the appellant. That may often be the case in circumstances such as those confronting the respondent when he signed the letter. He had by then been employed in the business generally for many years, and by the appellant for some months. His general understanding is, however, consistent with the more specific knowledge of the appellant. In the relevant sense, in my view, the facts known by the appellant were known also to the respondent.

[150]    In the light of the factual matrix referred to, I share the conclusion of the learned trial judge that the letter incorporates by reference the terms set out in the manual from time to time including the redundancy agreement. I further agree with the conclusion that the presumed intention of the appellant and the respondent, by reason of the policy clause in the letter, was that the respondent would receive the benefits of the policies of the appellant in the manual as they applied to him, including under the redundancy agreement (subject to that policy being changed by the appellant). The agreement “to abide by” those policies, in the circumstances, means that the respondent would receive or enjoy the benefits provided for by those policies but only according to their terms, and would himself comply with the terms of those policies as they applied to him.

92    In Goldman Sachs, it was conceded that parts of some policy statements were contractual in nature. Black CJ accordingly said:

22        The difficult question is not whether WWU had any contractual effect, for this is now rightly conceded, but whether the portions relied upon by the respondent and found to be terms by the primary judge did indeed have that character or whether, on the other hand, they were at most mere representations of the firm’s aspirations.

23        The principles to be applied in determining whether any, and if so what, parts of WWU were terms of the contract of employment are not in doubt. It is well established that if a reasonable person in the position of a promisee would conclude that a promisor intended to be contractually bound by a particular statement, then the promisor will be so bound. This objective theory of contract has been repeatedly affirmed as representing Australian law by the High Court. Thus, in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, 179, the Court said:

“It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.”

93    His Honour went on (at [29]):

29        As I have noted, the test is objective. What matters is what the language used, in context, would have led a reasonable person in the position of Mr Nikolich to believe. …

94    His Honour then stated separate conclusions about particular parts of the policy in question, according to his particular findings about whether the statements in question were “promissory” in nature (and therefore contractual in his Honour’s view) or “aspirational”.

95    The consequence was that, based on a concession of contractual incorporation it was nevertheless necessary to conduct a statement by statement examination of particular parts of a policy, distinguishing between “promissory” and “aspirational” statements at that level, rather than examining the anterior question of whether the contract itself, objectively viewed, achieved the necessary incorporation.

96    Marshall J referred to the anterior contractual context as follows:

109        In paragraph 10 of the second amended defence, the respondent said that Mr Nikolich was required to comply with the policies and procedures set out in WWU but that WWU did not constitute a term or condition of his contract of employment. Goldman acknowledged that Mr Nikolich was given a copy of WWU when it offered him employment and that he was asked to “sign off on” specific policies and procedures contained in WWU. Goldman said it did not ask him to “sign off on the document itself” and that WWU expressly states that Goldman reserves the right to change the information contained in it from time to time.

110        Justice Wilcox found at [228] that when Mr Nikolich received Goldman’s offer of employment, it also provided him with several documents including a 119 page document called “Working With Us”. Mr Nikolich signed and returned a copy of the letter containing the offer of employment. He was not required to sign a copy of WWU. The letter included at least some of the terms of Mr Nikolich’s employment.

97    His Honour applied Riverwood.

98    Jessup J dissented. His Honour first recorded:

172        The terms of the contract which the trial Judge held the appellant had breached were established, according to his Honour, upon the respondent’s acceptance of the appellant’s offer of employment on 15 May 2000. There were two documents which were provided to the respondent at about that time: a formal letter of offer dated 4 May 2000 and WWU. The critical terms were in WWU. Although the appellant accepted that the terms of the letter of offer were contractual, it resisted the suggestion that the terms of WWU were contractual. His Honour held that they were, and that holding is challenged in this appeal. It will be necessary, therefore, to consider the terms of the letter and of WWU, and the circumstance in which those documents were provided to the respondent by the appellant and (in the case of the letter) executed by the respondent.

99    Shortly thereafter, his Honour extracted the relevant part of the initial letter of offer concerning “WWU” (which was countersigned by Mr Nikolich):

176        Under the heading “General Instructions” it was stated:

From time to time the Company has issued and will in the future issue office memoranda and instruments with which it will expect you to comply as applicable. If you have any queries at any time about which memoranda and instructions apply to you, you should raise that question with me or with Colin.

100    His Honour observed:

179        As its name suggests, WWU was a document which contained information about many aspects of employment within the appellant’s organisation. Indeed, the opening chapter, entitled “Welcome to JBWere” concluded with the following paragraph:

We trust the following information will assist you in gaining an understanding of JBWere. We take an active personal interest in all our people and will make every effort to guide and direct your career aspirations towards a successful goal.

It would, however, be an oversimplification, and something of an inaccuracy, to say that WWU contained information only. It also contained statements of obligations which employees were expected to accept, rules with which employees were required to comply, advice and helpful suggestions for the assistance of employees and policies and procedures followed within the appellant’s organisation of which employees were expected to be aware. Although WWU was provided to the respondent as a prospective new employee, it seems that it was also a document with which existing employees were expected to be familiar, and to which existing employees might turn if in need of information about procedures, obligations etc from time to time.

101    In the course of his own analysis, Jessup J said:

284        ... There was one provision of the letter of offer which, according to his Honour, provided a link to WWU. It was the paragraph to which I have referred at par 176 above. It formed the basis of a submission made by the respondent that the facts were analogous to those which came before the Full Court in Riverwood, and that a like result, in point of contract, should follow. The appellant submitted that the statement in the letter of offer that it would issue office memoranda and instructions (or had done so) was insufficient to establish incorporation of WWU. I agree, and I consider that his Honour was wrong to apply Riverwood in the circumstances of the present case.

and:

290        Returning to the provision of the respondent’s letter of offer to which I have referred in par 176 above, I am bound to say that I think it came to occupy a position much closer to centre stage than its true importance warranted. This may have been because the respondent’s advisers saw in the provision the potential to obtain leverage from Riverwood. However that may be, I regard the provision as entirely neutral to the resolution of the question whether any – and if so which – of the provisions of WWU should be regarded as contractually binding. I cannot think that the hypothetical new employee reading the provision for the first time – and without an antenna keenly tuned to signals emitted by cases decided by the Federal Court – would do otherwise than take the provision as an unsurprising statement that his or her future employer had issued, and would in the future issue, office memoranda and instructions with which he or she would be expected to comply as and when they were applicable. It is in the kind of provision that would be unsurprising in any similar letter written on behalf of any intending employer in virtually any industrial situation.

102    Thereafter, his Honour dealt directly with the particular parts of WWU found at first instance to be legally enforceable and disagreed with the primary judge’s specific conclusions about those matters. That approach dealt with WWU in its own right, and not as a document wholly incorporated, or not incorporated, by the letter of offer. As his Honour explained:

292        It is not clear that the trial Judge held that the whole of WWU was incorporated into the respondent’s contract of employment. I have referred to the way his Honour did approach this subject […] above. It would be wrong to say that his Honour did not take account of the whole document: indeed, as I have pointed out, his Honour did recognise that some provisions of WWU made a stronger, or at least a more obvious, claim for incorporation by nature of their subject matter. On the other hand, I am disposed to agree with the appellant that the terms of WWU are heterogeneous – both in content and in style – to such an extent as to render any attempt to classify them either as wholly contractual or as wholly non-contractual highly artificial. At one extreme WWU was the means by which the appellant apparently set out many – if not all – of what his Honour regarded (correctly in my respectful view) as quite commonplace conditions of employment in the nature of entitlements, such as leave of various kinds. At the other extreme, WWU contained many sections which were manifestly informational only, as well as others which urged upon employees the adoption of a way of thinking, and a general pattern of behaviour, that conformed to the appellant’s culture. The appropriate course, in my view, is to consider each of the particular obligations which, according to his Honour, were imposed upon the appellant by WWU, and to ask whether his Honour fell into error in those respects. There is little to be gained, I consider, by further wrestling with the question whether WWU should be regarded either as wholly contractual or as wholly non-contractual.

103    Romero concerned a Workplace Harassment and Discrimination Policy. The Full Court found that the policy formed part of the contract of employment, overruling the primary judge.

104    The letter of engagement provided:

...

You will be expected, if required, to serve on any vessel owned or operated by Farstad Shipping and be flexible in regards to availability. Whilst every attempt is made to accommodate individual requests in allocation to vessels, the decision of the Ship Manager and HR department will be final. In addition, all Farstad Shipping Policies are to be observed at all times.

...

(Bold emphasis added.) (Italics in original.)

105    The policy itself was detailed and, in parts, directory. In parts, it stated detailed procedures.

106    The Full Court said:

34        One point that is clear is that whether or not a policy will be incorporated into a contract of employment will depend upon the parties’ intentions as objectively ascertained: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [40]-[41].

35        In approaching the task of ascertaining the parties’ intention, the starting point will be the language of the contract. The language adopted is to be viewed in context, not in abstract isolation. Further, regard must be had to the purpose and object of the transaction.

107    As I read the Full Court judgment, examination of those questions was not confined to consideration of the terms of the letter of engagement, but extended to an enquiry about the likely intention of the parties, arising from the terms of the policy itself, even though the policy was, in origin and terms, a unilateral statement. The Full Court concluded:

62        The Policy in this instance was part of the employment contract. The wording of the letter of offer taken with the importance of the Policy terms, the education of employees to reinforce the terms of the Policy are all factors leading to that conclusion. While some parts of the Policy may have been aspirational and some parts directive, Farstad’s obligations in relation to dealing with serious complaints of sex discrimination and bullying were contractual promises given in exchange for employees being obliged to comply with the behavioural requirements imposed on employees by the Policy.

108    I am bound by the three judgments to which I have referred when sitting as a single judge of the Court. As a member of a Full Court I would not presume to say that the analysis any contains is “plainly wrong”. Nevertheless, I wish to record my own view that the correct position (which was rejected by the Full Court) is reflected in the argument of the respondent in Romero, recorded by the Full Court as follows:

49        Farstad argues that the Policy was not contractual or part of the contract of employment. Rather than being aspirational, as suggested by the primary judge, Farstad argues that the Policy was “directive”. It was directive in the sense, relevantly, that the Policy consisted of directions to employees, directions in the details as to how matters of workplace harassment and discrimination will be handled. Farstad contends that the language in the Policy, even where it uses the words “shall” and “will”, is mostly talking about what is to be done. According to Farstad, it is a statement of intention, rather than mandating a particular way to do things. Farstad contends the words “are to be observed at all times” may be contrasted with expressly contractual language such as that used in Foggo, where the relevant grievance policy was held to have formed an explicit part of the employment contract.

50        It follows, Farstad argues, that an employee who signed the engagement letter acknowledging the need for observance of the Policy at all times would not, in undertaking conduct contrary to the Policy, commit a breach of contract. Rather, the breach that the employee would commit would be a breach of the implied term to follow the lawful and reasonable directions of an employer. The Policy constitutes, Farstad contends, the lawful and reasonable directions of the employer. It is in that sense that it is directive. The example given by Farstad would be that if there was a sign on the ship saying “no running on the gangway”, an employee breaching that directive could not be said to be in breach of contract. Rather, he or she would be failing to comply with a lawful and reasonable direction, which might entitle the employer to take some disciplinary action in some form, such as a warning.

109    I note that, in McKeith v Royal Bank of Scotland Group PLC; Royal Bank of Scotland Group PLC v James [2016] NSWCA 36, the New South Wales Court of Appeal (Tobias AJA, with whom Macfarlan JA and Emmett AJA agreed) considered each of Riverwood, Goldman Sachs and Romero and distinguished each of them on various grounds. Tobias AJA concluded in that case that an employer’s redundancy policy had not been incorporated in contracts of employment. For separate and different reasons it was found that a promise, which was later made to apply the policy in particular circumstances, was contractually effective. The analysis does not appear to me to provide specific support for the approach to questions of incorporation which I wish to call into question.

110    It may have been sufficient in each of Riverwood, Goldman Sachs and Romero to imply a term as a matter of fact that, in light of the formal imposition of its policies, the employer would honour so much of those policies as, at any particular time, operated for the real and practical benefit of an employee (e.g. assured payments, distinct procedural protections) and would not arbitrarily or capriciously withdraw them. An evaluation would need to be made on the facts of particular cases, but I see no reason in principle why an implication of that kind would not in many cases meet the usual tests – certainty, necessary to give business efficacy, so obvious it goes without saying, consistency with express terms, etc (see BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266). The approach would be consistent with authority concerning a contractual right to participate in discretionary bonus systems, which I discuss hereunder.

111    One thing that would be avoided by such an approach would be the artificiality of proposing contractual force to obviously discretionary procedures, or vision statements or general aspirations. It may avoid the tedious complexity which attends attempts to use the notion of incorporation. Any suggestion that less than a full statement of policy is contractually incorporated necessarily operates upon an assumption that such matters must be excluded from the incorporation but, in my respectful view, that approaches the matter from the wrong direction and loads the assessment in favour of contractual obligation. The great strength of the law of contract is its identification of certainty of obligations and corresponding rights – at the time the contract is made. Any incorporation must be no less certain – at that time. Implication of terms may produce a more flexible outcome. To take only one example – an implication (whether as a matter of law or fact) of reasonable notice on termination poses a test which is, in practical terms, to be evaluated for its operative content on termination, not on commencement. An implied term of observance of real and practical benefits under policies and of no arbitrary or capricious withdrawal permits evaluation according to the circumstances and practical realities of the time.

112    Whatever might be the correct view about such an approach, in my respectful view it is an error of analysis to argue from the language of a policy to a conclusion that the terms of the policy are contractual. The analysis must begin with the terms of the contract itself. Then, if it is suggested that a requirement for obedience to the terms of a policy (or any other instruction) by an employee is an aspect of some mutual or reciprocal obligation to obey the policy a further enquiry is warranted and necessary. It is whether the employer is free, at its own discretion and without any form of consultation with an individual employee, nevertheless to unilaterally alter the policy – i.e. its own policy. If it is, I do not readily see how the terms of the policy can be seen as a mutual statement of contractual rights and obligations. It is generally not suggested in cases of this kind that any contractual obligation represented by the policy remains fixed as at the date of contract. It is generally accepted that an employee must comply with the terms of the policy as set by the employer from time to time. That feature, in my view, denies the necessary quality of mutuality. That mutuality is not supplied by what is, in truth, an acknowledgement by an employee in a contract of employment that the policies of the employer are relevant instructions or directions which must be complied with.

113    A possible exception to this concern, and one which in fact arises on the facts of the present case, is where an adjustment to duties is made for a defined period by reference to published criteria. In the present case, for example, a number of the employees were seconded to Westpac in a context where SGB had a published policy that secondment could not exceed 12 months. It was accepted that there could be no forced secondment; agreement was necessary. Agreement was clearly given in each case upon the basis of the 12 month limitation which was thereby incorporated. Despite a change to the policy in that period, rewording the limitation, I accept that any extension of secondment would require explicit consent. But such is not a case of agreement to abide by policies as stated from time to time. It is a more classic case of incorporation of a known term by reference, in a collateral contract or variation for a fixed term.

114    I should also record, at this point, that in the present case, Westpac accepted that a particular policy concerning redundancy had contractual force. For the reasons I have given, I question the legal foundation for the concession but it is not appropriate to cavil with it further.

115    Similar difficulties arise with discretionary payments. The most frequent area of dispute concerns bonuses.

116    In Australia, payment for work under a contract of employment is invariably periodic and regular; almost exclusively weekly, fortnightly or monthly. Some employees receive additional payments for working shift work or overtime. They receive “penalty rates” which are generally paid also “as they are worked” – i.e. weekly, fortnightly etc. Less frequently, employees are paid in whole or in part by results – commission payments are the most frequent example. Again, an accounting of entitlements is generally made at least monthly, but it need not always be so frequent.

117    All those methods of payment have in common that they are generated by the individual efforts of employees and are calculated by methods or formulae specified in advance which may be applied to known facts. Those “entitlements” have no element of discretion in them and may not be withheld by an employer. They are contractual entitlements; not discretionary payments.

118    Bonuses of the kind to be considered in the present case have none (or virtually none) of those features. They are usually mechanisms for distributing from a notional pool. The pool is usually calculated by reference to the satisfaction of performance targets, or budgets, set for a business or part of a business. Distribution usually occurs after some process of assessment about the contribution of individual employees, and the perceived merit of how they should share in the distribution relative to their peers. Distribution usually occurs annually, but sometimes more frequently. In some systems, adequate performance generates a good share, in other systems only above average performance does so. Less than average performance, or plain under performance, always carries at least the risk of reduced reward. A group failure to meet targets (whether by business or business group) reduces the pool for distribution and puts pressure on the assessment process.

119    Such arrangements are almost never expressed in writing as fixed entitlements (they are not fixed until distribution occurs) although frequently they are suggested as attractive features of prospective employment. Sometimes, a start-up bonus, or an initial bonus, is guaranteed but that is clearly separate from any notion of discretionary distribution based on group performance.

120    In a practical sense, prospective employees may be attracted by the suggested “guarantee” of good earnings and such an expectation is, predictably enough, generated and reinforced as such earnings become a feature of annual overall income.

121    Such payments are without doubt incentive payments. They are intended to attract and retain good quality staff. They are intended, in that sense, to “match” the market.

122    However, they are uncertain, especially over the longer term. By their nature they depend on the creation or perception of a pool of funds for distribution. The identification of an available pool of funds depends on business judgments, both in setting targets and in reserving funds for distribution to employees, rather than in satisfaction of some other business objective or obligation – e.g. paying debt, distribution to shareholders, re-investing etc.

123    The calculations and decisions which affect individual distributions are also elastic. There is frequently a process of initial assessment and review. The proportions of distribution may change from distribution to distribution.

124    Bonuses of this kind are additional payments reflecting business success. They are usually not accountable for superannuation guarantee purposes. They are income but they are not ascertainable in advance. They do not exist, even contingently, until the relevant entitlement period has closed and even then they remain discretionary in many respects.

125    I do not think it can be said in the ordinary case that such payments are essentially contractual. One reason they are not is that they are not certain. The difficulty is exposed in any case where an estimate for the future must be made. Such an estimate is only ever able to be calculated by reference to past payments, rather than the application of a contractual promise to nominated future events. The nominated future events can never extend to the business performance, employee performance and other discretionary aspects which are always an integral part of such schemes.

126    Nevertheless, it has been held that there may be contractual obligations which arise in connection with participation in such schemes, even if not with respect to outcomes. I shall discuss the leading case below. The difference between a right to participate, and a right to any particular outcome, is a very substantial one. It recognises the essentially discretionary nature of the bonus arrangement, and all its contingencies, provided arbitrary or capricious outcomes are avoided.

127    In the present case, the primary judge applied the decision of the New South Wales Court of Appeal in Silverbrook Research Pty Ltd v Lindley [2010] NSWCA 357 (“Silverbrook”).

128    Silverbrook was concerned with a promise recorded in a written contract of employment as follows:

22    Clause 4 of the Agreement was in the following terms:

4.    ANNUAL PERFORMANCE BONUS

4.1    Lindley will be eligible to receive the Annual Performance Bonus subjecvt [sic] to clause 4.2 and 4.3.

4.2    Silverbrook will assess Lindley’s performance against set objectives at the end of each quarter commencing from the date of her employment. Provided her performance satisfies the set objectives and subject to clause 4.3, one quarter of the Annual Performance bonus will be paid to Lindley within 21 days of the end of each quarter.

4.3    The decision as to whether Lindley should receive the Performance Bonus is entirely within the discretion of Silverbrook. Lindley must be in the employ of Silverbrook at the time bonuses are determined to be eligible to receive the Annual Performance Bonus.

129    Allsop P, (with whom Beazley JA agreed) said:

3    Here, the appellant promised, by item 4 of the terms sheet and cl 4.2 of the contract, that it would establish set objectives at the end of each quarter, assess the respondent’s performance against those objectives and, subject to the appellant’s discretion in cl 4.3, if the set objectives were satisfied a bonus would be paid. This was not a promise to pay the bonus. Clause 4.3 makes that clear. The respondent was promised the setting up and undertaking of a process of assessment of performance with the contractual opportunity or chance of obtaining bonuses should the results of the process be favourable and subject to the exercise of any discretion in cl 4.3.

...

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 respondent 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.

130    What was involved in Silverbrook was an express right of participation in a bonus scheme, not a right to any particular outcome. In the present case, that is a most important matter to bear in mind.

131    The introductory matters I have mentioned must be brought to bear, where it is proper to do so, only by reference to the particular facts of the present cases. Where it is necessary or relevant to do so, I will refer to, or set out, the terms of particular individual contracts of employment. A sharp distinction should be made between what those individual contracts provide and any more generalised claim for particular benefits based on attempts to enforce policies or discretionary practices.

Retention incentive payment

Background

132    Claims about this matter may be dealt with together because they are all based on a proposal in almost identical terms at the same time to each of the employees, and each by their conduct satisfied any individual obligation upon them. Their contractual claims were therefore identical. The claims by most of them to loss from negligence or misleading and deceptive conduct were based upon the same factual premises.

133    The merger was announced in May 2008. Shortly thereafter, after a period of internal discussion and planning, a letter was sent to selected employees announcing that an extra payment would be made to them (equivalent to 25% of an existing, more general, bonus) if they remained with SGB until 13 November 2008 and SGB met stated financial targets. The purpose of this incentive was to retain key personnel during the uncertainties leading to a concluded scheme of arrangement, especially in case the merger did not go ahead. The scheme of arrangement, as I have said, was approved on 17 November 2008.

134    The letter said:

18 June 2008

…

Dear …

Additional One Off Incentive for 2007/2008 financial year

The current landscape presents a number of challenges for all of us as a leadership team. The merger proposal from Westpac, in particular, brings considerable risks to the focus on our business in the short-term.

As you know, in all my recent communications I have stressed the need for us all to continue to deliver superior financial performance. The most significant measure of our success is our collective delivery of this year’s Earnings Per Share targets.

Recognising your vital role in helping us achieve this measure at this time, I am delighted to confirm that the Board, in good faith, has approved a one-off additional incentive if we deliver our 2007/2008 Group financial performance target. The incentive is on top of any other Total Reward Opportunity previously communicated to you.

The details for the additional incentive are summarised below.

Incentive Amount: [between $24,000 and $50,000 for individual employees]

This amount will be subject to taxation and will be delivered as a cash payment via the payroll system.

Payment Date: 13 November 2008

Conditions of payment:

1.    The Bank meets its Earnings per Share Target for the 2007/2008 financial year. A pro-rated incentive will be paid between 90% and 100% of target;

2.    You continue to be employed by the Bank on 13 November 2008 and your performance up until that time remains satisfactory. If you leave the Bank before 13 November 2008 other than because of resignation or termination for cause the payment will still be made if we achieve our target; and

3.    You will appreciate that all aspects of your remuneration are confidential and you should not discuss this arrangement with anyone. We will consider a breach of this confidentiality very seriously and continued eligibility to participate will be forfeited.

If you need further clarification of any aspect of this arrangement please contact your General Manager, Human Resources.

I look forward to working with you to ensure we make 2007/08 another successful year for St.George, notwithstanding some of the most difficult market conditions ever.

With best wishes,

[signature]

Paul Fegan

Managing Director & CEO

(Emphasis in original.)

135    This letter evidenced an executory contract which was capable of acceptance by conduct, given satisfaction of a stated condition. The conduct was remaining with SGB until 13 November 2008 and rendering satisfactory service. The stated condition was achievement of the particular target by SGB for the financial year ending 30 September 2008. The target was an EPS (earnings per share) growth target. Such a target had been announced to the market and employees, and publicly revised once in the same way. The initially announced target was 10% growth. The revised target, issued in the form of market guidance, was 8-10%.

136    The primary judge found that recipients of the letter would understand the target to be 8-10% (effectively 8%) and that this was the meaning to be objectively attributed to the letter in light of the circumstances known to the potentially contracting parties at the time.

137    In fact, the Board had intended, and approved, that the payment would be made if EPS growth reached 10.1%, an achievement which would exceed its budget. In the period before the letter was sent, plans were made for the letter to be presented to employees with additional information provided orally from a short prepared script. The selected employees were to be told that the target was 10.1%. Through mistake (but not negligence), according to the primary judge’s findings, that additional information was not shared with the recipients of the letter and they were left to evaluate their own positions by reference to what they knew – i.e. that the publicly announced EPS share growth target was 8-10%.

138    They were not required to do anything at this stage. The conduct required of them for entitlement to the payment was satisfactory conduct and that they remain with SGB at 13 November 2008.

139    The EPS earnings growth for FY2008 was 8.3%. SGB refused to make the incentive payment.

140    The employees sued on a number of bases. Four are relevant here:

(1)    in contract, to receive the promised payment as a contractual entitlement;

(2)    in tort, for failure to disclose the Board’s intended target – i.e. treating the letter as a negligent misstatement;

(3)    in tort, for failure to prevent the negligent misstatement being made;

(4)    under s 52 of the TP Act, for misleading and deceptive conduct.

Consequences of the contract claim

141    When proceedings were commenced, they included in each case a claim in contract for payment of the retention incentive based upon the terms of the letter. At first that claim was resisted but it was ultimately conceded.

142    The relevant employees then persisted with and pursued claims for negligent misstatement and negligence generally at common law and for misleading and/or deceptive conduct under the TP Act. They alleged that if they had known that SGB’s true target was 10.1% they would have assessed that target as unachievable and the potential for some extra payment as worthless. They said they relied on the terms of the letter to forego valuable opportunities to explore alternative employment, but that the letter was misleading.

143    In my view, those claims could not succeed.

144    The first problem, which seems to me to be a fundamental one, is that the first claim and the remaining three are based on contradictory premises. The first claim relied on the statements in the letter as objectively stating a condition of EPS growth of at least 8% and set out to enforce the promise. The claim depended on identifying the objective “truth” of the statements. The remaining claims stigmatised the statements in the letter as “untrue”. They depended on the proposition that if the employees had known what the Board intended they would not have relied on the potential for payment. In this sense, the employees argued that they relied on the letter because they misapprehended its contents.

145    However, that is not so. On the findings of the primary judge the employees were entitled to understand the contents of the letter as they did.

146    The argument that the employees relied on misstatements in the letter (i.e. misstatements about the intention or subjective understanding of SGB) is irrelevant to the contract claim but it is fundamental to the remaining claims. The first claim and the remaining claims seem to me to pull in two opposing directions. I cannot see how they could both have possibly succeeded. The employees could not possibly hope to succeed in negligence and, at the same time, independently have the promised payment, or vice versa.

147    This seems to me, therefore, to be an example of asserting inconsistent legal rights and, at some stage, an election between the inconsistent rights would have been required.

148    During the proceedings Westpac conceded the contract claims. That concession was properly made. It accords with the finding later made by the primary judge on the whole of the evidence.

149    The employees purported to accept the payment without prejudice to the rights to pursue the balance of the claims. I am far from satisfied that they were entitled to take that position.

150    When this issue was raised on the appeal, the employees relied on the decision of the House of Lords in United Australia Limited v Barclays Bank Limited [1941] A.C. 1 (“United Australia”).

151    In that case, a cheque payable to the applicants was converted. They initially sued the offending company in debt, but discontinued. They then sued the respondent bank in conversion, or negligence or money had and received. It was argued by the bank that the original proceedings represented an election which prohibited the new claim and barred the action against the bank. The respondent bank claimed that the applicants had “waived the tort”. The House of Lords held that judgment and satisfaction in the first action would have barred the second action, but the fact only that the first action was commenced did not.

152    In the present case it was claimed that, as no judgment had been entered when Westpac conceded the contract claim, and as the employees had reserved their rights, they had no occasion to elect but could do so at the time of a judgment in their favour, choosing the better outcome.

153    The difficulty for the present case, however, is not that there may have been different actions available (against the same party, it might be noted) but that the premises upon which the causes of action were based were fundamentally contradictory.

154    In my view, United Australia is not authority for the proposition that a litigant may maintain inconsistent causes of action until, when judgment has been given, the litigant simply chooses the better outcome (or expects that the court will). That would make the court the instrument of one of the parties. It may well be an abuse of process.

155    In the present case, one claim was maintained and was fully satisfied, the claim having never been abandoned or discontinued. The other (in my view, inconsistent claim) arising from exactly the same facts was maintained at the same time.

156    In The Commonwealth of Australia v Verwayen (1990) 170 CLR 394, Brennan J said (at 421):

... Election consists in a choice between rights which the person making the election knows he possesses and which are alternative and inconsistent rights: Evans v. Bartlam; Tropical Traders Ltd. v. Goonan; Kammins Ballrooms Co. Ltd. v. Zenith Investments (Torquay) Ltd. A doctrine closely related to election, and sometimes treated as a species of election, is the doctrine of approbation and reprobation. This doctrine precludes a person who has exercised a right from exercising another right which is alternative to and inconsistent with the right he exercised as, e.g., where a person “having accepted a benefit given him by a judgment, cannot allege the invalidity of the judgment which conferred the benefit”: Evans v. Bartlam, per Lord Russell of Killowen. ...

(Footnotes omitted.)

157    Of course, the example which his Honour gave does not exhaust the categories or circumstances of approbation and reprobation. In the present case, in my view, the employees accepted the benefit of the concession of the claim in contract. That created a very real question (which does not appear to have been raised in the proceedings) about whether they could pursue alternative rights, based on exactly the same facts but requiring an inconsistent characterisation of their reliance on the defendant’s conduct, to top up or improve the result which they had already achieved in the proceedings.

158    In Sargent v ASL Developments Limited (1974) 131 CLR 634 (“Sargent”), Stephen J said (at 645):

... Where election is in question between contracting parties and, as in these appeals, the contract itself confers the inconsistent rights there can be no question whether a party had knowledge of his choice of rights. He is deemed to know the terms of his own contract and the rights it confers, at all events he cannot take advantage of his own ignorance (L’Estrange v. F. Graucob Ltd.); moreover he must take his contract as bearing whatever meaning the court will assign to it when it is called upon to interpret it, he is bound “by the interpretation which a court of law may put upon the language of the instrument.” (Stewart v. Kennedy, per Lord Watson).

(Footnotes omitted.)

159    The fundamental premise upon which the actions in negligence and under the TP Act depend is that the terms of the contract should have been other than they were in fact communicated, and that it was a breach of duty, or misleading and deceptive, not to have “corrected” the terms of the offer. The employees understood themselves to accept the “uncorrected terms”. They sued on those terms. Their construction was accepted by the Court and ultimately by the respondent. The assertion that an offer of those terms was negligent or misleading set up a case of an entirely different and contradictory kind.

160    I do not understand how the contract in such a case can be said to be, at one and the same time, a source of legal entitlement and a source of loss as an instrument of deception. In such a case, it seems to me, an election must be made between taking the benefit of the contract or eschewing it altogether in the hope of some more favourable outcome which does not depend on asserting or enforcing its terms.

161    Even an election of that kind might not be possible as a matter of forensic choice. It has, for example, been held in this Court that the existence of a contractual obligation may suffice to exclude the possibility of an action in negligence arising from an alleged duty of care stemming from the contractual relationship (see Mulcahy v Hydro-Electric Commission (1998) 85 FCR 170 (“Mulcahy”)).

162    However, I do not need to resolve that particular question here.

163    In my view, the employees were obliged, at least and at the latest, to make an election when payment in satisfaction of the contract claim was made, even though formal orders were not made at that stage. However, that need not be pursued further here either. It was not insisted upon and the remaining claims were pressed without objection.

164    Whatever the position, the findings of the primary judge seem to me to have disposed of the issue decisively. The employees got what they bargained for by remaining with SGB. They all said that they elected to remain on the strength of the promise in the letter, as they understood it, and because they were told that they were key employees with a likely future in either eventuality.

165    Although they claimed that they would have sought alternative employment if they had appreciated SGB’s intentions about the EPS growth target, that seems to me to be irrelevant. They did not misunderstand the true effect of the letter. They were not misled. SGB’s subjective intentions were not relevant to the entitlement to payment. They got what they bargained for by their conduct; they lost nothing. SGB was not a guarantor of outcomes in the hypothetical (i.e. imaginary) world. It could be held to its promises but not made responsible for decisions not to pursue hypothetical decisions based on alleged misunderstandings said to arise from matters about which the employees knew nothing, and which had no effect on their actual conduct.

166    In my view, none of the claims for negligence or misleading or deceptive conduct could succeed on the findings made by the primary judge about the meaning of the letter.

167    From this point forward, however, I shall assume to the contrary. On that assumption, there are a series of other reasons why none of the claims could succeed.

Negligent misstatement

168    The basic elements of the action in tort for negligent misstatement were distilled by Barwick CJ in Mutual Life & Citizens’ Assurance Company Limited v Evatt (1968) 122 CLR 556 (“MLC v Evatt”).

169    At 570-572, Barwick CJ said:

As I do not think that it is either necessary or desirable to categorize the relationships which will give rise to the duty of care, and as I prefer to endeavour to state the essential elements which the relevant relationship must exhibit, I turn now to consider what are the features of the special relationship in which the law will import a duty of care in utterance by way of information or advice.

First of all, I think the circumstances must be such as to have caused the speaker or be calculated to cause a reasonable person in the position of the speaker to realize that he is being trusted by the recipient of the information or advice to give information which the recipient believes the speaker to possess or to which the recipient believes the speaker to have access or to give advice, about a matter upon or in respect of which the recipient believes the speaker to possess a capacity or opportunity for judgment, in either case the subject matter of the information or advice being of a serious or business nature. It seems to me that it is this element of trust which the one has of the other which is at the heart of the relevant relationship. I should think that in general this element will arise out of an unequal position of the parties which the recipient reasonably believes to exist. The recipient will believe that the speaker has superior information, either in hand or at hand with respect to the subject matter or that the speaker has greater capacity or opportunity for judgment than the recipient. But I do not think it can be said that this must always be so, that inequality in these respects must necessarily in fact be present or be thought to be present if the special relationship is to exist.

Then the speaker must realize or the circumstances be such that he ought to have realized that the recipient intends to act upon the information or advice in respect of his property or of himself in connexion with some matter of business or serious consequence. Of course, utterances in the course of social intercourse with no thought of legal consequence could not satisfy such a condition.

Further, it seems to me that the circumstances must be such that it is reasonable in all the circumstances for the recipient to seek, or to accept, and to rely upon the utterance of the speaker. The nature of the subject matter, the occasion of the interchange, and the identity and relative position of the parties as regards knowledge actual or potential and relevant capacity to form or exercise judgment will all be included in the factors which will determine the reasonableness of the acceptance of, and of the reliance by the recipient upon, the words of the speaker.

I have used throughout the description “recipient” to cover both the case where the incorrect utterance is sought by a question or inquiry and the case where it is volunteered by the speaker. Though it must be relatively rare that the latter case will give rise to a cause of action, the possibility cannot, in my opinion, be ruled out.

170    The following points may be made about the contents of the letter dated 18 June 2008.

171    The contents were volunteered, not solicited. One is already, therefore, in a category of case considered by Barwick CJ to be a “rare” condition to engage the tort. The letter did not, on its true construction, pass on information uniquely in the knowledge of the writer; it conveyed a proposal based on the knowledge to be attributed to both the writer and the recipient objectively. The proposal did not depend upon questions of judgment specifically within the capacity of the author; it called for a decision by the recipient, or at least acquiescence in a course of conduct, based on the recipient’s own judgment independently formed. The proposal did not depend on any inequality of position, information or capacity to make judgments. The letter called for independent personal judgment from the recipients; it did not invoke reliance by them on any superior judgment by the author. What was proposed was a contract; not dependence or reliance, except on the promise itself if the conditions were fulfilled. The only element where the factors maintained by Barwick CJ might have been engaged concerned the implication, supported by other oral representations, that the recipient was regarded by SGB as a “key employee”. On the findings of the primary judge, that representation was true. It was not made negligently.

172    On the tests stated by Barwick CJ, in my view, the cause of action in negligent misstatement was wholly misconceived.

173    In ABN AMRO Bank NV v Bathurst Regional Council (2014) 224 FCR 1 (“ABN AMRO”), a Full Court of this Court stated the applicable principles more extensively, and by reference to later authorities. Frequently, the later authorities draw on the statements of Barwick CJ in MLC v Evatt.

174    For example, in Tepko Pty Limited v Water Board (2001) 206 CLR 1, Gleeson CJ, Gummow and Hayne JJ said (at [47]-[48]):

47        The statement of principle by Barwick CJ in Mutual Life & Citizens’ Assurance Co Ltd v Evatt regained vitality after the consideration in Shaddock of the reasoning of the majority in the Privy Council in the Evatt litigation. In his judgment, Barwick CJ referred to various features of the special relationship in which the law will import a duty of care in utterance by way of information or advice. They were restated by Brennan J in San Sebastian Pty Ltd v The Minister. Two of the points made by Barwick CJ are of immediate significance for this appeal. The first is the statement that:

“the speaker must realise or the circumstances be such that he ought to have realised that the recipient intends to act upon the information or advice in respect of his property or of himself in connection with some matter of business or serious consequence.”

The second is that:

“the circumstances must be such that it is reasonable in all the circumstances for the recipient to seek, or to accept, and to rely upon the utterance of the speaker. The nature of the subject matter, the occasion of the interchange, and the identity and relative position of the parties as regards knowledge actual or potential and relevant capacity to form or exercise judgment will all be included in the factors which will determine the reasonableness of the acceptance of, and of the reliance by the recipient upon, the words of the speaker.”

48        The first statement emphasises the need for caution lest a duty of care be imposed upon a party who has no appreciation of, and could not be expected to appreciate, the implications of making an error. ...

(Footnotes omitted.)

175    In the present case, on the findings of the primary judge, there were no relevant “implications” to be considered because his findings vindicated, as objectively sound, the understanding of the employees about the content of the representations.

176    In amended pleadings (after the concession about the contract case) and in argument, it was put that the letter misrepresented the position of the Board. In my view, that was not relevant. No subjective intent of the Board would unilaterally fix the meaning of the promise in the letter. The employees did not suffer a loss (at least not in the world in which they lived) by acting on the promise in the letter. The amended pleadings represented an attempt to put a legal gloss on facts which did not reflect the real position. In my view, such reconstructions should not be encouraged.

Negligence by inactivity

177    This cause of action depends upon acceptance of the idea that the letter dated 18 June 2008 contained a relevant misrepresentation. If the respondent is liable under the tort of negligent misstatement a separate action in negligence for breach of a duty of care by not preventing the making of the representation appears to add nothing to any claim for relief and is mere surplusage.

178    If the respondent is not liable in negligent misstatement it is hard to see how any separate duty to prevent the representation being made could arise. Nevertheless, the claims under the cause of action should not, in any event, be accepted. Now that the primary judge has found the facts that vindicate the claim in contract, the gravamen of the claim is that there was a duty of care to prevent a promise which, objectively construed, established a right to payment which accorded with the understanding upon which the employees acted. The notion is bizarre. The employees have taken the benefit of the promise, legally and practically, by accepting the payment promised to them, even if they are attempting to hold open the prospect of receiving more upon the footing that the representation in the letter was misleading.

179    I regret to say that I find the attempted distinction between the promise to pay and the suggested representation about the Board’s intention, to be simple sophistry. I do not see how there can be a case available that the respondent was negligent in allowing the promise to be made in the terms which it was, rather than one which the employees would have refused, when they have taken advantage of the error. It was not negligent for the respondent to have inadvertently made a promise to the employees which was easier to satisfy than was intended and which, as things have turned out, they understood correctly, whatever might have been going on in the background.

Misleading and deceptive conduct

180    Section 53B of the TP Act proscribed misleading statements by a corporation in pre-employment negotiations and discussions. The prohibition did not depend on a connection with trade or commerce. It did, however, refer, in terms, to conduct in relation to employment although not in an employment relationship.

181    Section 52 of the TP Act does not refer, in terms, to conduct in an employment relationship either. Its operation does depend on a connection with trade and commerce.

182    The leading case on the question of whether statements made in an employment relationship may be actionable under s 52 of the TP Act is Concrete Constructions (NSW) Pty Limited v Nelson (1990) 169 CLR 594 (“Concrete Constructions”). In Concrete Constructions, the High Court found that (headnote at 594):

... s. 52 was concerned with the conduct of a corporation towards persons, be they consumers or not, with whom it (or those whose interests it represented or was seeking to promote) had or might have dealings in the course of those activities which, of their nature, bore a trading or commercial character and thus were “in” trade or commerce, ...

183    The majority judgment identified the issue of statutory construction which arose in the following way (at 602-603):

The phrase “in trade or commerce” in s. 52 has a restrictive operation. It qualifies the prohibition against engaging in conduct of the specified kind. As a matter of language, a prohibition against engaging in conduct “in trade or commerce” can be construed as encompassing conduct in the course of the myriad of activities which are not, of their nature, of a trading or commercial character but which are undertaken in the course of, or as incidental to, the carrying on of an overall trading or commercial business. If the words “in trade or commerce” in s. 52 are construed in that sense, the provisions of the section would extend, for example, to a case where the misleading or deceptive conduct was a failure by a driver to give the correct handsignal when driving a truck in the course of a corporation’s haulage business. It would also extend to a case, such as the present, where the alleged misleading or deceptive conduct consisted of the giving of inaccurate information by one employee to another in the course of carrying on the building activities of a commercial builder. Alternatively, the reference to conduct “in trade or commerce” in s. 52 can be construed as referring only to conduct which is itself an aspect or element of activities or transactions which, of their nature, bear a trading or commercial character. So construed, to borrow and adapt words used by Dixon J in a different context in Bank of N.S.W. v The Commonwealth, the words “in trade or commerce” refer to “the central conception” of trade or commerce and not to the “immense field of activities” in which corporations may engage in the course of, or for the purposes of, carrying on some overall trading or commercial business.

As a matter of mere language, the arguments favouring and militating against these alternative constructions of s. 52 are fairly evenly balanced. ...

(Footnote omitted.)

184    Their Honours (Mason CJ, Deane, Dawson and Gaudron JJ) went on to explain why the narrower construction was to be preferred. Their Honours found (at 604):

... What the section is concerned with is the conduct of a corporation towards persons, be they consumers or not, with whom it (or those whose interests it represents or is seeking to promote) has or may have dealings in the course of those activities or transactions which, of their nature, bear a trading or commercial character. ...

185    In the course of relating their findings on the issue of statutory construction to the facts of the particular case, at the end of the majority judgment their Honours stated (at 604-605):

The alleged misleading or deceptive conduct of the Company's foreman in the present case consisted of an internal communication by one employee to another employee in the course of their ordinary activities in and about the construction of a building. It follows from what has been said above that that conduct was not, for relevant purposes, conduct “in trade or commerce” and would not, if established, constitute a contravention of s. 52 of the Act. ...

186    In my respectful view, it is an error to regard those statements as an indication that Concrete Constructions is only authority for a narrow range of employment-based factual circumstances. It is clear from this passage that the starting point in the analysis was the question of statutory construction. Any narrow issues of fact represented a secondary consideration. In my respectful view, it is clear from the earlier part of the judgment that matters arising within an existing employment relationship are unlikely to meet the requirements for the engagement of s 52.

187    In Martin v Tasmania Development & Resources [1999] FCA 593; (1999) 163 ALR 79 (“Martin”), Heerey J applied Concrete Constructions to dismiss a claim under s 52 of the TP Act alleging misleading and deceptive conduct in connection with a termination of employment. Heerey J obviously regarded Concrete Constructions to be decisive in relation to the “internal affairs” of a corporation (see at [77]). In the course of his decision, Heerey J disagreed with the approach taken by Wilcox J in Barto v GPR Management Services Pty Ltd (1991) 33 FCR 389 (“Barto”). Barto was a strike-out case. I shall refer to it again shortly.

188    In Mulcahy, Heerey J also dismissed claims under the TP Act at a final hearing on the same basis (see at 212-213, 242). An appeal against those findings was brought, but abandoned (Mulcahy v Hydro-Electric Commission (1998) 85 FCR 248 at 249-250).

189    A similar approach to that of Heerey J in Martin was taken by Besanko J in Barker v Commonwealth Bank of Australia [2012] FCA 942; (2012) 296 ALR 706. That case went on appeal (Commonwealth Bank of Australia v Barker (2013) 214 FCR 450), and then to the High Court (Commonwealth Bank of Australia v Barker (2014) 253 CLR 169) (“Barker”), but not as to this issue.

190    On a number of occasions, single judges have ruled that claims under s 52 arising out of employment should not be struck out on a summary basis because of Concrete Constructions. Barto was such a case. So was the judgment of Ashley J in the Supreme Court of Victoria in Chaplin v Birdogan [1998] VSC 28; (1998) 146 FLR 243 which referred to Barto.

191    Stoelwinder v Southern Health Care Network [2000] FCA 444; (2000) 97 IR 76 also concerned a strike-out application, but in relation to pre-employment negotiations. Finkelstein J refused to strike out a claim under s 52 of the TP Act.

192    In Walker v Salomon Smith Barney Securities Pty Limited [2003] FCA 1099; (2003) 140 IR 433, Kenny J upheld claims under s 52 of the TP Act arising out of pre-employment negotiations, distinguishing Concrete Constructions. The same claims relied on s 53B of the TP Act. Her Honour held that in view of her findings about s 52 it was unnecessary to deal with them under s 53B.

193    Hearn v O’Rourke (2003) 129 FCR 64 also dealt (on appeal) with a strike-out order. It did not concern an employment relationship (either existing or potential) but it did require consideration of Concrete Constructions. In his (dissenting) judgment, Dowsett J pointed out that Concrete Constructions itself involved resolution of a preliminary question about the availability of a cause of action. In Hearn v O’Rourke, the majority on appeal took a more permissive view than Dowsett J or the primary judge about the possibility of bringing the case within the statements of principle in Concrete Constructions but, as I read the majority judgment, took no issue otherwise with Dowsett J’s analysis. That analysis seems to me to be closer to that of Heerey J in Martin than to the other judgments I have mentioned.

194    The following passage, in particular, is, with respect, a useful distillation of one key aspect (at [29]):

29        ... the focus must be upon the conduct in question and not upon the range of activities in which a relevant corporation may be engaged. In other words, one does not simply identify the conduct in question, note that the relevant corporation is engaged in commercial activity of some kind, then look for a connection between the two. Because corporations are usually formed to engage in commercial activities, it will rarely be difficult to find such a connection. The correct approach is to determine whether or not the relevant conduct can, according to ordinary usage, be described as having occurred in the course of dealings “which, of their nature, bear a trading or commercial character”. The commercial undertakings of the corporation in question may be relevant to the exercise. However, the more important question will be whether the conduct is of a kind which is usually of a commercial nature.

(Emphasis in original.)

195    It is not necessary to address the wider question raised in some of the cases to which I have referred, although my own view is that s 53B of the TP Act did all the work that was necessary with respect to pre-employment negotiations and that the more limited view of the reach of s 52 of the TP Act was the correct one. In the present cases, the offers of a retention incentive payment were concerned with the internal affairs and management of SGB.

196    The primary judge was correct to find that s 52 of the TP Act did not provide a cause of action relating to this issue.

No proven loss

197    Apart from the issues addressed above, in my view the employees failed, even on their own cases, to prove loss.

198    They argued that they gave up valuable opportunities for alternative employment. Some gave evidence of tentative or exploratory discussions over lunch with another financial institution – e.g. JP Morgan. However, it is unclear where the invitation for lunch, or for any discussions, came from. In no case was it suggested that any particular or specific opportunity had been lost. The argument was put much more generally. In my view, this particular evidence was irrelevant, or at least, inconclusive.

199    The more general evidence concerned opportunities in the market at large in the relevant period. It was necessarily unfocussed and remote from the individual circumstances of the employees.

200    One element of the letter of 18 June 2008, upon which each employee said they relied, was an implication that the employee was valued by SGB and had good prospects for an ongoing career with Westpac. On the findings of the primary judge that was the fact. When SGB initially refused payment in November 2008 (which is when, in any event, the effect of the letter of 18 June 2008 had run its course) none of the employees said they set about seeking alternative employment.

201    Accordingly, the fact that the employees remained with SGB, supplying their services to Westpac, was consistent with a belief by them, in June 2008, in November 2008 and later, that their career prospects were more satisfactory or more secure if they remained.

202    In my view, furthermore, there was inadequate evidence to establish that if any of the employees had managed to obtain employment shortly after June 2008 (and before the global financial crisis in September 2008) they would have done better than remaining where they were and having their performance assessed against Westpac’s requirements. There is no basis to conclude that once they were out of the SGB environment they would have performed better elsewhere than they did at Westpac.

203    Finally, the primary judge found that the proposed (contingent) retention incentive payment was a modest amount compared with other contingent payments which depended upon staying with SGB – e.g. bonuses. There was no body of evidence to establish that the employees had any active desire (or would have developed such a desire) to forego those expected payments by changing employment.

204    In short, the case alleging loss was, in my view, speculative and insufficiently supported.

TIP

205    Mr Wittenberg and Mr Smith had written contracts of employment which made express reference to the TIP and their participation in it. Mr Lawson, Mr Moore and Ms Lavars had no written assurance of this kind, but the primary judge found that promises and representations to the same effect had been made to them. His Honour concluded that, in each case, there was a contractual right to participate in the TIP, as discussed in Silverbrook.

206    Westpac challenged the conclusion that a contractual entitlement arose concerning bonus but, on the facts of the present case, I would not disturb the findings of the primary judge that each of the five employees had a contractual right to participate in the TIP in the sense discussed in Silverbrook. In any event, it should not affect the outcome of the appeals, as Westpac did not pursue its appeal against an award of bonus to Ms Lavars, and the other claims failed for reasons which I would not disturb either.

207    The case for the employees was that they should have received, while on secondment to Westpac, a bonus under the TIP referable to periods after the SGB Treasury had ceased to function.

208    Mr Lawson, Mr Smith, Mr Moore and Ms Lavars were seconded to work for Westpac from 1 December 2008. Mr Wittenberg was told that his position was redundant from 1 December 2008, but he remained at SGB until retrenched on 27 February 2009. The primary judge found that the SGB Treasury ceased to operate “towards the end of 2008 or early 2009” and there was “no evidence to suggest that the SGB Treasury was generating revenue at that time which was available to fund the bonus pool”.

209    Any right to participate in the TIP depended upon the establishment of a pool of funds for distribution. It was not capricious or arbitrary to fail to make payments from a non-existent pool of funds, or to decline to substitute a different method of funding. The contribution the employees were making at that point was not related to the operation of the TIP.

210    In Mr Wittenberg’s case, the primary judge would have awarded him a pro-rata amount, for three months of the five months he remained after the end of the SGB financial year on 30 September 2008, calculated as three months of his TIP opportunity for that period, i.e. $60,000 plus interest. Westpac accepted that these amounts should be awarded to Mr Wittenberg if Westpac’s appeal succeeded. The consequence of the concession that Mr Wittenberg should have had partial success at the trial will need consideration in relation to the costs of his proceedings at first instance.

211    The claims of the other employees were dismissed.

212    I would not disturb the findings or conclusions of the primary judge with respect to any of those matters.

DIP

213    The primary judge found that the DIP rules had contractual force and effect in the case of Mr Poulos, the only employee affected by them. The rules provided for measurement criteria for the award of DIP and gave the following “weightings”: group performance 20%; individual performance 80%.

214    Mr Poulos was retrenched by SGB on 11 September 2009, before the end of the SGB financial year on 30 September 2009. The primary judge found that, as Mr Poulos was not part of any group or division at the latter date, he was not entitled to any group component. The rules of the DIP in force in 2008/2009 expressly foreshadowed, in the event of merger, retention of the 80% individual target, with the 20% group component being assessed at 30 September 2009.

215    In my view, no error has been shown in the assessment of the primary judge that there was no breach of any contractual entitlement when SGB failed to pay Mr Poulos a 100% DIP upon retrenchment on 11 September 2009.

Wrongful dismissal and pay in lieu of notice

Implied term of reasonable notice

216    The implication of terms into particular classes of contract as a matter of law, rather than as an implication from the surrounding facts in a particular case, is grounded in the notion of necessity (Barker). In that respect, as has been from time to time observed, it is not always easy to see how the two classes of implication can be readily distinguished.

217    Thus, even in the case of an implication by law into a class of contracts it remains essential, in my respectful view, to bear in mind the “necessity” which compels the implication. And, in both cases, it is accepted that no implication may be made which contradicts the express terms of the particular contract.

218    It is generally accepted that the common law will imply a term that a contract of employment may be terminated on reasonable notice into such a contract which makes no provision for termination. In the present appeals it was argued that such a term is implied into every contract of employment unless excluded. The two propositions are different. The first is concerned with filling a gap; the second with establishing a position of primary operation.

219    Historically, the first proposition is correct. The English courts first implied a term of reasonable notice to overcome a presumption that a contract of employment for an indefinite period endured at least from year to year and was automatically renewed on the anniversary of the contract unless brought to an end on that date (i.e. a presumption of yearly hiring).

220    The presumption of yearly hiring was firmly entrenched in English law (see Halsbury’s Laws of England, 3rd edition (Butterworths, 1958) pp 480-481 and 489), where the following was said:

923. General hiring. If a contract of hiring and service is a general hiring, that is to say, without limitation of time, there is a presumption that the hiring is for a year, whether the contract is oral or in writing. This presumption exists not only when the original contract was a general hiring, but also when, at the expiration of a contract for a definite period of service, the service is continued under a second contract which is indefinite as to time.

...

943. Hiring for year. A general hiring which operates as a hiring for a year can only be terminated with the current year, unless there is a stipulation to the contrary, or a custom or some other circumstance is established enabling the parties to determine the contract at some other date by notice, or there is good ground for summarily ending the relation of master and servant.

(Footnotes omitted.)

221    Then, in 1969, the English Court of Appeal decisively restated the common law position in Richardson v Koefod [1969] 1 W.L.R. 1812; [1969] 3 All E.R. 1264 (“Koefod”) where Lord Denning MR (with whom Edmund Davies and Fenton Atkinson LJJ agreed) said:

… The time has now come to state explicitly that there is no presumption of a yearly hiring. In the absence of express stipulation, the rule is that every contract of service is determinable by reasonable notice. The length of notice depends on the circumstances of the case. …

(Emphasis added.)

222    Koefod was followed, in 1974, by Jacobs J in Thorpe v South Australian National Football League (1974) 10 SASR 17, in preference to other decisions of his court based on a presumption of general hiring from year to year (see at 29).

223    The respected author of Industrial Laws, New South Wales (and Federal Industrial Laws) CP Mills, in the 4th edition of the former text (Butterworths, 1977) summarised the position in Australia at that date as follows:

[323] Termination of the employment by notice. The common law principle is that a contract of service, made for an indefinite period of time, may be terminated by notice given by either party to the contract. The period of notice required will be that specified by the contract; if no such period is specified, then the customary period will be applied, but such a custom must be proved strictly. If all else fails, the courts will require a reasonable period of notice. What is reasonable will depend on all the circumstances and what is shown to be customary, although the evidence may not be strong enough to justify implying a term to that effect in the contract, will be one relevant circumstance. The decisions on what is reasonable notice are of little assistance for other cases, for there is room for wide divergence between circumstances and there is little consistency to be discerned in the cases. …

(Emphasis added.)

224    The significance of a failure to provide sufficient notice of termination of employment (or pay in lieu) is that the notice (or pay) is ineffective to bring the contract to an end (see Automatic Fire Sprinklers Proprietary Limited v Watson (1946) 72 CLR 435 (“Automatic Fire Sprinklers”); Re Journalists (Metropolitan Daily Newspapers) Award (1959) 4 FLR 164 (“Journalists Award”) at 166-167). In most cases, nevertheless, the employment relationship as such will come to an end (Automatic Fire Sprinklers at 466, 469) leaving the employee with a claim for pay in lieu of notice (i.e. full and effective notice (Journalists Award at 166-167)) but not for unpaid salary as though the contract was ongoing.

225    What was truly at issue, therefore, when the implied term was declared was the existence and nature of a right to bring a contract of employment of indefinite duration to an end at any time. Before Koefod, the presumption was one of yearly hiring. It will now be presumed that there is a right of termination which may be exercised at any time during the contract period, if the contract is not for a fixed term – i.e. if it is for an indefinite period. That much is prima facie implied as a matter of law. However, the prima facie right will not survive a contrary contractual intention. The true position is therefore to be searched for, in the first instance, in the express terms of the contract, not by reference to implications.

226    In New South Wales Cancer Council v Sarfaty (1992) 28 NSWLR 68, the New South Wales Court of Appeal considered the case of the Medical Director of the appellant. In his contract of employment, cl 7 provided as follows:

7.    Termination of Services:

(a)    Dismissal

The Medical Director may be removed from his office by the Council for misbehaviour or incompetence, unsuitability for the position, neglect of duties or for any other cause which, in the opinion of the Council, justifies such action.

227    The contract made no provision for termination on notice, and there was evidence that the Medical Director was assured, before the contract was signed, that his position had professorial tenure. Another clause provided he would retire at age 65 but might be annually re-appointed to age 70. His services were terminated on notice when his position was made redundant.

228    Gleeson CJ and Handley JA said (at 74-75):

It is now well-established that, as a general rule, if the parties to a contract of employment make no provision as to the circumstances in which it may be brought to an end, the law will imply a term to the effect that the contract is terminable by either party upon reasonable notice to the other: Halsbury’s Laws of England, 4th ed, reissue, vol 16, par 288; Freedland, The Contract of Employment (1976), chapter 5 at 142 et seq; Richardson v Koefod [1969] 1 WLR 1812; [1969] 3 All ER 1264. In the last-mentioned case, Lord Denning MR (at 1816; 1266) said: “... In the absence of express stipulation, the rule is that every contract of service is terminable by reasonable notice.”

That proposition, it may be observed, is somewhat elliptical. It is one thing to say that when a contract of employment is silent on the matter of its duration the law will imply a term that it may be terminated by either party on reasonable notice. Even in that case there may be room for disagreement as to whether the implication is to give business efficacy to the contract, or whether it is a legal incident of a contract of employment. However, some of the speeches in McClelland go further and indicate that, even where a contract of service contains some express provisions relating to termination, the parties will be taken to have intended that it may also be terminated on reasonable notice unless the language they have chosen evinces a clear intention to the contrary. Other things being equal, the courts have shown a strong inclination to impute such an intention to the parties. Even so, as McClelland shows, where, as in the present case, the parties have expressed detailed provisions as to the right of either party to terminate, it is ultimately a question of construction as to whether they intended those provisions to be comprehensive. If they did, that intention will prevail and there will be no implication of a right to terminate on reasonable notice.

229    Their Honours found that the contractual provisions, upon their proper construction, excluded any right to terminate on notice. The case is an example of a contract which “evinces a clear intention to the contrary” of an implied term of reasonable notice, without in terms excluding such a term.

230    In Holt v Musketts Timber Sales Pty Ltd [1994] FCA 137; (1994) 54 IR 323, Northrop J found that a term for termination on reasonable notice was not implied into a contract of employment when the Industrial Relations Act 1984 (Tas) made provision for contracts of that class (where wages were payable weekly) to be terminated on a week’s notice. It appears that his Honour took the view that a different implied provision would trench upon that reciprocal right, saying:

... What is of importance is that, on its face and in law, subsection 47(2) confers a right on an employer, and for that matter an employee, to terminate a contract of employment by giving one week’s notice if wages are payable weekly. ...

231    The full terms of s 47(2) and (3) were:

(2)    Subject to subsection (3) a term or period of service of employment to which this Division applies that is of indefinite duration is terminable by either party by –

(a)    a week’s notice, if the wages are payable weekly;

(b)    a fortnight’s notice, if the wages are payable fortnightly; or

(c)    a month’s notice in any other case.

(3)    Subsection (2) does not apply in relation to the termination of a term or period of service of employment of an employee on account of his serious and wilful misconduct.

232    Similarly, in a case before the Supreme Court of Tasmania (Full Court), Australian National Hotels Pty Ltd v Jager (2000) 9 Tas R 153 (“Jager”), Evans J (with whom Underwood and Crawford JJ agreed) said (at 168):

33        In the face of s47(2), a term cannot be implied into the respondent’s contract of employment requiring the appellant to provide the respondent with reasonable notice of its termination. In [sic: the] result, the appellant did not breach a term of the contract when it provided the respondent with six months’ pay in lieu of notice of the termination of his employment. That payment was in excess of the appellant’s obligations to the respondent, pursuant to s47(2). ...

233    In Brennan v Kangaroo Island Council (2013) 120 SASR 11 (“Brennan”), the Supreme Court of South Australia (Full Court) also declined to imply a term of reasonable notice where an award applied, independently of the contract of employment, and prescribed a period of notice.

234    Jager and Brennan were criticised in written submissions for the employees on the basis that the two Full Courts misunderstood the difference between implications of law and implications of fact. In my view, the criticism is misplaced. The essential point, applicable to both forms of implication in the current circumstances, is that there was no gap to be filled by the implication.

235    Those various approaches (bearing in mind the statutory source of awards) are consistent with a general statement of principle by the majority in Byrne v Australian Airlines Limited (1995) 185 CLR 410 (“Byrne”) at 422-423:

... In the absence of any provision in the award and of any express provision in the contract of employment the law would regard it as a legal incident of the contract that it should be terminable upon reasonable notice or summarily for serious breach. ...

(Emphasis added.)

236    The minority judgment in Byrne said (at 449-450):

... terms of this kind, although treated as implied by law, may be excluded by express provision made by the parties and also as a result of inconsistency with terms of the contract. The result is that, even if treated as rules of law, they only apply in the absence of an expression of contrary intent.

(Emphasis added.) (Footnote omitted.)

237    In most cases there will be no practical difference arising from the two formulations as to their particular effect concerning contracts of employment. In each case the possible implication is, in my respectful view, secondary, subordinate and tied to questions of necessity in order to make the contract effectively operative. The implied term of reasonable notice does not represent the imposition of a judicial rule or standard. The courts have not set out to rewrite individual contracts of employment.

238    In the present appeals, the question is whether (as the employees submit) a term requiring reasonable notice may be implied into a contract and co-exist with a provision giving rights of termination on specified periods of notice. In my view, such a term of reasonable notice cannot be implied in such a circumstance. It would derogate from existing contractual rights. It would be inconsistent with express terms of the contract. It must be regarded as excluded.

Quinn v Jack Chia

239    The primary judge was urged to, and did, apply what were termed the “Quinn principles”, derived from the approach taken by Ashley J in Quinn v Jack Chia (Australia) Ltd [1992] 1 VR 567; (1991) 43 IR 91 (“Quinn”). It is important to examine what was actually decided in that case, and the place it occupies in the distillation and explanation of relevant legal principles in this case.

240    Quinn concerned the employment of an assistant to the construction manager at a large building project. The employee was employed pursuant to a letter of engagement providing for one month’s notice of termination on either side. Later in the same year, the employee assumed the role of the construction manager for about five months and then was appointed to a role as construction manager for the project and also as a general manager – construction for the whole group. He was also appointed to the boards of two of the construction companies involved in the project.

241    Ashley J’s findings are summarised in the headnote to the report of the case (so far as here relevant) as follows:

(1)    It is a question of fact as to whether a change in duties amounts to a termination of the contract of employment with a new contract supplanting the old contract of employment or, alternatively, whether it amounts to a variation of the original contract.

(2)    Where an employer and employee agree to an alteration in the employee’s duties and responsibilities which is profound, a court should be more ready to hold (unless the original contract of employment provided for the contingency) that a new contract has replaced the old or at least that the old contract, as varied, contained terms objectively appropriate to the new relationship created.

(3)    In this case, the change to the plaintiff’s situation in August 1985 was exceptional, far reaching, not within the original contemplation of the parties and not comprehended by the contract initially made between them; and it gave rise to a new contract replacing the old contract rather than merely a variation of the old contract.

(4)    The issue of what terms are contained within the new contract is a matter of fact. In considering whether a term should be implied and, if so, what that term should be, the court should determine the presumed intention of the parties by an objective evaluation of the circumstances.

(5)    The term in the old contract of employment as to the notice of termination should not, as a matter of course, be imported into the new contract.

(6)    In the circumstances, it was inappropriate to imply a term that the contract was terminable by the employer at will.

(7)    In the circumstances, there was an implied term of the contract which was entered into in August 1985 which required the giving of reasonable notice by the defendant.

(References omitted.)

242    The reference at (6) was to an argument by the defendant that, not only should a term of reasonable notice not be implied, but rather it should be implied that employment was terminable at will, and without notice.

243    The plaintiff’s case about the start and duration of the contract of employment in effect when he was dismissed was put in a number of alternative ways:

(1)    A contract for 10 years made in January 1985 (when the plaintiff first commenced employment with the defendant).

(2)    A contract made in January 1985, with an implied term that the plaintiff was entitled to receive reasonable notice of termination by the defendant.

(3)    A contract made in April 1985 (when the plaintiff de facto assumed the duties of the construction manager), with an implied term that the plaintiff was entitled to receive reasonable notice of termination by the defendant.

(4)    A contract made in August 1985 (when the plaintiff was formally appointed as construction manager for the project and general manager – construction for the group), with an implied term that the plaintiff was entitled to receive reasonable notice of termination by the defendant.

244    The first alternative was rejected. The second alternative was rejected on the following grounds:

In my opinion, there is no substance to the second way that the plaintiff put his case. That presupposes the existence of an implied term inconsistent with the written clause dealing with termination. I see no place for the implication of a term such as that for which the plaintiff contends.

245    Ashley J considered the third and fourth alternatives together and concluded:

I have come to the conclusion that the change to the plaintiff’s situation in August 1985 was exceptional, far reaching, not within the original contemplation of the parties and not comprehended by the contract initially made between them; and that it did give rise to the institution of a fresh contract of service between the plaintiff and the defendant rather than merely a variation of that earlier agreement. In these circumstances I do not deal with the respective submissions relating to the April 1985 situation.

and:

I have concluded that the original contract between plaintiff and defendant was replaced rather than varied not simply by taking the position that any change in position and salary not contemplated by the original agreement necessarily requires the conclusion that a new contract has been set up, but rather by focussing on the circumstance that a change of great magnitude in the relationship between the parties was effected as at August 1985. In my opinion, a new and very different employment relationship then arose; and it is inapposite to describe it as involving no more than a variation of the earlier agreement between the parties. No reason in law was suggested why the parties could not by a parol agreement discharge the original contract (which was partly written and partly oral) and replace it with another.

246    Those were all findings on the facts, based on the objective intent to be attributed to the parties by reference to their conduct.

247    Then Ashley J dealt with what term the new contract contained as to its termination. The competing contentions were summarised as follows:

Neither counsel contended, if a new contract was brought into existence in August 1985, that some term as to notice should not be implied. The debate centred on the content of that term. Mr. Houghton argued that the old term as to notice was carried into the new contract, there being no agreement of the parties otherwise. As an alternative position he contended that, in the absence of an express term to the contrary, the term to be implied was that the employer could terminate the plaintiff’s employment at will. Mr. Magee, for the plaintiff, contended that a term requiring that the employer give “reasonable notice” should be implied – it then being a question of fact what “reasonable notice” required in the particular case.

248    Ashley J rejected, unsurprisingly with respect, the contention that the contract was simply terminable at will. Ashley J gave no specific reasons for saying that the new contract was terminable on reasonable notice, although that was a perfectly conventional and, with respect, appropriate conclusion based on his factual findings. His Honour said only:

... I have, as I say, the clear impression on a consideration of all the evidence before me that termination of the contract entered into in August 1985 required the giving of reasonable notice by the defendant.

(I have not been able to detect an earlier conclusion to this effect in the judgment.)

249    With respect to those who have a different view, I do not see in this judgment any new statement of principle, and I doubt that Ashley J was intending to express one rather than applying well established contract and employment law principles to the facts before him. Those facts appear to have been fairly striking.

250    In He v Lewin (2004) 137 FCR 266, Gray and Mansfield JJ said (at 282-283):

Quinn is an example of the application of a well-established principle. The principle is that, where a contract of employment does not contain a term fixing the length of notice required for termination of that contract, usually there will be an implied term to the effect that the contract is terminable on reasonable notice. …

251    I respectfully agree with their Honours’ observations. The reference to the absence of a relevant term in the contract should be noted.

252    What then of other authorities which have considered the matter of variation of duties?

253    In Brackenridge v Toyota Motor Corporation Australia Ltd (1996) 142 ALR 99, an employee had been unilaterally demoted. That was found to discharge the previous contract but for other reasons (wilful misconduct justifying termination) termination without notice was found to be lawful.

254    Where, however, a mutual intention is to be attributed to contracting parties, different considerations come into play. In Tallerman and Company Proprietary Limited v Nathan’s Merchandise (Victoria) Proprietary Limited (1957) 98 CLR 93, Taylor J said (in the passage later approved and often cited):

... It is firmly established by a long line of cases ... that the parties to an agreement may vary some of its terms by a subsequent agreement. They may, of course, rescind the earlier agreement altogether, and this may be done either expressly or by implication, but the determining factor must always be the intention of the parties as disclosed by the later agreement. ...

255    Then, in Dan v Barclays Australia Ltd (1983) 57 ALJR 442; 46 ALR 437, Wilson and Dawson JJ said (at ALJR 448-449; ALR 448):

... Variation of an existing contract, whilst it in one sense always gives rise to a new contract, does not always result in a substituted contract which, in order to operate, must necessarily rescind the contract which is varied. Variation may take the form of rescission of some of the terms of an existing contract but if that is to have the effect of rescission of the whole contract, the rescission must be express or by necessary implication and the determining factor must always be the intention of the parties as disclosed by contract when varied. See Tallerman & Co. Pty. Ltd. v Nathan’s Merchandise (Victoria) Pty. Ltd., above, per Taylor J. at pp. 143-144.

256    In Commissioner of Taxation of the Commonwealth of Australia v Sara Lee Household & Body Care (Australia) Pty Limited (2000) 201 CLR 520, the majority judgment said that Taylor J’s observations accorded with principle and authority.

257    The search, accordingly, in a case where it is said that a contract of employment has been replaced in an ongoing relationship of employment (or even that its terms have been varied), is for an imputed mutual intention that such a change in the contractual landscape has occurred.

258    In Easling v Mahoney Insurance Brokers (2001) 78 SASR 489 (“Easling”), Doyle CJ said:

8        To my mind, a court should not too readily assume that a change in working arrangements, or in the duties of an employee, involves either a variation to an existing contract, or the making of a new contract. In my respectful opinion Murray CJ stated the matter too widely when he said in Federated Mutual Insurance Co of Australia Ltd v Sabine [1920] SALR 284 at 292:

“The true view, I think, is that unless the original agreement gave the employer the right to the services of the employee in any capacity he chose to direct from time to time there would be a new employment whenever a change was made in the duties to be performed, and it would be a question of fact in each case what the terms of the new employment were.”

9        In my respectful opinion the issue is whether the original agreement gives the employer the right to make the changes that have been made, and if it does, then neither a varied contract nor a new contract arises.

10        The application of the relevant principles to the facts of a particular case will often be difficult. In some fields of employment changes in the working arrangements and tasks performed will occur gradually. The application of the relevant principles of law may be difficult in such a case.

259    In the same case, Bleby J found that there had been no unilateral change of duties and hence no repudiation of the contract to support a claim for damages. His Honour said:

157        It cannot be said, in the light of the correspondence and of the appellant’s oral evidence, that as at 12 February 1999, when the appellant terminated the contract, there had been any enforced change of duties against the appellant’s will, such as to amount to a repudiation of his contract of employment. The respondent had expressed a repeated willingness to discuss such changes with the appellant, and indeed to seek his advice as to how the restructuring could best be effected. He himself had expressed a willingness to undertake a different range of duties, and had frankly acknowledged in evidence that the prospect of some further change was not a major concern to him.

260    Even with changes to duties being made at the instigation or direction of an employer, there may be no basis for complaint about imposed changes. In Spartalis v BMD Constructions Pty Ltd (2014) 120 SASR 575, a Full Court of the Supreme Court of South Australia referred to the observation of Doyle CJ in Easling, and to Quinn, and said:

26        A court should not too readily find that a change in working arrangements or in the duties of an employee entails either a variation to an existing contract or the making of a new contract. If the original agreement gives the employer the right to make the changes that have occurred, there will be neither a variation of contract nor a new contract.

(Footnotes omitted.)

261    Whether changes occur incrementally and slowly, or more rapidly pursuant to an intended program of development and expansion, unless it can be said that an employer has breached a contract by an unjustified and unlawful attempt to impose change (in which case the employee has the normal remedies for breach or repudiation) it would not be readily inferred, in my view, that the entire contract of employment has been replaced by a new one. In the case of a comprehensive written contract dealing with a range of important matters, including but by no means confined to, methods and occasions for termination of the contract, that could have drastic and potentially damaging results for both parties. Such an intention should not lightly be imputed to them in a continuing relationship.

262    A suggestion of consensual variation raises different issues. The variation suggested must arise directly from the altered circumstances and respond to them in a way which can be objectively attributed and imputed to both parties. The test for implication of the term, or the implied abandonment of an existing term, leaving a void to be filled, is not supplied by the view of a court that the change would itself be reasonable. Unless it can be said that abandonment of a term represents a common intention it may not be assumed in my respectful view. A fortiori, the altered circumstances are consensual; so must be the contractual variation, if any.

263    I shall return to apply those observations more directly to the present appeals.

The effect of the redundancy policy

264    Mr Lawson, Mr Poulos and Ms Murphy were each retrenched, on different dates. SGB had a redundancy policy, the terms of which applied to those retrenchments. The parties agreed that the terms of the redundancy policy were incorporated into each of the individual contracts of employment. As I said earlier, I propose to accept that joint position for present purposes, even though I regard it as questionable both factually and legally.

265    Mr Lawson, Mr Poulos and Ms Murphy each claimed that upon retrenchment they were entitled to pay in lieu of notice longer than the five months’ pay (six months in Ms Murphy’s case) actually received. Mr Lawson claimed to be entitled to 18 months’ pay in lieu of notice and Mr Poulos and Ms Murphy claimed to be entitled to 12 months’ pay in lieu of notice.

266    The primary judge recorded that:

•    when Mr Lawson (as well as Messrs Wittenberg, Smith and Poulos and Ms Murphy) were retrenched, they received a payment on account of notice, and a separately calculated redundancy payment which was expressly calculated to be exclusive of notice. The redundancy payment component was determined by reference to the calculations set out in the HR Express Redundancy Policy, less any amount in lieu of notice. Working notes accompanying the calculations refer to the notice period as generally being six weeks in accordance with the Bank’s Enterprise Agreement and refer to the payment being made in lieu of the notice period. Additional reference is made to a further stipulated amount of notice which is described as “a special arrangement we have in place for senior managers and above, and is based on your grade”; ...

267    The HR Express Redundancy Policy (admitted to apply contractually to Mr Lawson, Mr Poulos and Ms Murphy) provided:

Retrenchment

If you’re a permanent staff member and you’re advised that your position is redundant, you are retrenched when you can’t be redeployed to another position in the St. George Group. Your manager talks to you and gives you a letter setting out your redundancy payment, your last working day and details of the company that you can contact if you want outplacement services.

Retrenchment payment

Except for staff covered under a Service Agreement, if you’re retrenched you receive a retrenchment payment, which is calculated as follows:

•    6 weeks pay in lieu of notice

•    7 weeks pay for your first completed year of service

•    4 weeks pay for each subsequent year from 2 to 10 completed years of service

•    3 weeks pay for each subsequent year from 11 to 16 completed years of service

•    2 weeks pay for each subsequent year to a maximum of 25 completed years of service including the first year

PLUS

•    1 weeks pay for each year over 45 years of age

PLUS

•    Pro rata pay for each completed month of work

To a maximum of 85 weeks (90 weeks for staff over 45 years old) pay including the 6-week notice period.

268    The calculations made for each employee provided considerably more than six weeks’ pay in lieu of notice in accordance with the policy. The employees argued that the provision of the policy for six weeks’ pay in lieu of notice was only an element in the calculation of severance pay, and that reasonable notice was required in addition. Westpac argued that no implication could be made in the face of the express (incorporated) contractual provision.

269    On the assumption on which this aspect of the case was conducted, in my view, Westpac’s argument must prevail, as the primary judge concluded.

270    The policy stated the payments to be made to accompany the retrenchment, which resulted from position redundancy coupled with no redeployment. It is, in my view, a comprehensive statement of the (at least minimum) financial response to that circumstance which is effective, as an agreed contractual provision, to exclude the possibility of any implication of the kind argued. Those provisions do not, of course, prevent the further amounts of pay in lieu of notice actually provided, but they do, in my view, defeat the claims for even higher amounts as a matter of contractual entitlement.

Mr Lawson’s contract

271    Mr Lawson was employed in 2005 under a written contract which provided for four weeks’ notice. In the proceedings, it was argued that there had been such changes to his duties that a new contractual obligation had come into existence that he be given reasonable notice on termination. I discuss such an argument below in relation to Mr Wittenberg, where it was upheld by the primary judge.

272    In Mr Lawson’s case, the contention did not require examination because any suggestion to that effect was defeated by the agreed contractual operation of the redundancy policy.

273    Having regard to the position taken by the parties to that issue, in my view the primary judge’s findings on that issue were correct and should not be disturbed.

Calculation of severance pay

274    All of the employees (except Mr Smith) contended that the calculation of severance pay should have included salary plus bonus or incentive payments (calculated pro rata to that point if necessary) rather than base salary only, which was actually used for the calculations.

275    I agree with the conclusion of the primary judge that only base salary is referred to in the calculation.

276    It is important to recognise that in each instance the relevant calculation refers to a particular number of “weeks pay”. In my view, that refers to the regular receipt of salary on a weekly (or fortnightly or monthly) basis. It does not require the reduction of an annual (or bi-annual) payment to a notional weekly figure. Nor does it suggest a notional calculation of some amount for bonus which has not become payable, or which requires a projection forward of a previous year’s bonus. Neither of those two possibilities refer to earnings: they each involve notional calculations.

277    By contrast, a week’s pay represents that rate of salary actually being received with that regularity at the time of retrenchment. Those aspects of the appeals should be dismissed.

Mr Wittenberg

278    Westpac appealed the finding of the primary judge that Mr Wittenberg was entitled to nine months’ notice or pay in lieu, rather than the six months referred to in his service agreement made three years before termination of his employment. The primary judge found as follows:

1159    Having regard to the Quinn principles, I consider that the changes to Mr Wittenberg’s role and duties at SGB were of a sufficient magnitude to warrant a finding that the express term as to notice in his service agreement was either replaced or varied by a requirement that he be given reasonable notice. …

279    It is not clear what view the primary judge reached about the balance of the service agreement but, presumably, the primary judge formed the view, (as the approach in Quinn was followed) that a new contract had replaced the old.

280    That would entail serious, and in my view unwarranted, disruption to the parties’ contractual arrangements. On the other hand, I see no basis upon which only the contractual term about notice could be expunged, leaving the balance of the service agreement still operative. Such a course could not be taken just to make room for an implied term and I do not otherwise see an adequate foundation for it.

281    Relevant parts of Mr Wittenberg’s service agreement include:

2.1    Engagement

The Company will employ the Executive as Head of Debt Capital Markets of the Company and the Executive will serve the Company (or, if directed by the Company, one or more Group Members) in accordance with this Agreement during the Term.

2.2    Term

This Agreement will continue from the Operative Date until it is terminated by either party under clause 8.

…

3.1    Position

The Executive will perform the duties of Head of Debt Capital Markets of the Company or any other position:

a)    as may be directed by the Company; or

b)    that may be agreed in writing between the Company and the Executive from time to time.

3.2    Duties of Executive

During the term the Executive will do the following:

…

b)    faithfully and diligently perform the duties and exercise the powers consistent with his office that may be assigned to him by the Company from time to time;

…

8.2    General Termination

a)    The Company may at any time and for any reason terminate the Executive’s employment by giving 6 (six) months notice to the Executive and by paying to the Executive on the date on which that notice period expires the payments specified in clause 8.4. The Company may at its discretion choose to make an equivalent payment in lieu of part or all of the notice period.

b)    The Executive may at any time and for any reason resign by giving one month’s notice to the Company.

282    There were many other provisions of an important nature. Some dealt with remuneration, reimbursement, superannuation and like matters to the benefit and protection of Mr Wittenberg. Some dealt with important matters of real significance to SGB such as confidentiality, best endeavours, no soliciting and no competition both during and after employment. In my view, there would be no reason to think that such important matters would cease to apply. Whatever view might be taken of the significance of any changes to Mr Wittenberg’s duties, it seems to me that at the highest a variation of the contract, rather than its replacement, arose for consideration.

283    Any variation (like any notion of replacement or novation) would depend upon an intention imputed to the parties, but before any consideration of that possibility was appropriate it would be necessary to establish that Mr Wittenberg (and SGB) were operating outside the scope of his executed service agreement. I will deal with that possibility shortly.

284    However, even if it could be concluded that new or altered duties fell outside the service agreement it would inevitably be concluded that such arrangements had Mr Wittenberg’s consent and co-operation and were rewarded by the continued receipt of a substantial salary and other inducements. There would be no reason to see, in any such circumstance, a mutual desire to abandon the provisions of cl 8 in favour of some unspecified implication. Such an implication may well have fettered Mr Wittenberg’s own discretions. Periods of notice are usually mutually applied. He had the advantage of a right of termination on one month’s notice, as against receipt of six months’ notice.

285    On the findings made by the primary judge, therefore, that there had been some unanticipated or unforecast change in overall duties, in my view, it should not be concluded that cl 8 had become inoperative. It should certainly not be concluded that only cl 8 had become inoperative.

286    More fundamentally, however, I see no reason to conclude that any alteration to particular duties fell outside the scope of the service agreement in any respect.

287    As I pointed out earlier, Mr Wittenberg continued to occupy the position to which he was appointed. It was a new role. Some development of the role was anticipated and forecast. As that was communicated to him before he took the job, it must be assumed he agreed. Moreover, the service agreement was quite specific – he was to serve as directed, either in that position or some other. His duties were those assigned by SGB. They were the contractual promises he made in return for the reward he bargained for. It was open to him, if he felt unduly burdened, to take advantage of the modest period of notice required of him by cl 8.

288    In my respectful view, there was no basis to set aside the operation of cl 8 or to imply any other term. In particular, I do not agree that Quinn has anything to say about Mr Wittenberg’s circumstances. Quinn was a case of a very different kind.

289    I would therefore uphold this appeal.

Repudiation

Mr Moore

290    Mr Moore’s case about repudiation requires attention to the circumstances of his secondment to Westpac, and the ultimate termination of his employment.

291    A number of SGB employees were seconded to Westpac from 1 December 2008. On the evidence, the secondments were offered and accepted on the basis of SGB’s then existing policy about secondment. There can be no doubt therefore that, for the purpose of those particular secondments, the parties proceeded upon agreed conditions which could, if necessary, be contractually enforced.

292    The letter to Mr Moore, on 28 November 2008, advising him of his secondment stated:

During the secondment the employment policies of your employer would continue to apply to you. Some additional policies may also apply, for example, compliance policies related to the portion of work that you do on secondment. All other terms and conditions of your employment continue to apply, as varied by this letter.

293    The secondment policy applicable at that time provided:

A secondment is a temporary transfer or promotion to another role for a minimum period of 6 weeks and a maximum period of 12 months. No extensions beyond 12 months are possible. Only permanent staff can be seconded to another role.

Secondments can be advertised or negotiated directly with individual staff members.

If you are seconded to another position you must be informed of and agree to the terms and conditions of the secondment in a secondment letter of offer.

Secondment terms and conditions

•    You are expected to work the hours and work pattern that apply to the secondment role.

•    You are paid the minimum salary (non-packaged staff) or TEC/TR (packaged staff) for the grade of the position you are seconded to and are automatically paid the appropriate rate from the start date of the secondment.

•    Any additional allowances that apply to the secondment role are paid from the start date of the secondment and any allowances from your original role stop from the start date of the secondment.

•    You must return to your original position, salary and conditions when the period of the secondment ends, unless you are appointed to the role to which you were seconded, or you are moved to another role.

•    St. George can vary secondment end dates within the agreed timeframe for any reason by giving you one week’s notice, or by setting a new end date by mutual agreement.

294    From 17 September 2009, some minor changes were made to the first three paragraphs, the balance of the 2008 policy was omitted and, instead, a new provision was added to the policy as follows:

This policy does not apply to employees who are employed in a permanent position following the St. George/Westpac merger and who, as part of that permanent position, undertake some or all of their duties for another Westpac Group company. This is the case even if the duties which the employee provides for another Westpac Group company have been described as a ‘secondment’. This is because this policy is limited to ‘secondments’ under which an employee is not undertaking duties as part of their permanent role, but rather is seconded to another role on a temporary basis.

295    These changes could have no application to Mr Moore’s secondment which commenced on 1 December 2008. That is to say, it could not exclude the secondment policy from applying in its earlier terms in accordance with the letter of 28 November 2008, and his agreement.

296    The result was that SGB could not unilaterally extend the secondment which commenced on 1 December 2008 although undoubtedly it could suggest it and Mr Moore could agree to it if he chose to do so. Accordingly, it was open to the parties to agree a subsequent secondment if they wished.

297    On 26 November 2009, Mr Moore wrote to SGB. The letter said, in part:

As you know I was seconded by St George to Westpac pursuant to a letter dated 28 November 2008 and in accordance with St George’s secondment policy.

The letter of 28 November noted that I would continue to be employed by St George and subject to all its employment policies and other terms and conditions of my employment with St George.

The secondment policy expressly limits the duration of any secondment to no more than twelve months.

My secondment commenced on 1 December 2008 and accordingly it must end on 30 November 2009.

I am writing to you for the purpose of notifying St George that I will be reporting to St George at its Treasury Operations for duty on 1 December 2009, at 55 Market Street Sydney, or to such other location as I am directed to before that date.

…

298    Mr Moore undoubtedly was not asking solely on his own initiative. A letter in identical terms was sent by Ms Lavars to SGB on the same date.

299    The reply to Mr Moore on 30 November 2009 (and to Ms Lavars a few days earlier) seemed to treat the concept of secondment as non-existent, unimportant or irrelevant. It simply directed him to continue to perform “the role to which you were appointed to on an ongoing basis by letter dated 28 November 2008” – i.e. a role at Westpac although still employed by SGB. The letter was written by a Westpac officer, although on SGB letterhead.

300    Mr Moore chose a dubious strategy. He continued to report for work as directed but then, on 24 December 2009 he wrote directly to Westpac stating:

I have been an employee of St George Bank (“St George”) since 12 September 1994. On or around 28 November 2008, as part of my employment with St George, I was seconded to Westpac Institutional Bank in a “new role” of a proprietary trader. The secondment ended on the anniversary of my appointment to that role in accordance with the St George Secondment Policy.

I have not been returned to the position that I held at St George prior to my secondment to Westpac as the St George Treasury has ceased its operations. Consequently the position I held at St George prior to my secondment no longer exists and has been made redundant.

As my original position has been made redundant I can only be re-deployed in St George to a comparable position. As St George Treasury no longer exists, I cannot see how I can be re-deployed at St George. I have not been offered a comparable position at St George.

…

St George Bank cannot transfer my contract of personal service with St George to Westpac without my consent.

I accept the termination of my employment by St George Bank by way of redundancy and expressly reserve all of my rights and entitlements from the termination of my employment with St George.

…

I assume that your direction, on behalf of Westpac, to attend for work at 275 Kent Street, Sydney is to work as a Westpac employee.

As a consequence of the attitude adopted by St George in relation to my termination and redundancy entitlements, I find myself in a position where my financial obligation and family commitments required me to accept the offer of employment as Director FX Derivatives and Risk with Westpac Institutional Bank. I would be pleased to receive a Contract of Employment in due course.

On this basis, that is as an employee of Westpac Institutional Bank, I will be attending 275 Kent Street Sydney and look forward to working as a valued member of Westpac.

301    I will assume that it was open to Mr Moore, if he wished, to accept the repudiation of his contract of employment by SGB which, as he said, could not second him against his will and was otherwise not providing him with work, even though he had not made such an election immediately. However, it was misconceived to imagine that he could unilaterally force or create an employment relationship with Westpac.

302    Evidently, Mr Moore was about to take some leave over the Christmas / New Year period. On the same day, SGB replied (again, a Westpac officer on SGB letterhead) saying:

We refer to your letter dated 24 December 2009 and to our previous communications with you.

We again confirm that your employment with St George is ongoing and that there has been and will be no change to the role to which you were appointed by letter dated 28 November 2008, namely Proprietary Trader. We also confirm that your employment will continue to be subject to your existing St George terms and conditions of employment.

For the avoidance of doubt, we also confirm that:

*    your position has not been made redundant and accordingly St George will not be offering you a redundancy;

*    as you are still employed by St George, Westpac will not be providing you with a new contract of employment; and

*    on your return to work on 11 January 2010, you should attend for work as usual at 275 Kent Street, Sydney.

We look forward to continuing to work with you as part of the St George team.

303    It has not been suggested that those communications were not written on behalf of SGB, and with its authority. In my view, Mr Moore was entitled to reject SGB’s position if he wished to do so. However, he did not.

304    Rather, he attended for work at Westpac from 11 January 2010 as directed, with accompanying payment of wages and performance of duties. It must be accepted that Mr Moore understood he was still employed by SGB, and not by Westpac. His pleaded case is consistent only with that view.

305    Mr Moore’s performance was not regarded as adequate. He was counselled and in due course terminated on notice on 11 May 2010.

306    His case is that he is entitled to severance pay based on the redundancy of his SGB position, and the repudiation of his contract of employment by SGB by failing to return him to his previous position or retrench him in response to the redundancy of that position.

307    As I have said, in my view Mr Moore could not be compelled by SGB to remain at Westpac in reliance on the letter of 28 November 2008. That secondment was at an end by 1 December 2009 and could not be extended without Mr Moore’s agreement. By directing him to work at Westpac, regardless of his agreement and against his wishes, SGB repudiated its obligations to him under his contract of employment. He could have accepted the repudiation unilaterally. I will assume he could have done so on 24 December 2009, or on 11 January 2010.

308    I will assume also, as the parties agreed that the redundancy policy had contractual force, that Mr Moore could have sued for severance pay.

309    However, in my view, the conclusion is irresistible that Mr Moore elected to affirm the contract of employment with SGB, rather than to accept its repudiation. He retained a theoretical right to sue for damages, but any right to sue for redundancy pay could not survive his ongoing employment, followed by lawful termination on other grounds.

310    In my view, his appeal on this issue must be dismissed.

Ms Lavars

311    Ms Lavars also claimed the benefit of severance payments under the redundancy policy. In that context she joined in the argument about the additional right to reasonable notice and the calculation of severance pay to include bonus. For the reasons I have earlier given, those arguments should be rejected.

312    Ms Lavars was not retrenched. She was dismissed without notice for failing to attend work after her secondment had ceased. The primary judge found that she was entitled to be retrenched. For the reasons I have discussed in relation to Mr Moore that was, with respect, the correct conclusion. SGB was not entitled to unilaterally extend the secondment. Ms Lavars was entitled to resist. When SGB dismissed her it repudiated her contract.

313    Ms Lavars was awarded damages which included severance pay – which I have concluded was correctly calculated. Her cross-appeal must be dismissed.

Notices of contention

314    In a number of appeals and cross-appeals notices of contention were filed either by Westpac or by individual employees. In light of the earlier discussion it is not necessary to deal directly with any of those notices of contention and to consider whether aspects of the judgment(s) should be upheld for reasons other than those expressed by the primary judge.

Costs issues at first instance

Costs to reflect Mr Wittenberg’s partial success

315    In the proceedings at first instance Mr Wittenberg’s costs to reflect the findings of the primary judge in his favour (where he enjoyed considerably more success than on the appeal) were reduced by 25% for reasons explained by the primary judge as follows:

75    … I consider that an allowance should be made for Mr Wittenberg’s failed claims in deceit, misleading or deceptive conduct and negligence, for which exemplary damages were sought. These matters represented a substantial part of the proceedings and, in the case of his claim in deceit, involved most serious allegations of fraud and dishonesty which were without foundation. …

In those circumstances I think it would be inappropriate for Mr Wittenberg to have the whole of his costs at first instance but nevertheless some allowance should be made for the fact that he has had partial success after the appeal over the initial opposition of Westpac. I would award Mr Wittenberg 25% of his costs at first instance.

Ms Lavars’ costs in the light of an offer of compromise

316    The final issue arises in an appeal by Westpac against the verdict in favour of Ms Lavars. One aspect of this appeal was abandoned during the appeal itself – payment of deferred bonus to Ms Lavars of $80,000 for 2008/2009. However, a further issue remains.

317    The issue arises under further orders made by the primary judge dealing with issues of costs (see his Honour’s reasons in Murphy v Westpac Banking Corporation (No 2) [2015] FCA 266).

318    Under the orders made by the primary judge, Ms Lavars was awarded $371,917.16. That sum included interest of $106,628.71 (calculated from 4 December 2008 to 27 March 2015). Interest on damages up to 2 December 2011 (a date to be explained very shortly) would have been $44,355.87 and a total judgment (with interest) at that date would equate to $309,644.32.

319    If account is taken, also, of the concession by Westpac during the proceedings at first instance that the retention incentive payment should be made ($24,000 for Ms Lavars) and interest ($6,733.65 to that date – 2 April 2012 – or $6,074.31 to 2 December 2011), the total amount obtained by Ms Lavars was $402,650.81. At 2 December 2011, the total amount (with interest to that date) would have been $339,718.63.

320    On 2 December 2011, Westpac made an offer of compromise to Ms Lavars of $375,000 plus costs as agreed or assessed which she did not accept.

321    Rule 25.14(1) and (3) of the Federal Court Rules 2011 (Cth) provides:

25.14    Costs where offer not accepted

(1)    If an offer is made by a respondent and not accepted by an applicant, and the applicant obtains a judgment that is less favourable than the terms of the offer:

(a)    the applicant is not entitled to any costs after 11.00 am on the second business day after the offer was served; and

(b)    the respondent is entitled to an order that the applicant pay the respondent’s costs after that time on an indemnity basis.

...

(3)    If an offer is made by an applicant and not accepted by a respondent, and the applicant obtains a judgment that is more favourable than the terms of the offer, the applicant is entitled to an order that the respondent pay the applicant’s costs:

(a)    before 11.00 am on the second business day after the offer was served—on a party and party basis; and

(b)    after the time mentioned in paragraph (a)—on an indemnity basis.

Note 1:    Costs on an indemnity basis is defined in the Dictionary.

Note 2:    The Court may make an order inconsistent with these rules—see rule 1.35.

(Emphasis in original.)

322    The primary judge followed a judgment of North J in Merost Pty Ltd v CPT Custodian Pty Ltd (No 2) [2014] FCA 594 (“Merost”). In my respectful view, although it was appropriate to apply Merost as a matter of comity, that case was wrongly decided and should be overruled.

323    North J said:

7        On 23 July 2012 the applicant made an offer of compromise under r 25.14(3). It offered to receive $300,000 plus costs in satisfaction of its claim.

8        The applicant contends that these circumstances fall within the rule. The offer was to receive $300,000 plus costs. The judgment was for the sum of $312,339.42, being the award of $260,000 plus interest of $52,339.42. Consequently, the judgment is more favourable than the terms of the offer.

...

11        Under a rule such as r 25.14(3), when an offer is made and a judgment no less favourable is obtained, a rebuttable presumption in favour of indemnity costs is created. The prima facie position should only be departed from for proper reasons, which generally only arise in an exceptional case: see Port Kembla Coal Terminal Ltd v Braverus Maritime Inc (No 2) (2004) 212 ALR 281; [2004] FCA 1437 at [17] per Hely J; and Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 40 at [10] per Tamberlin, Finn and Sundberg JJ.

12        In its supplementary written submissions the respondent first contended that the reference in the rule to the “terms of the offer” means that the offer must be construed as at the time it was made. By this reasoning, as at 23 July 2012, the principal amount necessary to produce $300,000 after the addition of interest would have been about $280,000. The judgment sum of $260,000 was less favourable to the applicant and hence the rule did not require the respondent to pay indemnity costs.

13        There is however no warrant in the text of the rule to support this approach. What is required in this case is a comparison between the amount of the offer of $300,000 and the amount of the judgment of $312,339.42. On this analysis the judgment was more favourable than the offer which the applicant made.

14        Then, the respondent argued that if it had been required to accept the offer in order to avoid liability to pay indemnity costs it would, in effect, have been required to pay interest for a period after 23 July 2012 when the applicant would not have been out of its money. This result would be unjust. It conflicts with the principle that interest is designed to compensate a party for being held out of its money. Interest is not meant to be for punishment, and yet in the circumstances of this case, the respondent would have incurred punishment by having to pay interest in those circumstances.

15        The considerations advanced by the respondent do not justify departure from the prima facie entitlement of the applicant to indemnity costs. They do not provide proper reasons for departure from the ordinary operation of the rule. There was nothing exceptional about the position of the respondent. It was faced with an offer inclusive of interest. It had to assess the likely outcome of the proceedings. Part of the assessment was a calculation of the interest which would be payable on the judgment under s 51A(1) of the Act. In that exercise it miscalculated so that the judgment was more favourable to the applicant than the offer. This is an example of the ordinary circumstances in which the prima facie entitlement to indemnity costs arises.

16        Consequently the respondent must pay the applicant’s costs in accordance with the rule from 11.00 am on 25 July 2012 on an indemnity basis.

324    In my respectful view, the approach taken by his Honour does not compare like with like and the comparison is therefore not a proper one. It introduces haphazard possibilities arising from the conduct of the litigation and offers inducements to parties to prolong litigation to augment a verdict with increasing interest over time.

325    The comparison to be made is between the substantive amount of an offer and the substantive amount of a verdict, with interest only being taken into account to the same date in each case. Interest of this kind is, after all, just a method of preserving the value of a verdict between the occurrence of actionable loss and judgment.

326    I would overrule Merost, uphold this appeal and order that Ms Lavars must pay indemnity costs of the proceedings at first instance in accordance with r 25.14(1).

Costs of the appeals

Appeals generally

327    In all but two cases the costs of the appeals should clearly follow the result.

Mr Wittenberg

328    In Mr Wittenberg’s case although he has retained a partial judgment, so much was conceded in the notice of appeal. Each contested issue on the appeal has otherwise been decided in favour of Westpac. In those circumstances Westpac should have its costs of the appeal.

Ms Lavars

329    In Ms Lavars’ case Westpac’s appeal challenged an award of deferred bonus of $80,000 for 2008/2009 as well as raising the issue about indemnity costs which I would decide in its favour. The challenge to deferred bonus was only abandoned during the appeal.

330    The argument about indemnity costs was a short one where Ms Lavars had previous authority on her side.

331    In view of that mixed position I would make no orders as to the costs of this appeal.

Cross-appeals (Mr Wittenberg and Ms Lavars)

332    Each of the cross-appeals should be dismissed with costs.

Orders

333    I would make the following orders to give effect to the conclusions expressed above:

NSD 405 of 2015 Westpac appeal re Wittenberg / Wittenberg cross-appeal

(1)    The appeal be allowed.

(2)    The orders made in proceedings NSD 90 of 2010 on 27 March 2015 be set aside and in lieu thereof it be ordered that:

(a)    Judgment for the applicant be ordered in the sum of $60,000 plus interest on that amount from 27 February 2009 to 27 March 2015 at the rates prescribed by section 51A of the Federal Court of Australia Act 1976 (Cth).

(b)    The respondent pay 25% of the applicant’s costs of the proceedings in NSD 90 of 2010, as taxed if not agreed.

(3)    The respondent to the appeal pay the appellant’s costs of the appeal, as taxed if not agreed.

(4)    The cross-appeal be dismissed with costs, as taxed if not agreed.

NSD 406 of 2015 Westpac appeal re Lavars / Lavars cross-appeal

(1)    The appeal be allowed in part.

(2)    Order 5 made in proceedings NSD 31 of 2010 on 27 March 2015 be set aside and in lieu thereof it be ordered that:

(a)    The respondent pay the applicant’s costs of the proceedings on a party and party basis for the period up to and including 11.00 am on 6 December 2011.

(b)    The applicant pay the respondent’s costs of the proceedings on an indemnity basis for the period after 11.00 am on 6 December 2011.

(3)    There be no order as to the costs of the appeal.

(4)    The cross-appeal be dismissed with costs, as taxed if not agreed.

NSD 409 of 2015 Murphy appeal

(1)    The appeal be dismissed with costs, as taxed if not agreed.

NSD 410 of 2015 Lawson appeal

(1)    The appeal be dismissed with costs, as taxed if not agreed.

NSD 411 of 2015 Smith appeal

(1)    The appeal be dismissed with costs, as taxed if not agreed.

NSD 412 of 2015 Moore appeal

(1)    The appeal be dismissed with costs, as taxed if not agreed.

NSD 413 of 2015 Poulos appeal

(1)    The appeal be dismissed with costs, as taxed if not agreed.

Associate:

Dated:    14 March 2016

REASONS FOR JUDGMENT

MCKERRACHER J:

334    I have had the considerable advantage of reading in draft the reasons of Justice Buchanan. But for two minor qualifications, I most gratefully agree with his Honour’s reasoning, conclusions and proposed orders.

335    The two qualifications have no bearing on the conclusion as to the disposition of the appeal.

336    Buchanan J points to the fact that an entitlement for an employer to vary a policy from time to time would not usually require consent of an employee and, therefore, the ability to unilaterally vary the policy, tends to deny it the necessary quality of mutuality. There is force in this observation, but it must depend, in my respectful view, on the terms of the contract and the terms and nature of the policy concerned. As Westpac accepted that the redundancy policy had contractual force, and the case was conducted on that basis, that is not a concession with which I (like Buchanan J) would interfere. I accept, as Buchanan J did (at [76]) that the question of compliance by employer and employee with an employer’s policies raise difficult issues. I also accept that an obligation to comply with an employer’s policies, as adjusted from time to time, may be no more than normal incident of an obligation to carry out lawful direction by an employer. But in an appropriate case, with appropriate wording, accompanied by appropriate conduct such as tuition in relation to a particular policy, it may be, in my view, an appropriate construction that the parties are setting a mutual obligation of a contractual or promissory nature.

337    All the authorities recognise, as they must, that the question is to be answered by the objective theory of contract and there is certainly room for the argument that in the appropriate case, requirements for an employee to adhere to a policy does not engage a contractual obligation on the part of the employer. But in Romero the Full Court concluded that because employees had an obligation to comply with particular behavioural requirements of a sex discrimination and bullying policy, the employer undertook, in return, that in investigating non-compliance with the policy it would adhere to the methodology articulated in the policy. There was considered to be a mutuality of obligation in the method of applying what were extrinsic legal obligations over and above day to day employer/employee tasks. While such cases might not be common, it appears to me that the possibility must be left open having regard to the particular circumstances involved.

338    In any event, as noted, Westpac accepted in this case that that the relevant policy was contractual.

339    The second qualification pertains to the reliance argument in respect of the negligence or misrepresentation in the letter of 18 June 2008. (Which falls away for various reasons, including Westpac’s acceptance of the contractual claim.) For my part, I can comprehend the case which, as I understand it, was put on the basis that if the employees had known that the true position of the board was that bonuses would not be paid unless profit exceeded 10.1%, they would never have accepted the offers for employment based on bonuses being paid after profit exceeded 8%, (8% to 10% being the published target). This was said to be because they would know that attaining the higher profit figure was unrealistic and they would be left without any bonus prospects. Rather, they would have accepted other employment opportunities. There are a number of difficulties with a case being framed in this way. The most obvious reason the case failed on this point was the inability to show alternative prospects. There was no evidence on which a finding that there were alternative prospects could realistically be made for the reasons identified by Buchanan J and the primary judge. At [899] the primary judge said:

Moreover, I also accept Westpac's submission that the relevant applicants suffered no loss from their reliance on the misrepresentation in the letters. I am not satisfied that the value of the opportunities presented to each of them to obtain alternative employment outweighed the value of the opportunity which each of them would have had to forfeit in order to pursue alternative employment. That opportunity would have to take into account the benefits of continuing employment with SGB and the prospects of an ongoing career with that bank if the merger did not proceed or the possibility of long term employment with the merged entity if the merger was finalised.

340    Beyond contributing these brief remarks, I agree entirely with Buchanan J.

Associate:

Dated:    14 March 2016

REASONS FOR JUDGMENT

WHITE J:

341    Subject to one additional observation and two qualifications, I respectfully agree with the reasons of Buchanan J.

342    Buchanan J identifies a number of fundamental difficulties in the appellants’ claims of negligent misstatement in relation to the offer by SGB of an additional incentive payment. The primary Judge found that, by its letter of 18 June 2008, SGB had made the appellants an offer which, considered objectively, entitled them to the additional incentive payment on SGB achieving the lower earnings target. The appellants accepted that offer and ultimately received the payment for which the resultant contract provided. The appellants’ claim is that SGB owed them a duty of care requiring it to inform them that its Board had actually resolved on a different and less beneficial offer. In my opinion, it would be incongruous to conclude that an offeror owes a duty to inform an offeree, when making an offer or at least before the offer is accepted, that it had in fact intended to make an offer which was less attractive to the offeree. It would be even more incongruous in this case because the alleged duty would, in effect, require the offeror to inform the offeree of a mistake in its offer about which it was unaware. This would be absurd.

343    Even if a duty of care with the alleged content was owed, the primary Judge found that the appellants had not proven loss or detriment arising from its breach. That conclusion, for the reasons given by Buchanan J, has not been shown to be wrong.

344    The first qualification is this. Buchanan J notes that attempts in employment contracts to give an employer’s policies contractual effect can give rise to difficult issues, and he addresses some of the questions which arise. His Honour refers to the judgments of this Court in Riverwood International Australia Pty Ltd v McCormick [2000] FCA 889, (2000) 177 ALR 193; Goldman Sachs JBWere Services Pty Ltd v Nikolich [2007] FCAFC 120, (2007) 163 FCR 62; and Romero v Farstad Shipping (Indian Pacific) Pty Ltd [2014] FCAFC 177, (2014) 231 FCR 403.

345    I prefer to express no view about these authorities nor about the application of the principles for which they stand in the present case. That is because it was common ground, both at first instance and on appeal, that SGB’s redundancy and secondment policies had contractual force, with the effect that this Court did not hear argument on the issues. It is accordingly unnecessary for the resolution of this appeal to address the matters bearing upon the incorporation or otherwise of an employer’s policies into a contract of employment.

346    Similarly, I prefer to reserve consideration of whether s 52 of the Trade Practices Act 1974 (Cth) and its counterpart in s 18 of the Australian Consumer Law provide a cause of action in circumstances like the present. It is not necessary to express a concluded view because the claims in this case, even if otherwise available, fail for the other reasons identified by Buchanan J.

347    Buchanan J has reviewed the authorities indicating divergent views on the question in this Court. Given that divergence, I would prefer to reserve to an occasion when it is necessary to do so consideration of the question of whether an employer’s statements made to a prospective employee in relation to contemplated employment, or to an existing employee with a view to retaining the services of that employee, may be “conduct which is … an aspect or element of activities or transactions which, of their nature, bear a trading or commercial character” (Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 at 603). I would not wish presently to preclude the possibility that an employer’s statements of those kinds may be characterised differently from statements made by an employer in the context of an existing employment relationship concerning the place, manner or circumstances of an employee’s work, which are generally thought not to have a commercial character. It may also be that misleading or deceptive statements to prospective or existing employees about future employment are analogous to misleading or deceptive statements to prospective or existing suppliers or goods or services about future supply arrangements. Conduct of the latter kind is commonly regarded as having a trading or commercial character.

348    Save for these matters, I respectfully agree with the reasons of Buchanan J and with the orders which he proposes.

Associate:

Dated:    14 March 2016